EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : PUBLIC FINANCE AND TAXATION

CODE : B4

EXAMINATION DATE : TUESDAY, 29TH OCTOBER, 2019

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

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GENERAL INSTRUCTIONS

3. 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 on page 11 of 11.

9. This question paper comprises 11 printed pages.

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Intermediate Level, November 2019 29

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SECTION A
Compulsory Question
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QUESTION 1
(a) ITEZI Enterprise is a resident non-incorporated business dealing with
manufacturing and sale of outdoor decorations. For the year of income 2018,
during which the Enterprise had a turnover of TZS.850,000,000 including a profit
on sale of machine of TZS.30,000,000.
The following information is available:
Details Notes TZS. “000”
Sundry expenses 1 20,000
Board members meeting allowances 100,000
Acquisition of assets 2 265,000
Contractual penalties 3 20,000
Insurance 30,000
Dividends 4 8,000
Interest expenses 5 50,000
Depreciation 6 100,000
Directors vacation 88,000
Rent and rates 200,000
Travelling expenses 32,000
Legal and professional fees 7 30,000
Provisions 8 36,000
Interest received 17,000
Salaries 200,000
Contributions to approved pension funds 9 10,000
Donations and subscriptions 10 62,000
Unrelieved losses for 2017 50,000

Additional Notes:
1. Sundry expenses include road traffic fine of TZS.4,000,000
2. Acquisition of depreciable assets during the year were as follows:
TZS. “000”
Toyota pick up 13,750
Toyota land cruiser 17,500
Toyota range rover 15,000
Bus carrying 35 employees 40,000

30 Intermediate Level, November 2019

 All these assets were used in the business during the year. The Tax written down
value as at 31st December 2017 after pooling assets based on the Income Tax, Cap
332 is as follows:
Class I II III IV
Tax written down value 25,000,000 61,500,000 30,000,000 40,000,000
(TZS)

3. The amount was received as a result of a business contract which the other
party breached it.

4. Dividend was received from Chato Milling Company where ITEZI

Enterprise owns 24.9% of total issued share capital.

5. Interest expenses comprise interest of TZS.15,000,000, paid on bank

overdraft, finance charge of TZS.20,000,000 on deferred payment
agreements and interest of TZS.15,000,000 on failure to pay previous taxes
on time.

6. The figure of depreciation was computed based on International Financial

Reporting Standard (IFRS) for accounting purposes.

7. Legal and professional fees include:

Details TZS.
Audit fees 5,000,000
Legal fees for employee contract 5,000,000
Purchase of mobile phones for tender board members to 20,000,000
facilitate winning of tender

8. Provisions includes provision for bad debt TZS.8,000,000, provision for

stock damages TZS.10,000,000 and provision for repairs TZS.18,000,000.

9. Contributions to approved pension fund comprised of employees

contribution and employers’ contributions of equal amount.
10. The donation and subscriptions include:

Details TZS.
Subscription to the trade association 17,000,000
Donations to Grace children’s centre (Registered charity) 20,000,000
Donation to a creative craftsman who won the Dar es Salaam arts 25,000,000
award during 2017

REQUIRED:
Calculate the ITEZI Enterprise income from business for the year of income 2018.
(15 marks)

Intermediate Level, November 2019 31

(b) Regulatory actions taken by a government in order to affect or interfere with
decisions made by individuals, groups, or organizations regarding economic matters
is called government intervention.

REQUIRED:

Elucidate five rationale for government intervention in the economy. (5 marks)

(Total: 20 marks)

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

(a) During 2018 year of income, Tanzania had the following transactions in billions of
Tanzania shillings.
1. Government consumption 25
2. Gross domestic capital formation 22
3. Rent payments by firms 30
4. Inventory 10
5. Individual consumption 10
6. Capital consumption 15
7. Interest payments by firms 26
8. Exports 23
9. Transfer payments 22
10. Productions of different sectors:-
- Mining 24
- Transportation 62
- Infrastructure 75
- Communication 30
11. Payment of wages by firms 65
12. Imports 13
13. Rewards from entrepreneurship 55

REQUIRED:
(i) Compute Gross National Product (GNP) at 3 sector model by using
expenditure method. (4 marks)
(ii) Compute National Income (NI) by using income method. (5marks)
(iii) Compute Net National Product at factor cost (NNP fc) given that subsidies
is TZS.15 billion and indirect tax is TZS.9 billion. (5 marks)

32 Intermediate Level, November 2019

(b) Inflation refers to continual increase in prices. The value or purchasing power of
money refers to the amount of goods and services one unit of money (e.g. one
shilling) can buy. Inflation means the value of money is falling because prices keep
rising. Inflation is usually measured by a price index. On other hand, deflation is
the general decline in prices for goods and services occurring when the inflation
rate falls below 0%. Deflation happens naturally when the money supply of an
economy is fixed. During the deflation, the purchasing power of currency and
wages are higher than they otherwise would have been. This is distinct from but
similar to price deflation, which is a general decrease in the price level.

