EXAMINATION : FINAL LEVEL

SUBJECT : ADVANCED TAXATION

CODE : C4

EXAMINATION DATE : FRIDAY, 7TH MAY, 2021

TIME ALLOWED : THREE HOURS (2:00 P.M. – 5:00 P.M.)

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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 THREE questions in Section B.

4. In total answer FOUR questions.

5. Marks are shown at the end of each question.

6. Show clearly all your workings in the respective answers where applicable.

7. Calculate your answers to the nearest one decimal point where necessary.

8. Applicable tax rates are provided in Appendices on page 9 of 9.

9. This question paper comprises 9 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1

(a) Mtinko Traders is a partnership of three sisters Maria, Recho and Salome which
commenced mixed business in year 2019. They agreed to share profit and losses
equally. During the month of November,2019 the accountant who was employed by
the partnership was fired due to misconduct at work.
They continued with the business for a period of time without an accountant. One of
the partner who has basic accounting knowledge, prepared the income statement for the
period ended 31st December, 2020 as follows:

Mtinko Traders
Income statement for the period ended 31st December, 2020
TZS. TZS.
Gross profit 13,900,000
Sale of machine 750,000
Interest on Salome (overdrawn capital) 210,000
14,860,000
Less: Expenses
Salaries and wages 4,300,000
Sundry expenses (7) 1,900,000
Office rent (1) 250,000
Medical expenses (2) 1,250,000
Accountancy fee 500,000
Donation – Uhuru walk (3) 625,000
Entertainment (4) 500,000
Salaries to Partners (5) 1,890,000

Interest on Capital
Recho 80,000
Maria 65,000
Salome 40,000 185,000

Interest on loan to partners

Recho 125,000
Maria 115,000 240,000
Depreciation 1,150,000
Net profit 2,070,000

Additional information:
1. The rent for office was paid to Recho’s brother.
2. Two thirds of medical expenses was in respect of partners and their families.

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 3. Donation was in respect to charity walk for Corona programme to a charitable
institution.
4. Entertainment include TZS.100,000 in respect of Maria’s son birthday.
5. Partners are paid equal salary.
6. Interest on partners was paid in July, 2020.
7. Sundry expenses include:
(i) Legal fee of TZS.150,000 for successful defending a traffic case where Maria
was involved while making delivery of goods.
(ii) Amount of TZS.2,000,000 paid in respect of testing and fixing a new
machine bought.
(iii) TZS.125,000 paid to a tax lawyer for successfully defending the firm in the
tax tribunal.
8. Non-current assets – building
(i) During the year they bought a building and land costing TZS.9,600,000
where land alone had a cost of TZS.1,850,000 the building was used for
manufacturing.
(ii) Other building had the cost of TZS.2,500,000 at the start of the year 2020.
During the year they did major repair of the building which costed
TZS.960,000. The building was used to store maize from their agriculture.
9. Non-current assets
(i) During the year they had seven tonne Isuzu Van costing TZS.25,000,000.
(ii) During the Toyota VX with cost of TZS.75,000,000 was bought. 2/3 of the
vehicle use was for the partnership business.
(iii) During the year had one heavy duty Yutong lorry used to carry goods costing
TZS.46,000,000.
(iv) New machine was bought in the year for TZS.5,500,000 from Uhuru Factory,
legal cost for the transaction was TZS.500,000 paid to a lawyer and testing
of the machine the costed TZS.750,000. At the beginning of the year the
machine account had a balance of TZS.2,000,000.
(v) Office furniture costing TZS.965,000 was bought at the start of the year.

REQUIRED:

(a) (i) Compute the adjusted partnership income. (20 marks)

(ii) Compute the taxable business income for each partner for the year of
income 2020. (10 marks)

(b) Give explanation how partnership income taxation differs from that of
corporation and sole proprietorship. (6 marks)

(c) Differentiate between “domestic permanent establishment” and “foreign

permanent establishment”. (4 marks)
(Total: 40 marks)

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 SECTION B
There are FIVE questions. Answer ANY THREE questions
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QUESTION 2

