Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Review Questions
Question 1
(a) Mrs. Kinabo is a resident employee of NAFAKA Ltd, a resident corporation since 1 st January
2019 working at a position of senior accountant. The information relating to her employment
remuneration and other benefits during the year of income 2021 is as follows:
(i) Gross annual salary TZS.11,826,617. During the year, she contributed 5 per cent of this salary
to an approved pension fund. The employer contributed 15 per cent of the gross salary to the
same fund.
(ii) During February, she was provided with a brand-new car, whose engine capacity was 3000cc.
The car was used for both, private and employment purposes and the private use was
estimated at 25 per cent of the total mileage. Annual claimable deduction in relation to
maintenance and operation of the car was TZS.5,675,800. The employer claimed this
deduction during the year 2021.
(iii) During April, she was provided with fully furnished four rooms house. These rooms were
self-contained. One room was solely used as a library established by the employer for the
purpose of updating her profession. Another room was used for official purpose while at
home. Rent payable for similar house to this in the nearby area is TZS.200,000 per month.
She was required to contribute a nominal rent of TZS.20,000 per month to the employer.
Claimable annual deduction during the year in relation to the maintenance of this house was
TZS.3,600,000. The company’s entitlement to this claim for the year 2021 was, however, not
allowed by the Commissioner.
(iv) Employees of NAFAKA Ltd are entitled to interest free loans of TZS.15,000,000 since 2019.
Mrs. Kinabo secured the loan on 1st January 2021 and agreed to discharge the liability in 60
monthly installments based on average methods with effect from February 2021. By the time
this loan was advanced, her basic salary was fixed at TZS.500,000 per month and the annual
statutory borrowing/lending rate announced by the Bank of Tanzania was 12 per cent.
(v) The employer paid on her behalf, the remunerations for the warden and security services
offered to the house. In aggregate, this amounted to TZS.200,000 per month. Also on 31st
December 2021 employer settled the utility bill of TZS.1,600,000 for the house. This was an
outstanding bill for the whole year 2021.
(vi) During July 2021, the company also paid TZS.1,000,000 for her scholarship’s fees. This was
paid to the Open University of Tanganyika where she enrolled for Mastes degree on a part
time basis.
(vii) She was receiving monthly alimony allowance from her ex-husband worth TZS.100,000 to
support the children. The alimony allowance received by Mrs. Kinabo was not under any
judicial order nor written agreement, rather it was an informal agreement between the two
ex-spouses.
REQUIRED:
Determine the taxable income from employment for Mrs. Kinabo during the year 2021. Show
all your workings clearly.
(10 marks)
Question 2
Ms. Salamanda was employed for the first time by Mangi Company Limited, a private resident
company since 1st January, 2021. As a company’s Finance Manager, Ms. Salamanda was given a
range of responsibilities. She has been resident of the United Republic of Tanzania solely in the
years 2020 and 2021. Her duties are well balanced by a good package of remuneration which is
made up of the following:
Basic salary of Tshs. 2,800,000 per month and medical service insurance of Tshs. 90,000 per month
as per the company’s policy to its employees.
Mobility allowances for use when on duty trips within her duty station of Tshs. 250,000 per month
coupled with life insurance of Tshs. 150,000 each month paid directly by the company to the
Insurance Company. It is estimated that Ms. Salamanda is spending only 50% of the mobility
allowance for the performance of her official duties.
It is the policy of the company to pay all of its employee’s lunch allowances of Tshs. 12,000 each
per day for 22 days each month.
Travelling allowances for home-office-home trips of Tshs. 100,000 per month.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
The company pays school fees and uniforms for its employees as its contribution as per the
National Education Policy. Ms. Salamanda received Tshs. 500,000 which the employer ensured
that the sum is spent according to agreed terms.
A fully furnished residential quarter where the value of furniture itself amount to Tshs. 2,000,000.
The company normally recognizes Tshs. 120,000 per month as expense for the provision of the
house while the market rent of a house of the same status is Tshs. 150,000per month. The cost of
the house to the company was Tshs. 10million.
During 2021, Ms. Salamanda travelled to her home country, Mozambique, for an annual leave
where she provided consultancy for one month for the following remuneration: Consultancy fees
amounting to Tshs. 60,000per day for 20 days; Upkeep allowance of Tshs. 200,000 for the period
of consultancy and free accommodation with market value of Tshs. 150,000.
During her trip to Mozambique, the company paid Tshs. 450,000 for her return air ticket, since the
location of the company is Dar es Salaam.
Ms. Salamanda acquired a car at a cost of Tshs. 16,000,000 which was full used in the employment
duties.
Ms. Salamanda also received interest from her Banker on fixed deposit account, Tshs. 2,200,000.
Retirement contributions are made to the National Social Security Fund where the employer
contributes 10% and the employee 10% of the gross monthly salary.
REQUIRED
On the basis of the above information, compute Ms. Salamanda’s taxable income for the year of
income 2021 (assume today is 31st December 2021).
Question 3
Mr. Nyagawa is a Kenyan citizen, employed by the Masawe Management Training Institute
(MMTI) as a lecturer cum consultant in Management Information System, with effect from the
10th of February 2019. His expatriate terms of employment provided for :
Free transport
Fully furnished housing facilities
Free water, telephone and electricity for domestic use
A teaching allowance of 20% of his basic salary
A gratuity of shs. 7,600,000 payable to him at the end of two years‘ contract
A monthly inducement allowance of shs. 440,000
Additional information on his employment were as follows:
His salary was fixed at shs. 5,500,000 per month.
He was also lecturing on a part time basis at the Mkwakwani Wildlife College (MWC) for which
he was paid a honorarium of shs. 80,000 per hour.