REQUIRED:
State the mechanisms of fiscal and monetary policy to curb such situations.
(6 marks)
(Total: 20 marks)

QUESTION 3
(a) Mwanzo Mgumu has been working with Pugu Consulting Limited (PCL) since
2012. At the beginning of January 2016, he was seconded to Tegeta Consulting
Limited (TCL) for a period of six months to be part of a team to spearhead a
restructuring exercise and the review of the system of internal controls at the
Taxation Department of TCL
Terms of the TCL engagement were as follows:
1. PCL was to be paid a one-off settlement of TZS.20,000,000 at the completion of the
engagement as well as reimbursement of monthly operational expenses incurred
based on submission of the relevant invoices.
2. Mwanzo Mgumu’s only entitlements from TCL were the inconvenience allowance
and extra duties allowances of TZS.600,000 and TZS.400,000 respectively.

3. Mwanzo Mgumu’s secondment to TCL did not in any way affect his salary and
other entitlements from his employer, PCL, as these continued to accrue to him
during the period of the secondment.

4. Mwanzo Mgumu’s earnings and entitlements from PCL for the year of assessment
ended 31 December 2018 is as seen below:
 Basic Salary TZS.92,000,000
 Bonus TZS.19,000,000
 Fuel allowance TZS.3,500,000
 Entertainment allowance TZS.15,000,000

Intermediate Level, November 2019 33

Additional Information
1. Mwanzo Mgumu stays in a fully furnished PCL house at Masaki in Dar es Salaam.
PCL charges him a rent of TZS.300,000 per month.
2. Mwanzo Mgumu makes use of PCL’s company vehicle, driver and fuel for official
use only.

3. On 1st January 2018, Mwanzo Mgumu successfully applied for a TZS.20,000,000

loan from his employer, PCL. His employer charged him interest of 2% per annum
on the loan. During this period, the Bank of Tanzania (BOT) statutory rate was 7%.
The loan was repayable within ten (10) months.

4. On 1st October 2018, Mwanzo Mgumu commenced part-time lecturing in

Accounting at a local technical college. He was paid monthly for his services and
the total gross amount received for the three months ended 31st December 2018 was
TZS.10,000,000.

5. Mwanzo Mgumu’s other non-employment related income received during the year
ended 31st December 2018 were:
TZS.
 Royalties received for his accounting text book 42,500,000
 Dividends (Unquoted company shares) 26,000,000
 Interest on bank deposits from TPC Bank 20,000,000
 Gross lottery winnings 24,000,000

REQUIRED:

(a) Calculate Mwanzo Mgumu’s taxable income for year ended 31st December, 2018.
(12 marks)

(b) Excise duty is an indirect tax imposed on specific good and services manufactured
locally or imported which are consumed within a country.

REQUIRED:
Explain four major problems of the specific excise taxes in relation to the alcoholic
beverages. (4 marks)

(c) National income means the value of goods and services produced by a country
during a financial year. Thus, it is the net result of all economic activities of any
country during a period of one year and is valued in terms of money.

REQUIRED:

Analyse the reasons for interest payments by the government to be considered as

part of personal income but not part of national income. (4 marks)
(Total: 20 marks)

34 Intermediate Level, November 2019

QUESTION 4
(a) Ontwa Alenamakha has imported a brand new saloon car on 1st July 2019 for
business use. During the VAT control verification exercise, the Commissioner
found that taxes were not paid in full as they had been affected by the importation
of saloon. This has been found via ERV which reflected the following:

 Import Duty – TZS.980,000, Excise Duty – TZS.722,000 and VAT –

TZS.1,000,000.
 The motor car was acquired for TZS.14,000,000 at a retail selling price which is
140% of the aggregate sum of CIF, taxes payable to customs department and
10% of CIF as wharfage charges.
 The tax rates at the time of importation were 25% Import Duty, 15% Excise
Duty and 18% VAT.

