EXAMINATION
:
INTERMEDIATE LEVEL
SUBJECT
:
PUBLIC FINANCE AND TAXATION
CODE
:
B4
EXAMINATION DATE :
TUESDAY, 2ND MAY, 2023
TIME ALLOWED
THREE HOURS (2:00 P.M. - 5:00 P.M.)
:
-----------------------------------------------------------------------------------------------------------GENERAL INSTRUCTIONS
1.
There are TWO Sections in this paper. Sections A and B which comprise a total of
SIX questions.
2.
Answer question ONE in Section A.
3.
Answer ANY FOUR questions in Section B.
4.
In total answer FIVE questions.
5.
Marks are shown at the end of each question.
6.
Calculate your answers to the nearest two decimal points where necessary.
7.
Show clearly all your workings in respective answers where applicable.
8.
Applicable tax rates are provided in Appendices Pg. 7.
9.
This question paper comprises 7 printed pages.
_________________
Questions &Answers May 2023
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---------------------------------------------------------------------------------------------------------SECTION A
Compulsory Question
---------------------------------------------------------------------------------------------------------QUESTION 1
(a)
Explain the concept of imported service in Value Added Tax (VAT) and who pays
the VAT on imported service.
(4 marks)
(b)
It is sometimes difficult to determine whether an activity carried out by a person
constitutes an employment or business.
REQUIRED:
State any six (6) main differences between employment and business.
(c)
(6 marks)
Ms. Ndalima has been employed by the Mlowo Manufacturing Company for the past
three years. The following amounts were credited to Ms. Ndalima payroll account for
the year ended 31st March 2023:
•
Annual salary of TZS.32,400,000 as per her employment contract.
•
Reimbursement of employment related travel costs as per receipts supplied by
Ms. Ndalima totaling TZS.3,400,000.
•
Reimbursement of TZS.880,000 in tuition fees for a work related short course
conducted at Ardhi University.
•
A TZS.1,280,000 dividend on Mlowo Manufacturing Company shares
acquired through the employee purchase program.
•
Fee of TZS.960,000 for serving as the employee’s representative on the
company’s board of directors.
From the preceding credits to Ms.Ndalima’s payroll account, the following amounts
were with-held by the company:
•
Income taxes TZS.5,138,400.
•
Premium on group medical insurance TZS.273,600.
•
Contributions to National Social Security Fund (NSSF) TZS.1,120,000.
With respect to the registered pension plan, the company also made a TZS.1,120,000
contribution to NSSF on behalf of Ms. Ndalima. In addition to the preceding, Ms.
Ndalima made the following payments during the year.
•
Surgery expenses TZS.1,000,000 (surgery expenses were not covered by her
medical insurance).
•
Donation to Yakwetu Sport Club TZS.220,000.
•
Costs of moving to a new constructed house TZS.2,240,000.
•
Tuition fees for women financial literacy seminar TZS.500,000.
•
Life insurance premiums TZS.680,000.
•
Cost of travel to and from place of employment (reimbursed) TZS.496,000.
REQUIRED:
Calculate Ms. Ndalima’s taxable employment income for the year ended 31st March
2023.
(10 marks)
(Total: 20 marks)
Questions &Answers May 2023
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--------------------------------------------------------------------------------------------------------SECTION B
There are FIVE questions. Answer ANY FOUR questions
---------------------------------------------------------------------------------------------------------QUESTION 2
(a) Presumptive methods of taxation are thought to be effective in reducing tax
avoidance as well as equalizing the distribution of the tax burden. This tax system
applies most to small traders, who operate mostly without keeping proper business
records.
REQUIRED:
State the four (4) conditions needed for taxpayer to qualify the presumptive tax
system.
(4 marks)
(b) Briefly evaluate the potential impact of altering tax rates in the United Republic of
Tanzania (URT) at a time of economic downturn.
(6 marks)
(c) Mr. Mambosasa bought a residential property in Mbeya for TZS.57,860,000 on 18th
August 2019, and incurred stamp duty of TZS.957,200 and legal fee of TZS.495,000.
Upon acquisition, he had spent TZS.6,000,000 on renovating the property to add on
an extended car porch.
In the year 2022, he was transferred to Unguja and wanted to sell the house. He
engaged a property agent who sold the property on 5th October 2022 for
TZS.104,000,000.