During 2021, he taught a total of 20 hours. In addition ESAMI paid him a total of shs.56,000 for
costs of traveling from the MMTI, Masawe to MWC in Mweka and back.
The Institute car which was used by him was purchased for shs. 20,000,000 in 2019. its book value
as at 1/1/2021 was shs.16,000,000. it is estimated that one-fourth of the car‘s use was for official
purposes. Car running expenses for 2021 of shs.2,200,000 were fully met by the employer.
The MMTI, reimbursed him a total of shs. 1,500,000 on 16th January 2021, being refund of income
tax paid by him for the 2021 year of income.
On 15th March 2021, his first gratuity was paid to him. He however renewed the contract for an
additional two years.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Bills paid by the MMTI for MR. Nyagawa‘s house use were:
For water
shs.542,000
For telephone shs.132,500
For electricity
shs.141,000
It is agreed by the income tax assessor that 1/5 of the house was used as a study room, as he did
most of his paper work including the preparation of class lecture notes in this room. It is therefore
also agreed that 1/5 of the above bills related to the study room.
Medical expenses for the 2021 year of income of shs. 2,200,000 were paid by the MMTI. These were
for Mr. Nyagawa shs.1,400,000 and his wife, shs.800,000.
All Institutes ‘employees were paid on 16th July, 2021 a bonus of shs. 1,000,000 on account of
students ‘good performance in the 2021 examinations.
In addition to salaries the Institute pays:
Shs.16,000 per hour for lectures made in short courses and seminars organized at the Institute and
shs. 55,000 for papers presented during such courses and seminars. During 2021, Nyagawa
participated in the MIS seminar for “Chief Executives” where he presented two papers during a
four hours session.
Consulting fee was paid for consultancy work carried out by any consultant. During 2015, he was
paid shs.160,000 for consultancy work done by him during .
Before joining the MMTI, he was working with MWC where he had been employed under a 5
years term contract. His employment was terminated two years later on 31/12/2019. As at that
date, his monthly salary was fixed at shs. 1,500,000 and a compensation of shs. 32,000,000 was paid
to him on 20/11/2021 together with salary arrears of shs.3,600,000 for the 2018 year of income.
Required
Compute Mr.Nyagawa‘s income chargeable to tax for the year of income 2021.
Question 4
Mr. Bashite a resident person was employed by Noble Textile Ltd since 1 January 2018 as a fabric
consultant.
For the Year 2021, the following are the cash and benefits in kind that were made available to him:
Basic Salary Tshs 2,500,000/= per month
Lunch allowance Tshs.250,000/= per month
Medical allowance Tshs.150,000/=per month
He was provided with a house along Bambuu area whose rental market value was Tshs 750,000/=
per month. The company will be claiming rental expenditure to the Commissioner of Domestic
Revenue (TRA) to the Tune of Tshs 450,000/= per month.
The house has a security guard from Makirikiri Group Security whose monthly salary of Tshs.
150,000/= was paid by the company.
On 31/03/2021, the company’s house was declared not to be suitable and Mr.Bashite shifted to
live with his relatives in Kihesa and the Company paid him housing allowance of Tshs.500,000/=
per month.
Since the company is faced by shortage of cars, he was allowed to use a taxi services for
commutation to and from work. The taxi bill for the period he worked in 2021 was
Tshs.3,000,000/= and was fully met by the company before the year end.
He Lectures at Tumaini University, Iringa University college where he is employed on part time
basis and earns Tshs.60,000/= per hour. During the year the year 2021 he lectured 40 hours.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
The total water bill for 2021 was Tshs.550,000/=. Though it stood in the name of Mr.Bashite it was
fully paid by the company.
On 30/06/2021 Mr.Bashite employment contract was terminated. Accordingly therefore he
received Tshs.60,000,000/= as compensation on 10/07/2021.
A very big farewell party was held on 25/12/2021 by the company. During the party he was
presented with a cheque of Tshs.90,000,000/= being honorarium payment, for the good services
rendered to the company. In addition to that he was awarded a refrigerator worth Tshs.750,000/=.
His workmates also made an on spot collection of Tshs.2,000,000/= and handed the money to him.
When he left for home after the party a left over carton of scotch whisky worth Tshs.6,500,000/=
was also handed over to him.
Required: Calculate Mr.Bushoke’s chargeable income from employment for the year 2021 basing
on the above facts if:
(a) His employment contract is for 8 years (up to December 2021)
(b) His employment contract is for unspecified terms and provide for compensation.
(c) His employment contract is for unspecified terms and does not provide for compensation.
Question 5
Peter is employed by The Consultancy Ltd as a fashion designer. The following information is
available for the tax year 2021.
During the tax year 2021 Peter was paid a gross annual salary of Tshs. 62,000,000/= by The
Consultancy Ltd.
In addition to his salary, Peter received two bonus payments from The Consultancy Ltd during
the tax year 2021. The first bonus of Tshs. 2,444,300 was paid on 30 April, 2021 and was in respect
of the year ended 31 December, 2020. Peter became entitled to this first bonus on 10 April, 2021.
The second bonus of Tshs 2,333,600 was paid on 31 March 2021 and was in respect of the year
ended 31 December, 2021. Peter became entitled to this second bonus on 25 March, 2021.
Throughout the tax year 2021 The Consultancy Ltd provided Peter with a diesel powered motor
car which has a list price of Tshs 42,500,000/=. The motor car cost The Consultancy Ltd
Tshs31,200,000/=, and it has 2500cc and was first registered in Tanzania on 2 March, 2019. The
Consultancy also provided Peter with fuel for private journeys and does not claim capital
allowance for this vehicle.