REQUIRED:

Determine:
(i) The CIF value. (5 marks)
(ii) The under paid amount of import duty, excise duty and total duties/taxes
that ought to be paid to the Tanzania Revenue Authority (TRA).
(5 marks)
(b) Many people in the world are complaining about the application of taxation as a
source of National Income.

REQUIRED:

Illuminate the objectives of taxation in the economy. (5 marks)

(c) The Tanzania Revenue Authority (TRA) was established by Act of Parliament No.
11 of 1995 as amended and started its operations on 1st July 1996. In carrying out
its statutory functions, TRA is regulated by law, and is responsible for
administering impartially various taxes of the Central government.

REQUIRED:

Identify and discuss the TRA revenue departments and their roles in tax
administration.
(5 marks)
(Total: 20 marks)

Intermediate Level, November 2019 35

QUESTION 5
GEZAULOLE Stores is a company, which is registered for Value Added Tax (VAT). The
company had the following transactions (VAT inclusive where applicable) in the month of
September 2019.
(a) Supplies made during the prescribed accounting period.

TZS.
 School bags 300,000
 Wheat flour 1,000,000
 Milk 1,000,000
 Green vegetable 800,000
 Sugar 225,000
 Smart phone 255,000
 Watches 315,000
 Fresh juice 800,000
 Beer 1,450,000
 Sanitary pads 125,000

Also, within the same prescribed accounting period the following

purchases/expenses were made:
TZS.
 School bags 480,000
 Wheat flour 2,000,000
 Green vegetables 750,000
 Milk 900,000
 Transportation of milk 300,000
 Sugar 200,000
 Refrigerator 1,200,000
 Packages for vegetables 105,000
 Fresh juice 500,000
 Beer 1,800,000
 Electricity 200,000
 EFD receipt paper rollers 150,000
 Telephone bill 200,000

GEZAULOLE Stores had the following information available:

(i) Sales for fresh juice includes deposits for bottles as security for safe return
of the bottles amounted to TZS.100,000.
(ii) Crates of beer worth TZS.180,000 were taken for personal consumption by
the owner of the grocery. The amount was included in the payments
received during the month.
(iii) Milk worth TZS.200,000 was returned by customers and has not been
subtracted from the sales above.

36 Intermediate Level, November 2019

 (iv) There was a cash loss of payments received of TZS.200,000, which have not
been included in the payments.
(v) A deposit for purchases of crates of beer by a customer amounting to
TZS.100,000 has not been included in the gross takings.
REQUIRED:
(a) State the due date for lodging VAT return. (2 marks)
(b) Determine the amount to be remitted to the Commissioner for VAT.
(18 marks)
(Total: 20 marks)

QUESTION 6
(a) Mr. Mashaka is a Tanzanian who was born and grew up in Iringa. However, for
many years, he has been doing business both in Uganda and Tanzania on wholesale
basis. For the year of income 2016, he stayed in Uganda for 72 days only and went
to Kenya where he stayed for 184 days to visit his in-laws. The rest of the days of
the year 2016 were spent in Tanzania. During the year 2016, his business in
Uganda earned him equivalent of TZS.32 million while in Tanzania he earned
TZS.150 million.
In the year 2017, he decided to focus on his business in Uganda which was
substantially shaken due to poor supervision in 2016. He therefore stayed in
Uganda for 220 days and the rest of the days were spent in Tanzania. As a result of
these efforts, he obtained a total profit equivalent to TZS.96 million in Uganda and
his business in Tanzania earned him Tshs.130 million.
In 2018, he decided to expand his wholesale business to Kenya. During the year, he
obtained equivalent of TZS.12 million in Kenya; TZS.87 million in Uganda and
TZS.115 million in Tanzania. The following are the number of days that he stayed
in all three countries during the year of income 2018:
Tanzania 20 days
Uganda 290 days
Kenya 55 days

REQUIRED:
Determine Mr. Mashaka’s taxable income in respective countries for the years of
income 2016, 2017 and 2018. (Assume that East African countries use the same tax
principles). (8 marks)

Intermediate Level, November 2019 37

(b) Interpretation refers to assigning meaning or interpreting a particular word or
phrase or section of the law according to the context required in the process of
dispensation of justice. For the purpose of tax matters the institutions which are
mandated to interpret tax laws are the Commissioner General, the Tax Revenue
Appeals Board, Tax Revenue Appeal Tribunal and the Court of Appeal of
Tanzania. However, for criminal cases involving tax matters like tax evasion and
other tax offenses, normal courts may also interpret tax statutes when adjudicating
different matters in the process of dispensation of justice.