(a) Tax reforms can be undertaken to improve the efficiency of tax administration and to
maximize the economic and social benefits that can be achieved through the tax system.
The tax reforms can reduce tax evasion and avoidance, and allow for more efficient and
fair tax collection that can finance public goods and services. Reforms can make
revenue levels more sustainable and promote future independence from foreign aid and
natural resource revenues. They can improve economic growth and address issues of
inequality through redistribution and behaviour change.
REQUIRED:
Explain any five (5) changes made in Tanzania Income Tax Law as addressed by
Finance Act of 2020. (5 marks)
(b) Mama Moza is a business woman and is a VAT registered doing business at Morogoro
Municipal. In the month of November 2020, she had the following transactions
(amounts are VAT inclusive where applicable):
Sales of the month:
(i) Sugar bags total of TZS.2,100,000
(ii) Mosquito spray 50 pcs @ TZS.6,500
(iii) Toilet paper for TZS.890,000
(iv) Maize flour bags of 20 kg, 5 bags @ TZS.55,000
(v) Maize bran for TZS.1,040,000
(vi) Masks boxes, 20 boxes @ TZS.35,000
(vii) Bottled water 10 cartons each TZS.4,500
(viii) Oil seeds 7 bags each TZS.62,000
(ix) Rice bran for TZS.850,000
(x) Cooking oil the pack of 5L, 5 pcs each TZS.24,000
Also she has the following purchases:
(i) Rice bran for TZS.2,350,000
(ii) Cooking oil 5L, 20 pcs @ TZS.20,000
(iii) Oil seed 20 bags each TZS.60,000
(iv) Masks boxes a total of 50 boxes @ TZS.32,000
(v) Maize bran for TZS.2,150,000
(vi) Maize flour bags of 20 kgs, 20 bags @ TZS.48,000
(vii) Toilet paper for TZS.920,000
(viii) Mosquito spray 60 pcs @ 62,000
(ix) Sugar bags for TZS.3,000,000
(x) Electricity costing TZS.400,000
(xi) Wine from Dodoma 10 boxes @ TZS.130,600
(xii) Energy drinks from Nguvu Moja Industries for TZS.7,500,000

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 REQUIRED:

Compute the tax (VAT) to be paid to TRA. (12 marks)

(c) Give explanation on the conditions for claiming input tax on VAT. (3 marks)
(Total: 20 marks)

QUESTION 3

(a) The problem of tax avoidance and evasion is inherent in all tax systems. In fact, tax
avoidance and evasion are as old as the taxes themselves and the Tanzanian taxation
system is not an exception to the fact.

REQUIRED:

(i) Enumerate at least five (5) ways through which tax evasion and tax avoidance
are committed. (5 marks)
(ii) Briefly discuss the effects of tax evasion and tax avoidance in Tanzania.
(2 marks)
(iii) Briefly discuss measures taken by the government of the United Republic of
Tanzania to deal with the problems of tax evasion and tax avoidance. (5 marks)
(b) The following is relevant for the operation of Mwadui Ltd, operating in the upstream
petroleum sector for the year of income 2020 of assessment.

TZS.
Revenue 100,000,000
Cost 80,000,000
Profit 20,000,000

The following additional information forms part of the above:

(i) The revenue above includes financial gains from swaps of TZS.1,000,000. The
financial cost of TZS.1,200,000 was added to cost. The cost includes a
depreciation of TZS.200,000.
(ii) Research and development of TZS.100,000 incurred was added to the cost of
operations.
(iii) Revenue on 20,000 barrels of oil sold was added to revenue. It came to light
that the disputed price used on the 20,000 barrels was TZS.70 per barrel in its
tax returns. It has finally been agreed to put it at TZS.67 and this has been
certified by the Petroleum Unit of the Tanzania Revenue Authority.
(iv) Approved capital allowances by the Commissioner General were TZS.600,000

REQUIRED:

Compute tax payable and liability of Mwadui Ltd for the year of Income 2020.
(8 marks)
(Total: 20 marks)

QUESTION 4
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(a) Transfer pricing regulations and guidelines has been issued as per standard by which
the “arm’s length principle” enshrined in section 33 of the Income Tax Act, Cap 332
(the “Act”) should be applied to controlled transactions.

Despite issuing regulations on how the Transfer Pricing (TP) rules should be applied,
there are still challenges facing taxpayers in compliance and Tanzania Revenue
Authority on administering transfer pricing issues.

REQUIRED:
Discuss those challenges facing each party on transfer pricing issues. (10 marks)

(b) Section 11 of Tax Administration Act, Cap 438 empowers the Commissioner General
to give either private or class ruling depending on the request made by the taxpayer and
nature of the circumstances promoting such request.

REQUIRED:

Briefly explain the impact and limitation of Commissioner General’s ruling to a

charitable organization. (10 marks)
(Total: 20 marks)

QUESTION 5

(a) According to the Income Tax Act, Cap 332 a corporation is required to submit statement
of estimated tax payable on or before the end of March every year and in case the
accounting period is not the calendar year then on or before the end of the first quarter.
Assume that a company whose accounting period is a calendar year has submitted a
provisional return before 31st March 2020.
REQUIRED:
(i) Discuss the rights and obligations of such company for the year 2020 before 31st
December 2020. (4 marks)
st
(ii) Discuss the impact of such submission after 31 December 2020. (4 marks)
(iii) Will such submission affect VAT obligations? (2 marks)
(b) The figure below represents extracts from the books of Khan.com, a trader for the
period between January to June, 2020:
TZS.
Paid electricity bills 16,000,000
Purchased goods for resale 24,000,000
Sold goods (taxable supplies) worth 43,000,000
Exported goods worth 10,000,000
Sold exempt supplies worth 18,000,000