The Consultancy Ltd has provided Peter with living accommodation since 1 January, 2019. The
company had purchased the property in 2021 for Tshs 16,000,000, and it was valued at Tshs
18,000,000/= on1 January, 2020. Improvements costing Tshs 2,013,000/= were made to the
property during June 2021. The annual value of the rental in that area is Tshs 3,600,000/=, and the
company claim Tshs1,000,000/= as capital and maintenance toward the house.
Throughout the tax year 2021 The Consultancy Ltd provided Peter with two mobile telephones.
The telephones had each cost Tshs 750,000/= when purchased by the company in January 2018
and 20% of telephone uses were private. It is the company’s policy to provide mobile telephones
to all employees.
On 5 January 2021 The Consultancy Ltd paid a health club membership fee of Tshs 810,000/= for
the benefit of Peter and all employees of the company were covered by the same program. This
covers medical benefits derived by members from the club.
During February 2021 Peter spent five nights overseas on company business. The Consultancy Ltd
paid Peter a daily allowance/per diem of Tshs 150,000/= to cover the cost of personal expenses
such as telephone calls to his family.
The company contributes 15% of basic salary to PPF on behalf of Peter and does not include in
taxable employment income.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Peter received a loan of Tshs 10,000,000/= during the year 2021 and is payable over three years.
The company charges 2% pa on gross loan while the current statutory rate was 12% pa.
Required:
(a)Calculate the income tax payable from employment income by Peter for the tax year 2021.
(b)Calculate the Employment income of Peter for the year 2021.
QUESTION 6: NBAA MAY 2015
Mr. Huwaan Chinese expert was employed by the Namwii Mining Corporation (NMC) a private
resident company on expatriate terms, to construct the Rungwe Coal Mine complex in Mbeya.
He came to the United Republic of Tanzania on 1st March 2021 and started to work with the
company on the following:
(i) He was being paid duty allowance of Tshs 1,300,000 per month and a salary f Tshs
6,600,000 per month.
(ii) For one month he was in China, he was working with the Government of China which
had paid him equivalent to Tshs 2,500,000 per month.
(iii) The firm provided him a (3000cc, of 2018) from the day he arrived in the United Republic.
This was wholly used for employment.
(iv) For the first two months of his stay in the United Republic he was accommodated in a
hotel. The firm paid a total of Tshs 2,500,00 for full board.
After then, he was provided with a fully furnished house. The firm has installed the furniture in
the house which belongs to the NPC limited which cost Tshs 6,000,000. NMC was paying a
monthly rent of Tshs 1,000,000 per months for the house to NPC and was deducting a token rent
of only Tshs 150,000 per month from Mr. Huwaan’s salary. Half of the house was used as an office,
and the company was entitled to claim repair and maintenance expenditure.
(v) According to the contract of employment, he had a right of going on leave once annually.
However, due to his important role in the project, the firm decided to pay him on
30.5.2021, Tshs 2,700,000 in consideration of him foregoing his 2021 annual leave.
(vi) On several occasions he had, on behalf of the company, to tender some consultancy
services to State Mining Corporation. As thus the employer company paid him a token
sum of Tshs 1,500,000 as appreciation for the services as he gave the firm a considerable
amount of revenue, in the form of consultancy fees from the State Mining Corporation.
(vii) Water bills for the year totaled Tshs 180,000 and were fully met by the employer. The bills
stood in the name of the employer. Electricity bills (which stood in the name of employee)
totaling Tshs 150,000 were also met by the company.
(viii) A night watchman earnings Tshs 480,000 was employed by the company for the house.
However he was only responsible for part of the house used for employment purpose. This
watchman was also provided with a house by the company.
(ix) When he came to the United Republic, he came with a number of equipment to be used in
his work had purchased them in China and the company reimbursed him a total of Tshs
1,900,000 for such equipment.
(x) The company paid the following annual membership fees for him:
Tshs 160,000 as membership fee to the Lion Hotel swimming pool
Tshs 350,00 as membership fee to Mining Experts Club
Tshs 310,000 to Officer mess
Tshs 400,000 to the Safari Club
Though he was working in Mbeya, he used to come to Dar es Salaam during the weekends. The firm was also paying for his trip to and from Mbeya in which Tshs 3,300,000 was
used for those trips.
(xi) On the basis his contract, the company provided him with free lunch which was worth
Tshs 30,000 each and three crates of beer for each month. He had taken only 30 lunches
for 2013. A crate of beer was purchased at Tshs 30,000.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
(xii) On one of the trips to DSM he toured Chui Textile Mill, where he was given
complimentary of 6 pieces of kitenge dressing materials each worth Tshs 15,000
(xiii) At the end of each year he was paid a gratuity of Tshs 3,500,000
REQUIRED:
From the above information, compute Mr. Huwaan taxable income for 2013 year of income.
(20 marks)
QUESTION 7: (NBAA MAY 2016 – B4)
(a) The Tanzanian new government has been tough on tax evasion as it struggle with
insufficient tax revenue collection. This effort has some progress as documented by
various newspapers and websites e.g. AllAfrica.com website in an article titles Tanzania
Magufuli Tax Evasion Crackdown Yields.
“The government’s new measure to curb tax evasion have helped the Tanzania Revenue
Authority collect over Tshs 1.3 trillion s less than two months. President John Pombe
Magufuli has cracked the whip on TRA and Dar es Salaam port senior officials who were
suspected of colluding with business people to import thousands of containers without
paying taxes”
REQUIRED:
(a) Describe four (4) procedures to recover unpaid tax as stipulated in the Income Tax Act (R.E
2021)
(b) Ms. Mzuri has been working for Arusha Co. Ltd since 2021. The following information are
available for the year ended 31st December 2021
Employment income and benefits
(i) Salary of TZS 48,000,000 per annum. In addition, Ms. Mzuri received a bonus of 10% of his
annual salary on 30th November 2021
(ii) Fringe benefits of TZS 10,000,000 being accommodation allowance of TZS 4,000,000,
presentation allowance of TZS 3,000,000, fuel allowance of TZS 1,000,000 and school fees
allowance of TZS 2,000,000 for his minor children.