REQUIRED:

Explain the reasons for interpretation of tax statutes. (4 marks)

(c) Interpretation of tax laws can be obtained from different sources governing
different tax matters in Tanzania.

REQUIRED:

Discuss the sources of tax laws in Tanzania. (8 marks)

(Total: 20 marks)

38 Intermediate Level, November 2019

 Appendices
(1) Applicable resident individual income tax rates:
Monthly income Tax rate
Where total income does NIL
not exceed TZS.170,000/=
Where total income exceeds TZS.170,000/= 9% of the amount in excess of TZS.170,000/
but does not exceed TZS.360,000/=
Where total income exceeds TZS.360,000/= TZS.17,100/= plus 20% of the amount in
but does not exceed TZS.540,000/= excess of TZS.360,000/=
Where total income exceeds TZS.540,000/= TZS.53,100/= plus 25% of the amount in
but does not exceed TZS.720,000/= excess of TZS.540,000/=
Where total income exceeds TZS.720,000/= TZS.98,100/= plus 30% of the amount in
excess of TZS.720,000/=
(2) 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
(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) Statutory rate to be used is 9%
(5) 1 currency point = TZS.15,000
(6) Standard rate of VAT = 18%
(7) Capital gain rates for resident is 10% and for non-resident is 20%.
___________▲____________

Intermediate Level, November 2019 39

 SUGGESTED SOLUTIONS
B4 – PUBLIC FINANCE & TAXATION
NOVEMBER 2019

ANSWER 1

(a) ITEZI ENTERPRISE INCOME FROM BUSINESS FOR YEAR OF

INCOME 2018

TZS TZS
Sales 850,000,000
-
Net sales 850,000,000 850,000,000
Interest income 17,000,000
Contractual penalties 20,000,000
887,000,000
Less:Expenses
Board members meeting allowances 100,000,000
Salaries 200,000,000
Interest expenses (W1) 35,000,000
Rent and Rates 200,000,000
Legal and professional fees (W2) 10,000,000
Subscriptions and donation (W3) 17,000,000
Contributions to retirement funds (Note 4) 5,000,000
Travelling expenses 32,000,000
Depreciation allowance (W5) 52,843,750
Insurance expenses 30,000,000
Sundry expenses (W6) 16,000,000 793,843,750
93,156,250
Less: Unrelieved loss for 2017 50,000,000
Net income before Charity donation 143,156,250
Less: Donation to Grace Charities (Note 7) 2,863,125
Taxable Income 140,293,125

Working (W):

1. Deductible interest expenses = TZS 50,000,000 – interest on failure to pay

Taxes = TZS 50,000,000 – TZS 15,000,000
= TZS 35,000,000

2. Deductible legal fee= TZS 30,000,000 – TZS 20,000,000 (tender board)

= TZS 10,000,000

3. Deductible subscriptions and donation = TZS 17,000,000

4. Contributions to retirement fund TZS 10,000,000/2 = TZS 5,000,000

102 Intermediate Level, November 2019

 5. Depreciation Allowance

Class I (TZS) II (TZS) III

Tax written down Value 25,000,000 61,500,000 30,000,000
Add: Range rover 15,000,000
Bus 40,000,000
Toyota Pick up 13,750,000
Toyota Land cruiser 17,000,000
Depreciation basis 71,250,000 101,500,000 30,000,000
Depreciation rate 37.5% 25% 12.5%
Annual allowances 26,718,750 25,325,000 3,750,000

Depreciation allowance = TZS 26,718,750 + TZS 25,325,000+3,750,000

= TZS 55,843,750

Note :CLASS IV IS NOT APPLICABLE

Note : The sale proceeds figure were not given in the question

6. Deductible sundry expenses = TZS 20,000,000 – TZS 4,000,000 (traffic fine)

= TZS 16,000,000

7. Allowable deductible charity donation = 2% * TZS 143,156,250

= TZS 2,863,125
Charity donation to be deducted is a lower amount = TZS 2,863,125

(b) 1. To address inefficiency

Governments intervene in markets to address inefficiency. In an optimally
efficient market, resources are perfectly allocated to those that need them in the
amounts they need. In inefficient markets that is not the case; some may have
too much of a resource while others do not have enough. In efficiency can take
many different forms. The government tries to combat these inequities through
regulation, taxation, and subsidies. Most governments have any combination of
four different objectives when they intervene in the market.