In doing so, they charged Mr. Mambosasa TZS.1,157,000 for valuation fees,
advertisement charges of TZS.231,400 and brokerage fees of TZS.1,388,600. In the
course of the disposal, a deposit of TZS.1,000,000 was forfeited.
Mr. Mambosasa had taken a loan to acquire the property and at the date of disposal
had incurred interest charges of TZS.1,884,000.
REQUIRED:
With reference to the Income Tax Act, Cap. 332, compute the chargeable capital gain
to Mr. Mambosasa on the disposal of the above residential property.
(10 marks)
(Total: 20 marks)
Questions &Answers May 2023
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QUESTION 3
(a)
One of the most arguments for justification of taxation is the financing required by
the government to finance provision of public goods and merit goods. Some argue
that provision of public goods is a weak justification for taxation, citing the following
quotation: “I don’t own a vehicle, so I won’t use the roads, I can always walk by the
roadside without using the road.”
“I can afford services of security company and protect my household and my
business premises; I therefore, don’t have to pay taxes for the purpose of financing
the security services such as police force or the national defence force”.
REQUIRED:
(i)
State the characteristics and examples of public goods.
(3 marks)
(ii)
State the characteristics and give two (2) examples of merit goods.
(2 marks)
(iii) Comment on validity or otherwise of each of the above quotations.
(5 marks)
(b)
Mwasakafyuka Shopping Centre Ltd is the Value Added Tax (VAT) registered trader
carried on the business of shop on cash/credit basis. The company’s Income
Statement for the month of March 2023 is as follows:
TZS.
Taxable goods
Exempted goods
Opening stock
Purchase for cash and credit
General goods
Periodicals
Closing stock
Gross profit
Expenditure
Advertising
Rent of premise
Sanitary pad
Other expenses (subject to V.A.T)
Profit for the month
TZS.
168,000,000
30,000,000
198,000,000
300,000,000
120,000,000
20,000,000
440,000,000
280,000,000
2,000,000
5,000,000
18,000,000
6,000,000
160,000,000
38,000,000
31,000,000
7,000,000
Note that: All figures under Income Statement are VAT exclusive.
REQUIRED:
According to VAT Act, Cap.148, compute output tax and deductible input taxes for
the month of March 2023 for Mwasakafyuka Shopping Centre Ltd.
(10 marks)
(Total: 20 marks)
Questions &Answers May 2023
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QUESTION 4
(a)
The calculation of customs and other related duties on importation of used motor
vehicles in Tanzania can be calculated using an online calculator developed by
Tanzania Revenue Authority. One of the features in this calculator is a predetermined customs value. Another feature is an inclusion of excise duty due to age
in the calculation.
REQUIRED:
(b)
(i)
Explain the justification of having predetermined customs value in the
calculator.
(3 marks)
(ii)
Justify the levying of excise duty due to age using taxation principles.
(3 marks)
The East African Community Customs Management Act 2004, imposes some
prohibitions and restrictions of goods from entry into the territories.
REQUIRED:
(i)
Distinguish between restrictions and prohibitions in this context, giving any
three (3) examples in each case.
(5 marks)
(ii)
Discuss any four (4) justifications for imposing restrictions and prohibitions.
(4 marks)
(iii)
Briefly explain how cumulating treatment is considered under EAC Rules of
Origin (rules) 2015.
(5 marks)
(Total: 20 marks)
QUESTION 5
(a)
While it is more than 25 years since its introduction, there is still an inherent
confusion on who is supposed to charge or pay Value Added Tax (VAT) to Tanzania
Revenue Authority (TRA) and Zanzibar Revenue Board (ZRB).
REQUIRED:
Being a tax consultant, elaborate who is supposed to charge or pay VAT to the
Kariakoo traders.
(5 marks)
(b)
Describe any two (2) operational activities necessary for effective collection and
payment of VAT in Tanzania.
(2 marks)
(c)
Registration for Value Added Tax (VAT) is mainly depending on the taxpayers
ability to meet the minimum threshold for registration. However, in some
circumstances, taxpayers will not be registered even if the turnover exceeds the
minimum threshold.
REQUIRED:
Identify any three (3) suppliers that shall be excluded when calculating the person’s
turnover for the purpose of registration.