(iii) The standard relocation allowance of TZS 250,000 when she was transferred to Dar es Salaam
in October 2021
(iv) Free use of car (2500 cc and 6 years since registration). The company was claiming
maintenance cost on this car.
(v) Use of another employer allocated vehicle with an engine capacity of 3,200cc for official
purpose.
(vi) Other benefits in the form of a gardener and a watchman that were both on the company’s
payroll at Tshs.300,000/= per month each during the period he occupied the premises.
(vii)
The company through cheque in the name of Ms. Mzuri paid for her personal domestic
electricity bills for the whole period she occupied the company’s premises during the year, in
total Tshs.280,400/=.
(viii)
She occupied a company house for four months only paying a nominal rent of
Tshs.20,000/= per month. The rental market value of the premises was established at
Tshs.600,000/= per annum
(ix) A loan of TZS 15,000,000 received from his employer on 1st August 2021 who charged her 12%
and the loan is payable after 3 years. The statutory rate for the year ended 31 st December 2021
was 18% per annum.
Deduction from Mzuri’s salary
(x) Pension contributions amounting to 10% of his salary
(xi) National Health Insurance contributions of 3% of his salary
Other Income
(xii) Business Income was TZS 62,000,000
The Tax brackets
(xiii)
Income Tax brackets
Total Income
Rates
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Where the total income does not exceed
3,240,000/=
Where the total income exceeds 3,240,000/= but
does not exceed Tshs.6,240,000/=
Where the total income exceeds 6,240,000/= but
does not exceed 9,120,000/=
Where the total income exceeds 9,120,000/= but
does not exceed 12,000,000/=
Where the total income exceeds 12,000,000/=
NIL
8% of the amount in excess of Tshs.
3,240,000/=
Tshs.240,000/= plus 20% of the amount in
excess of 6,240,000/=
Tshs. 816,000/= plus 25% of the amount in
excess of 9,120,000/=
Tshs.1,536,000/= plus 30% of the amount
in excess of 12,000,000/=
REQUIRED:
Calculate the taxable employment income and income tax payable by Joshua for the year ended
31st December 2021
(15 marks)
QUESTION 8: NBAA NOV 2015
(a) With the aid of concrete examples, explain the reasons for Government’s continued ownership
of enterprises in Tanzania.
(12 marks)
(b) Payments by the employer to the employee on termination for his/her employment are either
taxable or tax exempt.
REQUIRED
Under what circumstances are such termination payments tax exempt?
(8 marks)
QUESTION 9: (NBAA NOV 2021 – C4)
Ms. Jennifer Mkaguzi is a resident individual of the United Republic of Tanzania who is employed
by K-K (T) Ltd as a senior accountant. The following information relates to her for the year of
income ended 31st December, 2012
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
Received a basic salary of Tshs.3,000.000 per month. From October 1st, she received an
increment of Tshs.500.000.
Bought land in Kigali, Rwanda worth equivalent ofTshs.20.000,000.
Received Tshs.400,000 as rent from Ramadhani who occupies one of her resident at houses
situated at Kigoma.
Utilities per annum paid by her employer (water, telephone, electricity) (for her office) worth
Tshs.700,000.
Sold some of the shares of MANE LTD at a gain of Tshs.6,500,000. She owns more than 25%
of the MANE LTD.
She contributes to an unapproved retirement fund (annually) of' Tshs 1,200,000.
Gains received from a retirement payment made by an unapproved retirement fund of
Tshs.45,000,000.
Her brother is an employee who offers intramural private services to patients in a public
hospital gave her Tshs.2,000,000 as an extra transport allowance.
Sold the land she had bought in Kigali, Rwanda at equivalent of Tshs.25,000,000.
Received medical allowance ofTshs.200,000 per month from K-K (T) Ltd.
She had transferred a land located at Kibaha in Tanzania to her daughter. It had a market
value of Tshs.55,000,000 at the time of transfer. She bought this land two years ago for
Tshs.20,000,000 and she was using it for agricultural purposes. Before realization, the
net cost of the land was Tshs.70,000,000.
K-K (T) Ltd paid for annual school fees for her part-time diploma in accounting at Open
University Tshs. 1,500,000.
Her business income produced a profit of Tshs.19,500,000. However, the following
adjustments relating to depreciation allowance had not been considered:
Acquisition of machinery worth Tshs.5,000,000 and fixed in a factory.
Acquisition of a second machinery used to provide services to some tourists for business
purposes and fixed in a factory worth Tshs. 7,500.000.
Balance of depreciable assets brought forward
Balance b/d
Class I
Class III
Class V
21000000
900000
34000000
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Note: Depreciation expenditure from the Profit and Loss Account was Tshs.5,600,000.
For business purposes, Ms. Jennifer's
December, 2012):
•
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•
•
•
year of income had 18 months (i.e. from July, 2011 to
She was being paid a transport allowance ofTshs.1,200,000 per annum.
Her former husband transferred to her one house worth Tshs.25,000,000
Received house allowance from her employer of Tshs.300,000 per month from 1st April, 2012
to 30th November, 2012.
Assume: K-K (T) LTD is an institution whose 15% of his annual budget comes from the government
of URT.
Under the income tax laws of Rwanda, capital gains are taxed at the rate 5%
REQUIRED:
a) Calculate Ms. Jennifer's taxable income from different categories of income as per the
requirements of the (TA, 2004.
(12 marks)
b) Calculate her total and net tax liability for the year of income ended on December 31st,
using the provisions of section 77 and the First Schedule of the ITA, 2004.