2. Maximizing Social Welfare

In an unregulated inefficient market, cartels and other types of organizations
can wield monopolistic power, raising entry costs and limiting the development
of infrastructure. Without regulation, businesses can produce negative
externalities without consequence. This all leads to diminished resources,
stifled innovation, and minimized trade and its corresponding benefits.
Government intervention through regulation can directly address these issues.

Another example of intervention to promote social welfare involves public

goods. Certain depletable goods, like public parks, aren’t owned by an
individual. This means that no price is assigned to the use of that good and
everyone can use it. As a result, it is very easy for these assets to be depleted.
Governments intervene to ensure those resources are not depleted.

Intermediate Level, November 2019 103

 3. Macro-Economic Factors
Governments also intervene to minimize the damage caused by naturally
occurring economic events. Recessions and inflation are part of the natural
business cycle but can have a devastating effect on citizens. In these cases,
governments intervene through subsidies and manipulation of the money
supply to minimize the harsh impact of economic forces on its constituents.
4. Social-Economic Factors
Governments may also intervene in markets to promote general economic
fairness. Government often try, through taxation and welfare programs, to
reallocate financial resources from the wealthy to those that are most in need.
Other examples of market intervention for socio-economic reasons include
employment laws to protect certain segments of the population and the
regulation of the manufacture of certain products to ensure the health and well-
being of consumers.
5. Improve equality
In a free market, there tends to be inequality in income, wealth and opportunity.
Private charity tends to be partial. Government intervention is necessary to
redistribute income within society.

ANSWER 2

(a) (i) GNP = C + I + G + (X – M)

Where by:
C = Individual consumption
I = Gross domestic capital formation
G = Government consumption
X = Exports
M = Imports
GNP = 10 + 22 + 25 + (23 – 13)
=TZS 67 Billions
(ii) NI = W + R + I +P +D
Where by:
W = Payment of wages by firms
R = Rent payments by firms
I = Interest payments by firms
P = Rewards from entrepreneurship
D = Depreciation /capital consumption
NI = 65 + 30 + 26 + 55 + 15

104 Intermediate Level, November 2019

 = TZS191Billions
(iii) NNP (fc) = Mining + Transportation + Infrastructure + Communication – D +
Subsidies – Indirect taxes

= 24 + 62 + 75 + 30 – 15 + 15 – 9

= TZS182 Billions

(b) Tools/mechanisms of fiscal and monetary policy

(i) Fiscal policy

Fiscal policy is how government influence the economy using spending and
taxation

The first tool is taxation. That includes income, capital gains from
investments, property, and sales. Taxes provide the income that funds the
government. The downside of taxes is that whatever or whoever is taxes has
less income to spend on themselves. As a result, taxes are unpopular.

The second tool is government spending. That includes subsidies, transfer

payments including welfare programs, public works projects, and
government salaries. Whoever receives the funds has more money to spend.
That increases demand and economic growth.

(ii) Monetary policy

Direct Policy Tools

These tools are used to establish limits on interest rates, credit and lending.
These include direct credit control, direct interest rate control and direct
lending to banks as lender of last resort, but they are rarely used in the
implementation of monetary policy by the Bank.

1. Interest rate controls – The Bank has the power to announce the
minimum and maximum rates of interest and other charges that
domestic banks may impose for specific types of loans, advances or
other credits and pay on deposits. Currently the Bank does not set any
interest rate levied by domestic banks except for the minimum interest
rate payable on savings deposits. The Bank has opted not to use this as
a tool of monetary policy but to let market forces determine interest
rate.

2. Credit controls – The Bank has the power to control the volume, terms
and conditions of domestic bank credit, including instalment credit
extended through loans, advances or investments. The Bank has not
exercised such controls in its implementation of monetary policy.

3. Lending to domestic banks – The Bank provide credit, backed by

collateral, to domestic banks to meet their short-term liquidity needs as

Intermediate Level, November 2019 105

 lender of last resort. The interest is set at a punitive rate to encourage
banks to manage their liquidity efficiently.