The Commissioner ordered this taxpayer to be registered for VAT while the trader is
not ready for such registration claiming that the sales was a one time and does not reflect
the uniform economic activity. He was advised to appeal but he is not familiar on
whether the matter is appealable.
REQUIRED:
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 Advise Khan.com on the options available regarding the Commissioner’s decision and
any other decision likely to affect the taxpayer. In your answer, show whether
appealing for the matter is an appropriate cause of action, clearly indicating matters
dealt with by the Tax Revenue Appeals Board (TRAB). (10 marks)
(Total: 20 marks)

QUESTION 6

(a) Maleko Co. Ltd is a company owned by Madiba family from South Africa, the company
operates business in Mtwara region, Southern part of Tanzania. The company has
number of investments in different companies both local and overseas. In Tanzania,
Madiba needs to know some issues about taxation, and has consulted you to advise him
on international tax planning.

REQUIRED:

Explain at least six international tax planning methods. (6 marks)

(b) Explain the meaning of transfer pricing and the methods allowed by transfer pricing
regulations. (4 marks)

(c) During the year 2020 Maleko Co. Ltd, had the following transactions:

(i) Maleko Co. Ltd resident corporation has distributed dividend to its
shareholders, including TZS.5,000,000 to Puma Co. Ltd.
(ii) Maleko Co. Ltd received dividend from Toyota registered in Tanzania
amounting TZS.1,835,000 where they own 28% of shares.
(iii) They received dividend from Sukari Company Ltd listed in Nairobi Stock
Exchange amounting to TZS.7,809,000.
(iv) Received dividend from Makusa Co. Ltd listed in Dubai Stock Exchange where
they own 55% of shares amounting to TZS.9,500,000.
(v) Received rent from their apartment situated at Durban South African
TZS.6,500,000.
(vi) Received divided from TBL Co. Ltd listed in Dar Es Salaam Stock Exchange
TZS.3,790,000.
(vii) Sold their land situated at Mtwara to Dangote Co. Ltd for TZS.67,500,000 the
land has a value of TZS.37,500,000 at the time of sale.
(viii) Received dividend from K & J Company a resident Company, amounting
TZS.7,650,000
(ix) Sold their house situated at Kilwa district at TZS.73,000,000. The house had
the cost of TZS.46,000,000 at the time of sale. The transaction cost was
TZS.2,980,000 which include legal and other government levies.
(x) Sold a house situated in Tanga at TZS.25,000,000. At the time of sale the house
had the cost amounting to TZS.20,000,000. However the transaction cost was

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 TZS.5,000,000 which included TZS.2,500,000 paid to local people who
searched for the buyer. The remaining TZS.2,500,000 was paid for legal
processes of the transfer.

REQUIRED:
Explain tax implication for each of above transaction then calculate investment
income if any for tax purposes. (10 marks)
(Total: 20 marks)

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Appendices
(2) 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 9% of the amount in excess of TZS.270,000
but does not exceed TZS.520,000
Where total income exceeds TZS.520,000 TZS.22,500 plus 20% of the amount in excess
but does not exceed TZS.760,000 of TZS.520,000
Where total income exceeds TZS.760,000 TZS.70,500 plus 25% of the amount in excess
but does not exceed TZS.1,000,000 of TZS.760,000
Where total income exceeds TZS.1,000,000 TZS.130,500/ plus 30% of the amount in
excess of TZS.1,000,000
(3) Applicable presumptive income tax rates:
Annual turnover Tax payable when Tax payable when section 80
section 80 is not is complied with
complied with
Where turnovers does not exceed NIL NIL
TZS.4,000,000
Where turnover exceeds TZS.4,000,000 but TZS.100,000 3% of the turnover in excess
does not exceed TZS.7,000,000 of TZS.4,000,000
Where turnover exceeds TZS.7,000,000 but TZS.250,000 TZS.90,000 + 3% of the
does not exceeds TZS.11,000,000 turnover in excess of
TZS.7,000,000
Where turnovers exceeds TZS.11,000,000 TZS.450,000 TZS.230,000 + 3% of the
but does not exceed TZS.14,000,000 turnover in excess of
TZS.11,000,000
Where turnover exceeds TZS.14,000,000 but Not applicable TZS.450,000 + 3.5% of the
does not exceed TZS.100,000,000 turnover in excess of
TZS.14,000,000
(4) 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
(5) Statutory rate to be used is 5%
(6) 1 currency point = TZS.15,000
(7) Standard rate of VAT = 18%
(8) Capital gain rates for resident is 10% and for non-resident is 20%.
(9) Unless otherwise specified, Corporate tax rate = 30%

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