(8 marks) (Total : 20 marks)
QUESTION 10: (NBAA MAY 2016 – C4)
Professor Malisa is a Professor of Accounting and Marketing and head of the Research and
Publication Committee of the School of Business of CIAT University since January 2020. The
University has a housing scheme, under which it provides accommodation to its staffs who then
suffer an 8% deduction on their salaries as rent. The following information is also available:
(a) Professor Malisa was employed under expatriate terms which provided for among other
things a salary of TZS. 12,000,000 per month, but was increased at the rate of 5% after
every four months. He is given a free house, the market rental for this house is estimated
at TZS 400,000 per month. The total bills of this house for the year 2021 (electricity,
telephone and water) was TZS 2,500,000
(b) He was appointed by the Centre for the promotion of exports from developing countries
to carry out a market survey in Tanzania on the market for developed countries and
products for exports to Europe. He was being paid the full costs of the study and an
additional fee of TZS 35,000,000.
This study was carried out during the months of
March and April 2021
(c) On a part time basis, he was offering consultancy services to Morogoro business and
Management Consultants firm. For this, he was being paid TZS 380,000 per hour. During
2021 he spent 60 hours with the firm
(d) His marriage anniversary coincided with Eid day in July 2021. During the 2021 Eid
celebrations, the University awarded him anniversary present worth TZS 2,920,000.
In addition, another present was given to him by his fellow workers. This was valued at
TZS. 2,840.000.
(e) He was required to appear in the quarterly meetings of the University Senate. The
University paid him 10% of his salary for attendance of each of such meetings. During
2021, he attended all such meetings held while he was still in employment.
(f) A distribution of surplus made from short courses of a consultancy carried out at the
University during 2021 was made in May 2021 to all the workers. Professor Malisa
received TZS. 16,000,000 from this distribution during 2021
(g) He was provided with a car (2500cc) which was wholly used for domestic purposes by
his wife. This car was purchased by the University for TZS.40,000,000 in year 2018.
(h) As part of the contract of employment, the employer was required to contribute an
amount equivalent to 15% of his salary per month to a private pension scheme
established in INDIA. The scheme was not approved by the Commissioner.
This was paid by the university for the months from June to December, 2021 only.
(i) He received interest from the CBN Bank based in India of TZS. 5,000,000 and a dividend
from a local company of TZS 3,500,000. No withholding tax was deducted at source.
(j) Upon completion of his contract, the University met the expenses of TZS. 2.4 million for
transporting him and his belongings back home to India.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
REQUIRED:
Calculate the employment income, business income, investment income and total taxable
income of Professor Malisa for the year of income 2021.
QUESTION 11: (NBAA NOVEMBER 2012)
Shibuda (45 years old) is in full time employment with Almasi Mining Corporation (AMC), a
resident corporation for the past 10 years. The following information is made available in respect
of year of income 2020.
(i) Basic salary, Tshs. 1.200,000 per month (reviewed semi-annually)
(ii) Reimbursement of expenses incurred by Shibuda in respect of drilling equipment purchased
by him from China, Tshs 12 million. Which is solely used for the purpose of mining by the
corporation.
(iii) Medical bills reimbursement Tsbs.400,000 (out of which Tshs.120.000
is in respect of
treatment under National Health Insurance Scheme in a Government hospital).
(iv) Reimbursement of medical claim insurance premium (from the National Insurance
Company) on the life of Shibuda's sister who is not dependent upon Shibuda, Tshs.355,000.
(v) Mr. Shibuda was contributing to a number of retirement schemes. For the months of July to
December 2020, retirement contribution to a non-resident unapproved fund was Tshs, 720,000.
In October 20 I 0, he received retirement payment Tshs.366,719 from a resident unapproved
retirement fund in respect of his contribution while in his previous employment before
joining AMC.
(vi) As part of staff development scheme, he is attending a part time training in geology which
is offered by Yenze Institute of Geology, based in China, For this purpose, he is offered an
education grant of Tshs. 10 million to cover tuition fee, return air tickets, accommodation and
other related costs for the programme during the academic year 2020.
(vii) While on duty, he is allowed to freely use corporation’s car, a Land Cruiser VX, bought two
years ago (cc 4500) at a cost of Tshs.60 million. While on private trips, he is allowed to use
the car, provided that running expenses including fuel, repairs and maintenance related to
the use are fully met by him. These expenses were estimated to be Tshs.2,163,000 for the year
2020.
(viii) In July 2020, in addition to reviewed salary ofTshs.1,800.000 per month, he received
Tshs. 22,800,000 as salary arrears for the past three years of income as follows: Year 2009:
Tshs.13,200,000; year 2005: Tshs.6,000,000; and year 2003; Tshs.3,600,000.
(ix) He was provided with rent free non furnished house from January 2020. In April, 2020
AMC incurred the following expenses in respect of the house:
- Cost of furniture Tshs, l3,000,000;
- Repairs (painting and partitioning) of the house Tshs.3,150,000;
- Rent of air conditioning system Tshs.50,000 per month;
- Utility bills Tshs.45,000 per month;
- Security, attendants and gardener total salary (in the corporation's payroll), Tshs.180,000
per month.
(x) On 31st July 2020, he received Tshs. 5,000,000 as gratuiry in respect of his earlier service
in a private company before joining AMC.
(xi) As part of employment benefits, he was given free lunch in office for the first six months. For
this period, he was served 120 such lunches, each Tshs.5.000 and the total amount was paid
directly to the corporation's canteen. For the rest of the period, he was given a lunch
allowance of Tshs, 100,000 per month.
(xii) His annual leave is scheduled on December each year. Leave allowance for the year of income
2020 covers Shibuda, his wife and his two brothers who are his dependents. Each of these
persons was paid Tshs.37,500 for this purpose. Bus fare (return), Tshs.225,000 in total was
paid directly to the Transport Company by the employer.