Indirect policy tools

Used more widely than direct tools, indirect policy tools seed to alter
liquidity conditions. While, the use of reserve requirements has been the
traditional monetary tool of choice, more recently, the Bank shifted towards
the use of open market operations to manage liquidity in the financial
system and the signal its policy stance.

1. Reserve requirements – The Bank uses reserve requirements to limit

the amount of funds that domestic banks can use to make loans to its
customers. Domestic banks are required to hold a proportion of
customers’ deposits in approved liquid assets. An increase in the
reserve ratios should reduce domestic banks’ lending and, therefore,
the demand for hard currency, while a decrease should yield the
opposite effect.

2. The secondary reserve requirement is a certain percentage of

domestic banks’ deposit liabilities that is to be held in approved liquid
assets. It should be freely and readily convertible into cash without
significant loss, free from any charge, lien or encumbrance.

3. The cash reserve requirement, also called primary reserve

requirements, is a percentage of domestic banks’ average deposit
liabilities that must be held at the Bank in a non-interest bearing
account. Cash reserves are a component of the secondary reserve
requirements.

4. To encourage the development of the government securities market, a

securities requirement was instituted on requiring domestic banks to
hold a proportion of their average deposit liabilities in the form of
Treasury bills. The securities requirement is also a component of the
secondary reserve requirements.

5. Open market operations – The conduct of open market operations

refers to the purchase or sale of government securities by the Bank to
the banking and non-banking public for liquidity management
purposes. When the Bank sells securities, it reduces domestic banks’
reserves (monetary base), and when it buys securities, it increases
banks’ reserves.

106 Intermediate Level, November 2019

ANSWER 3

(a) Mwanzo Mgumu’s Taxable Income for the year ended 31st December, 2018
TZS
Basic Salary 92,000,000
Add: Other benefits
Bonus 19,000,000
Entertainment allowance 15,000,000
Fuel allowance 3,500,000
Part-time teaching salary 10,000,000
Royalties 42,500,000
Housing benefit 1,200,000
Total taxable income 182,000,000

Note:
 Dividend – Final with-holding
 Interest from TPB – Final with-holding
 Net lottery winnings – Final with-holding
 Loan does not exceed three months’ salary and repayment period is less than 12
months hence not taxable
 Housing benefit calculation
The lesser between I and II
I. Market rent TZS 400,000*12 = TZS 4,800,000
II. The higher between

Housing expenditure claimed TZS 200,000*12 = TZS 2,400,000

15% of total employee income: 188,000,00*15% = TZS 8,200,000
Therefore, Housing benefit TZS 4,800,000 – Rent paid by employee
= TZS 4,800,000 – TZS 300,000*12= TZS 1,200,000

(b) Four major problems of specific excise taxes in relation to the alcoholic
beverages
(i) Specific taxes may prove “sticky” difficult to change in the face of inflation, with
the result that real revenues may fall in the face of price increases. Since a
principal motivation for differently higher taxes on alcohol is to raise public
revenues in a relatively efficient way, this is clear a disadvantage. Specific taxes
may also discriminate against relatively cheaper products-since the tax will make
up a large a proportion of the final price, the lower that price happens to be and
this may be considered undesirable, for example, because such products are
mostly consumed by low-income people.

(ii) Specific taxes are often levied on “one unit of the good” which may be difficult to
define. Is one unit a litre of beer or a litre of the alcohol component of the beer or
some combination of two.

(iii) Since specific taxation is based on some physical characteristics of the product
the tax may not tax the value of the alcohol to the consumer. For example, the
packaging or convenience of availability would not be considered in a typical
specific tax on alcohol.
Intermediate Level, November 2019 107
 (iv) Moreover, specific taxes are also subject to an “upgrading effect” in the sense that
when a specific tax rate is increased, consumers may increase their demand for
the untaxed amenities of the beverages such as better packaging.
(c) The interest earned on government bonds, notes, and bills are part of personal income
but not national income, because the government is not considered a resource, since it
is not a factor of production. Therefore, the interest earned by lending to the
government is not counted as part of national income.