(3 marks)
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(d)
While the volume of trade is increasing, there is still an outcry of less number of
registered Value Added Tax (VAT) traders. Recently, the government hold a
stakeholders meeting to identify the source and suggest the way to improve VAT
registration status.
REQUIRED:
Briefly give out four (4) and recommendations that will increase the number of
taxpayers registered for VAT.
(6 marks)
(e)
Section 41 of VAT Act, Cap. 148, empowers the Commissioner General, by notice,
to cancel the registration of a person who is no longer required to be registered for
Value Added Tax (VAT).
REQUIRED:
Discuss two (2) conditions that may compel the Commissioner General to deregister
the person from the VAT roll and two (2) impacts of such deregistration. (4 marks)
(Total: 20 Marks)
QUESTION 6
(a)
Mr. Pemba is a resident person carrying on business and investment activities. On 1st
April 2022, he filed his statement of estimated tax payable for the year ended 2022
indicated a total tax liability of TZS.70,000,000. On the same date, he paid his first
installment. No other taxes were paid by Mr. Pemba until 1st January 2023 where Mr.
Pemba filed a revised statement indicating a tax liability of TZS.100,000,000. Taxes
paid on this date were based on the revised estimates.
On 1st May 2023, he filed his final return for the year ended 31st December 2022
declaring a tax liability of TZS.120,000,000 and paid its final tax on the same date.
REQUIRED:
With reference to Tax Administration Act, Cap.438, compute:
(i)
Interest for under estimation, if any
(ii) Interest for late payment of tax, if any
(iii) Penalties for late filing of return, if any
(b)
(4 marks)
(8 marks)
(3 marks)
Despite the efforts made by the government to encourage tax compliance in Tanzania,
some taxpayers do not pay their taxes on time or when they are required by the
Tanzania Revenue Authority to do so. Tax Administration Act, Cap.438 contains some
provisions whereby the Commissioner is empowered to recover any unpaid tax by tax
payers.
REQUIRED:
With reference to Tax Administration Act, Cap.438, briefly explain any five (5)
methods of recovering unpaid tax.
(5 marks)
(Total: 20 marks)
Questions &Answers May 2023
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Appendices
(1) Applicable resident individual income tax rates:
Monthly income
Tax rate
Where total income does
NIL
not exceed TZS.270,000
Where total income exceeds TZS.270,000
8% of the amount in excess of TZS.270,000
but does not exceed TZS.520,000
Where total income exceeds TZS.520,000
TZS.20,000 plus 20% of the amount in excess of
but does not exceed TZS.760,000
TZS.520,000
Where total income exceeds TZS.760,000
TZS.68,000 plus 25% of the amount in excess of
but does not exceed TZS.1,000,000
TZS.760,000
Where total income exceeds TZS.1,000,000 TZS.128,000/ plus 30% of the amount in excess of
TZS.1,000,000
(2) Applicable presumptive income tax rates:
Annual turnover
Where turnovers does not exceed
TZS.4,000,000
Where turnover exceeds TZS.4,000,000 but
does not exceed TZS.7,000,000
Where turnover exceeds TZS.7,000,000 but
does not exceeds TZS.11,000,000
Tax payable when Tax payable when section 80
section 80 is not
is complied with
complied with
NIL
NIL
TZS.100,000
3% of the turnover in excess
of TZS.4,000,000
TZS.90,000 + 3% of the
turnover in excess of
TZS.7,000,000
TZS.250,000
Where turnover exceeds TZS.11,000,000 but
does not exceed TZS.100,000,000
3.5% of turnover
(3) Car benefit quantification table as per the 5th Schedule
QUANTITY OF PAYMENT PER YEAR
ENGINE SIZE OF VEHICLE Vehicle up to 5 years old Vehicle more than 5 years old
Not exceeding 1000cc
TZS.250,000
TZS.125,000
Above 1000cc but not exceeding
2000cc
TZS.500,000
TZS.250,000
Above 2000cc but not exceeding
3000cc
TZS.1,000,000
TZS.500,000
Above 3000cc
TZS.1,500,000
TZS.750,000
(4)
(5)
(6)
(7)
(8)
Statutory rate to be used is 5%
1 currency point = TZS.15,000
Standard rate of VAT = 18%
Capital gain rates for resident is 10% and for non-resident is 20%.
Unless otherwise specified, Corporate tax rate = 30%
___________▲____________
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