(xiii)
Shibuda earned a total of Tshs.2,305,000 during the year of income 2020 from his
part time consultancy work in the Small Miners Association (SMA), a privately owned
association from which income tax of Tshs.424.000 has been deducted under PAYE.
Additional information
(i) Shibuda has tax adjusted trading profits of Tshs.5,712,000 for the year ended 31 st December
2020 from his self-employment undertaking. These figures are, however, before taking
account of depreciation allowance. The written down value for depreciation allowance
purposes at 1st January 2020 is Tshs.1,235,176 (available depreciable assets are all pooled
under class I).
(ii) On 1st July 2020, Shibuda purchased some new computers to be used in his business
for Tshs.4,200,000 and disposed off some old computers for Tshs.2,100,000, which
originally had a value ofTshs.3,500,000.
(iii) During 2020, Shibuda received dividends of Tshs 123,000 (net) from shares he invested many
years ago.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
(iv) Shibuda's payments on account of income tax in respect of 2020 totaled Tsbs.2,000,000.
This was provisionally deducted in his books of account.
REQUIRE
(a) Compute Mr. Shibuda's income from employment assuming that AMC is a public entity
which is wholly financed by the Government budget.
(15
marks)
(b) On the basis of this information, compute his total taxable income for the year of income 2020
QUESTION 12: (NBAA NOVEMBER 2010)
(a) The Income Tax Act, 2004 (R.E. 2020) distinguishes between employment income, business
income and investment income. With examples, explain why this distinction is important. (4
marks)
(b) In reference to section 9 (3) of the Income Tax Act 2004 (R.E. 2020) state the amounts that are
excluded in calculating a person's gains and profits from conducting an investment. (4
marks)
(c) Mr. Zabron is employed on a salary of Tshs. 52,000,000 per annum. Mr Zabron also runs a
part-time business whose gross profit for the year ended 31st December 2021 was
Tshs.134,800,000. Mr Zabron's other income for the year 2021 was as follows:
Tshs.
Dividends from Dar es Salaam Stock Exchange (DSE) listed company 2,020,000
Dividends from an unlisted company
5,020,000
Rent from his residential premises let to ABC Company
4,600,000
Interest from debenture
5,400,000
Royalty from Masoka Limited
4,250,000
In respect of his employment, Mr. Zabron also enjoys the following benefits
(i) Utilities (water, electricity and telephone) Tshs. 450,000 per month
(ii) Life insurance payable by company Tshs.150,000 per month
(iii) Lunch allowance Tshs.84,000 per month
(iv) Medical services to insurance of Tshs.45,000 per month available to all staff as per the
company’s staff regulations
(v) A fully furnished residential quarter for which Mr. Zabron pays no interest, but the company
claims a deduction of Tshs. 100,000 per month. The market rent of the house in the area is
Tshs.200,000 per month, while the cost of the house to the company was Tshs.18,000,000
His business expenses for the year were as follows:
Tshs.
(i) Administrative expenses (including bad debts of Tshs.6,500,000, Income
Tax of Tshs.800,000 and wages and salaries of Tshs.28,000,000)
45,000,000
(ii) Traffic fine
(iii) Donations to political allies' election preparations (Note l)
19,000,000
(iv) Donations to charitable organizations
4,500,000
40,000
Note:
The political donations were made within the provisions of the Election Expenses Appropriations
Act, 2010.
REQUIRED:
Calculate Mr. Zabron's total income
showing clearly the distinction between investment
income, employment income and business income. (12 marks) (Total = 20 marks)
QUESTION 13: (NBAA NOVEMBER 2016 – B4)
(a) Is there a possibility for an employee to have more than one employer? With reference to the
relevant tax laws, provide clarification in respect of your answer.
(4 marks)
(b) Mr. Melina is a manager of Ishumwe Company Ltd since 2017. He has been provided with a
motor vehicle, 2020 registered Nissan Murano 4500 cc which is used 50% privately. His basic
salary was TZS.3.000, 000 per month. The company has other motor vehicles in addition to this
one which are all maintained by the company. He is allowed a 28 days leave per year. The total
number of holidays for the year 2021 is 14 days all falling during the working days. He is
residing in a company house and the rental market value is TZS.400, 000 per month. The
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
company claimed the expenditure for maintenance of the house in 2021 amounting to TZS.
7,400,000.
He was constructing a residential premise for his last born daughter Alice in June 2013, he
obtained a loan from the company amounted to TZS. 140,000,000 where he was to pay an
interest of 10% and the payment period was to commence in June 2021 at the rate of TZS.
2,500,000 per month. He also obtained a loan from KCBL Bank of TZS. 60,000,000 and he was
required to start payment in 2021 and the interest of 18% reducing balance was to be paid for
the terms of the loan which was 15 years.
During the year 2021, in addition to his basic salary, he has been provided with the following:
• Housekeeping allowance of TZS. 600, 000 per month
• A medical allowance of 15% of his basic salary
• Airtime for mobile phone of TZS. 500,000 per month
• Fuel allowance of TZS. 400,000 per month
• Free meals are provided on a discriminatory basis where the company pays TZS. 15,000 per
working day to the Managers and Directors of the company. The rest of the staff are paid
TZS. 12,000 per working day.
Melina has a residential house at Masaki, Dar es Salaam which is rented to CIAT Co. Ltd at
TZS. 4,800,000 per month. He also owns a male garments shopping centre at Mikocheni A
in Dar es Salaam where he earned business income of TZS. 36,000,000 during the year 2021.
REQUIRED:
Assume the statutory discount rate is 20%, with reference to Income Tax Act, Cap 332, determine
the following:
i) Total taxable income derived by Melina during the year of income 2015.
ii) Total tax that was paid by Melina during the year of income 2015 (assume where the total
income exceed TZS.8,640,000 apply TZS. 1,222,800 plus 30% of the amount in excess of
TZS.8,640.000).