ANSWER 4

(a) (i) Proposed answer for question one to be replaced by the following solution:
Let CIF = X
Import duty = CIF x import duty rate
Import duty = X (0.25) = 0. 25X
Excise duty = (CIF + import Duty) * Excise duty rate
Excise duty = (X + 0.25X) * 0.15 = 0.1875X
VAT = (CIF + Import Duty + Excise Duty) * VAT rate
VAT = (X + 0.25X + 0.1875X) * 0.18 = 0.25875X
Wharf age = CIF * wharf age rate
Warf age = X*0.1 = 0.1X
RSP = (CIF + Import Duty + Excise Duty + VAT + Wharf age)*140%
14,000,000 = (X + 0.25X + 0.1875X + 0.25875X + 0.1X)*140%
14,000,000 = 1.7963X*140%
10,000,000 = 1.7963X
X = 5,567,154
Therefor CIF = TZS 5,567,154
(ii) Computation of unpaid Import duty, VAT and Excise Duty
Import Duty = 5,567,154 x 25% 1,391,788
Less: Amount Paid 980,000
Unpaid 411,788
Excise Duty = (5,567,154 + 1,391,788) x 15% = 1,043,841
Less: Amount paid 722,000
Unpaid amount 321,841

VAT = (5,567,154 + 1,391,788 + 1,043,841) + 18% = 1,440,501

Less: Amount paid 1,000,000
Unpaid 440,501
Total underpaid amount to be paid to TRA 1,174,130

108 Intermediate Level, November 2019

(b) Objectives/Purposes of Taxation in the economy

(i) Raising Revenue

Governments need revenue for expenditure on various public services to
maximize public interest through her budget.

(ii) Fair Distribution of Income

Taxation is increasingly being utilized in the present day, public finance to
reduce wide disparities in the distribution of income and wealth between the
rich and the poor. Direct taxes are usually used for this purpose, where the
rates of tax are progressive i.e. they go on raising as ones income rises.
However, for his to be effective, the funds realized from such taxes must be
used for the benefit of the poor, such as through the provision of allowances
to the unemployed or housing for the homeless etc.

(iii) Protection of infant industries

Taxation can also be used to protect the newly established home industries
against foreign competition foreign competition. This can be done by
subjecting imported goods to higher customs tariffs (imposing heavy taxes
on import of some goods since the become cheaper.

(iv) Social welfare

Taxation is used sometimes, to reduce the consumption of certain
commodities, the excessive consumption of which is regarded by the
government as being harmful. Taxes on alcoholic drinks, cigarettes etc fall
under this category.

(v) Fighting inflation

Taxation is also use to withdraw excessive purchasing power out of the
hands of the community and so helps to prevent a rise in prices. Simply,
inflation may be defined as a situation where by too much money is an
economy chases too few goods. By introducing taxes, the government
reduced the money available to the public to spend on the few goods and
hence help in reducing inflation. The cause of inflation has to be examined
for best achievement.

(c) TRA Departments and their roles in tax administration

1. LARGE TAXPAYERS DEPARTMENT (LTD)

The LTD is a fully-fledged department responsible for assessment, auditing,
collection and enforcement of Income taxes, VAT (local) and local Excise
taxes for large. While revenue performance is the measure of productivity,
the department is to ensure compliance by improving and simplifying
procedures by providing a one-stop Centre, offering better quality services
through information, assistance and education. The department is also under
obligation to observe taxpayers’ rights. To perform the above role, the
objectives include; providing a one-stop Centre, securing tax collections,
improving services to taxpayers, facilitating the establishment of goods
Intermediate Level, November 2019 109
 taxpayer relationship, carrying out joint audits, training of staff oriented to
customer satisfaction and to introduce modern techniques to improve
efficiency in tax administration. It is vital to note that the department is
mandated to develop sensitization programs to inform the taxpayers about
their obligations and entitlements.

2. DOMESTIC REVENUE DEPARTMENT (DRD)

The majority of domestic revenue collected in Tanzania is in the form of tax
revenues, which is the total Central Government domestic revenue. These
tax revenues are collected by the Tanzania Revenue Authority (TRA), an
executive agency under the Ministry of Finance that was established in
1996. The TRA, is mandated to collect major taxes including Income Tax,
Value Added Tax, Import Duty and Excise Duty.

3. CUSTOMS AND EXCISE DUTY DEPARTMENT (C&ED)

The department is concerned to regulate, control and promote international
trade with reference to various customs and excise duty imposed with an
apparent motive of earning revenue by their respective governments.

ANSWER 5

(a) The due date for VAT return is on or before 20th of October 2019 (the following
month), if the day falls on a weekend or public holiday the return will be submitted
on the first working day after the holiday.