QUESTION 14: (NBAA MAY 2017 – B4)
(a) Sekunda is an employee of Makasa Plc since the company’s registration way back in 2010. The
company was originally a parastatal organization and was later privatized in early 2015. Both
the company and Sekunda were resident persons for the year of income 2020. During the year
of income 2020, Sekunda enjoyed the following emoluments:
i. Monthly Salary [net of social security deduction] of TZS. 2,400,000 for the months January to
June and TZS. 3,400,000 from July to December. The new salaries announced in July were not
paid immediately. The company continued paying old salaries to November, and the
December salary [paid on 28th December] was paid together with the arrears for the increment
from July to November.
ii. During the May Day of 2020, the company declared Sekunda as the best worker of the year
2015 [previous year]. Apart from certificate and testimonials from the company, he was
awarded a TZS. 2,600,000 cheque by the workers’ Association. This was paid on the same day
i.e. l May 2020.
iii. Owing to the fact that he lived far from office, Sekunda was given company car to facilitate
his movements. The car was a 2,800 cc Nissan” — Murano. The car cost the company TZS.
38,000,000 when it was imported in 2016 and is considered to be currently worth TZS.
23,000,000 in the market. The tax written down value of this vehicle in the company records is
currently TZS. 14,394,531.
iv. During the year, the company organized a sports bonanza for the company staff and their
families. Sekunda emerged the best in sack race and was awarded two crates of his favorite
soda costing TZS. 9,000 from the company refreshments center. He had an option of
converting the gift into cash or other drinks of equivalent value as the company could always
use the drinks in future. However, he decided to offer the drinks to a family of his office mate
Linda, for their wedding anniversary celebration on the same day.
v. Sekunda had a 10% loan taken on 1 July 2018, amounting to TZS. 72 million from the company
to start a side business. According to the company policy, she was supposed to repay the loan
after 1 years (from July 2019), making monthly accumulations of TZS 2,000,000 from the
business for this purposes. The interest is payable every 3 1st December and 30th June during
the loan term.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
vi. Sekunda has a part-time job with Mapenzi Enterprises which knowing that they are his
secondary employers, pays him on an hourly rate of TZS.20, 000. During 2020, Sekunda
recorded a total of 120 man hours with Mapenzi.
vii. Other benefits enjoyed by Sekunda during the year are:
• Medical insurance for him and his family [spouse and two children] costing the company
TZS. 400,000 per month. Actual hospital bill for Sekunda during the year was only TZS.
1,500,000 billed to the insurer.
• Meal allowance of TZS. 15,000 per working day, assuming a flat 22 working days per
calendar month, excluding one (01) month of annual leave. This was non-discriminatory as
it was paid to all employees
REQUIRED:
i. Calculate the taxable employment income of Sekunda for the year of income 2020. (9 marks)
ii. Calculate the income tax suffered by Sekunda on the income calculated in above. (3 marks)
(b) Mr. Kola has been contracted by Momba and Bomba Tanzania Ltd (M&B TLD) from 2018 as
Petrochemical Engineer for unspecified term and his contract did not provide provision for
compensation upon the event of termination. Following the economic distress in petroleum
industry and persistent decline in prices for petroleum products, Mr. Kayemo’s contract was
terminated during the end of 2021 and he was offered 140,000,000 instantly on 31st December
2021 as a termination compensation after threatening to sue the company. During the year of
income 2021, his annual emoluments amounted to TZS. 38,000,000 and it was expected to
remain steady for the next 5 years.
REQUIRED:
Compute taxable employment benefit and state when the amount will be taxable. (4 marks)
QUESTION 15: (NBAA November 2018 – C4)
(a) Analyze the main features which distinguish the concept of ‘ permanent establishment’ from
a ‘ permanent home’
(2 marks)
(b) Mrs Twaweza is a resident employee of WAZAWA Investment Limited Company
(WAZAWA), working as a Consultant and Technical Engineer under a fixed employment
contract of five years effective from 1st January 2019. WAZAWA is a resident company with
several business lines of which one is dealing with mining activities, for which Mrs Twaweza
is solely employed.
The company has a housing scheme, under which it provides accommodation to all employees
who then suffer an 8 percent deduction on their salaries as rent contribution. She was,
however, employed under a differential scheme arrangement which provided for among
other things a free house.
During the year 2021, she was entitled to monthly salary of TZS. 15,000,000; monthly duty
allowance, TZS. 500,000; entertainment allowance, TZS 1,000,000 per month, which she was
required to account; and TZS. 300,000 per month to meet travelling expenses. She was,
however, not required to account for the travelling expenses.
1.
2.
As part of the contract, she was also provided with the following benefits:
A residential house for which she was required to pay a taken rent amounting to TZS. 100,000
per month in respect of the part occupied. It is a modern 4-rooms house, in which one room is
used to keep various equipments used in her employment. These equipments were bought by
the employer to assist her perform the duties defiantly. Landlords in the nearby area charge
similar houses a monthly rent of TZS. 600,000. Company was claiming a monthly deduction
of TZS.300,000 in respect of the house.
During the first two years and three months of her employment, that is, until 31st March 2017
she was accommodated in a hotel. The employer paid all accommodation costs directly to the
hotel during this period, including meals TZS. 20,000,000 and TZS. 30,000,000 as
accommodation. This was a lump sum amount.
Security and housemaid services and utility charges amounting in aggregate to TZS. 3,000,000
per month were met by the employer.
Public Finance and Taxation
3.
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
Free use of company’s motor vehicle. This was a Toyota Land cruiser (3000cc) newly
purchased for her. She was using this car while on duty only. Employer was claiming
expenditure amounting to TZS. 1,500,000 per month in respect of the car.
4.
The company has a loan policy which entitles all employees who have successfully passed 12
months’ probation period a loan of up to TZS. 120,000,000 at a subsidized 4 percent annual
interest rate. Mrs Twaweza secured the full amount loan on 1st January 2021 and agreed to pay
it in 24 monthly installments. Using average method, starting 31 st January 2021. The statutory
rate has been stable at 5 percent per month since 2020.
5. She was contributing a 5 percent to an unapproved retirement fund, and another 5 percent to
an approved retirement benefit fund.
The employer made the following contributions on behalf of Mrs Twaweza:
6. 10 percent of her monthly basic salary as a contribution to a private unproved retirement
benefit scheme. This was the same scheme in which the employee was making her first
package of contribution in (5) above.
7. 5 percent of her monthly basic salary as a contribution to a private unproved retirement
benefit scheme. This was the same scheme in which the employee was making her first
package
8. 3 percent of her monthly basic salary to cover life insurance policy for her husband, five
children and herself to an insurance company.
9.
Following her aggressive involvement in political movement during the year 2021, her
contract was terminated effective from 1st January 2022 as this was against company’s
ideology. As a result of this termination, she was paid a lump sum compensation of TZS.
130,000,000.
Other information
Mrs Twaweza has reported unadjusted trading profits of TZS. 60,000,000 from her grocery
and kuku projects for the year ended 31st December 2021.
10. During the year 2021 she received dividends of TZS. 1,500,000 from shares invested in a
nonresident corporation many years ago. Also she received accumulated rent of TZS. 8,
000,000 from one of her tenant in her residential premises situated in the nearby area. This
rent was outstanding in respect of eight months of the year 2020, and it was reported as
income from trading activity. During the same year 2021 she received TZS. 2,500,000 as
interest form the money deposited in a private foreign bank. This interest from the money
deposited in private foreign bank. This interest was computed on the basic of bank balance
of TZS 125,000,000.
11. During2021, she received service fees amounting to TZS 10,000,000 in respect of technical
advices provided to a neighboring mining company. This income is included in her profits
from the business activities.
12. Provisional assessment on the income tax payable for the year 2021 on her grocery and kuku
businesses estimated a quarterly installment of TZS 1,200,000. This was previously deducted
from the books when computing reported trading profit.
13. On 30th June 2021 she received TZS. 5,300,000 from an interest in an unapproved retirement
fund. This was only a part of her 5 percent monthly contribution made to the fund.
REQUIRED
On the basis of the above information and guided by the relevant provision in the Income Tax Act,
calculate for the year of income 2021.
(i) Total taxable income from employment
(12 marks)
(ii) Taxable compensation and the years of assessment
(2 marks)
(iii) Total chargeable income
(4 marks) (Total: 20 marks)
QUESTION 16: (NBAA November 2018 – C4)
Mrs. Kinabo is a resident employee of NAFAKA Ltd, a resident corporation since 1 st January 2019
working at a position of senior accountant. The information relating to her employment
remuneration and other benefits during the year of income 2021 is as follows:
(i) Gross annual salary TZS.11,826,617. During the year, she contributed 5 per cent of this salary
to an approved pension fund. The employer contributed 15 per cent of the gross salary to the
same fund.
Public Finance and Taxation
TOPIC 5: DETERMINATION OF EMPLOYMENT INCOME
(ii) During February, she was provided with a brand new car, whose engine capacity was 3000cc.
The car was used for both, private and employment purposes and the private use was
estimated at 25 per cent of the total mileage. Annual claimable deduction in relation to
maintenance and operation of the car was TZS.5,675,800. The employer claimed this
deduction during the year 2021.
(iii) During April, she was provided with fully furnished four rooms house. These rooms were
self-contained. One room was solely used as a library established by the employer for the
purpose of updating her profession. Another room was used for official purpose while at
home. Rent payable for similar house to this in the nearby area is TZS.200,000 per month. She
was required to contribute a nominal rent of TZS.20,000 per month to the employer. Claimable
annual deduction during the year in relation to the maintenance of this house was
TZS.3,600,000. The company’s entitlement to this claim for the year 2021 was, however, not
allowed by the Commissioner.
(iv) Employees of NAFAKA Ltd are entitled to interest free loans of TZS.15,000,000 since 2012.
Mrs. Kinabo secured the loan on 1st January 2021 and agreed to discharge the liability in 60
monthly installments based on average methods with effect from February 2021. By the time
this loan was advanced, her basic salary was fixed at TZS.500,000 per month and the annual
statutory borrowing/lending rate announced by the Bank of Tanzania was 12 per cent.
(v) The employer paid on her behalf, the remunerations for the warden and security services
offered to the house. In aggregate, this amounted to TZS.200,000 per month. Also on 31 st
December 2021 employer settled the utility bill of TZS.1,600,000 for the house. This was an
outstanding bill for the whole year 2021.
(vi) During July 2021, the company also paid TZS.1,000,000 for her scholarship’s fees. This was
paid to the Open University of Tanganyika where she enrolled for Mastes degree on a part
time basis.
(vii)
She was receiving monthly alimony allowance from her ex-husband worth TZS.100,000 to
support the children. The alimony allowance received by Mrs. Kinabo was not under any
judicial order nor written agreement, rather it was an informal agreement between the two exspouses.
REQUIRED:
Determine the taxable income from employment for Mrs. Kinabo during the year 2021. Show
all your workings clearly.
(10 marks
Advanced Taxation
TOPIC 5: EMPLOYMENT INCOME
Azizi Abdul Munisi: MIB, B.com Acc (Hons), CPA (T): Phone no: 0756187940/0714818101
Website: www.covenantfinco.com
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