(b) Amount to be remitted to the commissioner

Details Amount
Total output tax (w1) 575,847
Less: Total input tax credit (w2) (601,399)
Add/Less Increasing/(Decreasing) adjustment -
NET VAT PAYABLE (25,552)

Since the net VAT payable is negative (25,552), no tax will be remitted to the
commissioner. The amount will be carried forward and considered in the next VAT
return as decreasing adjustment.

110 Intermediate Level, November 2019

 W1: Total output tax
Details Consideration VAT VAT Explanation/Assumption
(Output Exclusive
tax) value
School bags 300,000 45,763 254,237 -
Sugar 225,000 34,322 190,678 -
Smart phone 255,000 38,898 216,103 -
Watches 315,000 48,051 266,949 -
Fresh juice 800,000 122,034 677,966 Among others, S.13(2) of
VAT Act, 2014 requires to
include(in the
consideration of a supply)
any amount expressed to
be a deposit when goods
are sold in a returnable
containers).
Beer(1.455M+0.1) 1,555,000 237,203 1,317,797 Refer the above comment
[S.13(2) of VAT Act, 2014
]
Sanitary pads 125,000 19,068 105,932 Finance Act (2019)
removed sanitary pads in
the list of exempt supplies
Cash loss 200,000 30,508 169,492 It is assumed that cash loss
is for the taxable supplies
made
TOTAL 575,847 3,199,153
ADD: EXEMPT
SUPPLIES
Wheat flour 1,000,000 - 1,000,000
Milk(1m-0.2m) 800,000 - 800,000
Green vegetable 800,000 - 800,000
TOTAL 5,799,153

W2. Input tax credit

Details Input tax Input tax Partial Explanations/Assumptions
attributable attributable input tax
to taxable to exempt
supplies supplies

A B C
School bags 73,220
Wheat flour - - - No VAT was paid(Exempt)
Green Vegetable No VAT was paid(Exempt)
Milk - - - It is assumed that they are
not processed. Therefore,
no tax was paid because
they are exempted.
However, it can also be
assumed that they are
processed, In this case, it
would fall under category
A)
Transportation of - 45,763 - Note that, if the milk is
milk processed, this would fall
under category A
Sugar 30,509
Refrigerator 183,051 It is assumed that the

Intermediate Level, November 2019 111

 refrigerator was purchased
for the purpose of using. If
the refrigerator was
purchased for the purpose
of selling, this should fall
under category A.
Packages for 16,017 They were purchased for
vegetables the purpose of packing
vegetables, however if they
were purchased for the
purpose of selling, the input
tax should fall under
category A
Fresh juice 76,271
Beer 274,576
Electricity - - 30,509
EFD receipt paper 22,881
rollers
Telephone bill 30,509

TOTAL 454,576 61,780 266,950

According to S. 68(1) of the Value Added Tax Act, 2014, GEZAULOLE is

entitled to claim the whole 454,576 of input as the amount was VAT incurred for
the purpose of making taxable supplies.

In addition to that, the company may claim all, none or part of partial input tax. To
know how much of the partial input tax is claimable, there is a need to perform
‘T/A’ test as stipulated under S. 70 of Value Added Tax Act, 2014.
T/A*100 = 3,199,153/5,799,153 * 100 = 55%
Since T/A*100 is above 10% but does not exceed 90%, the company is
entitled to claim just part of the partial input tax as calculated below
55%*266,950= 146,823
Therefore, total claimable input tax
= 454,576+146,823
=601,399

112 Intermediate Level, November 2019

ANSWER 6

(a) Mahaska’s Taxable Income in respective countries for years of income

2016,2017 and 2018
Tanzania Uganda Kenya
2016 109 days 72 days 184 days
Residential Status A resident A non-resident A resident
Taxable Income Worldwide income Ugandan income Worldwide income
Taxable Amount i.e. 182 million i.e. 32 million 182 million

2017 145 days 220 days NIL days

Residential Status A resident A resident Not a resident
Taxable Income Worldwide income Worldwide income Not tax liability
Taxable Amount i.e. 226 million i.e. 226 million NIL

2018 20 days 290 days 55 days

Residential Status A resident A resident A non-resident
Taxable Income Worldwide income Worldwide income Kenyan income
Taxable Amount i.e. 214 million i.e. 214 million i.e. 12 million

(b) The reasons for interpretation of Tax Statutes

 There are phrases or words used in the tax statutes which do not have ordinary
meaning, therefore, there is a need to interpret them depending on their context or
use.

 To ascertained by looking at the language which has been used in a statute.

 To conform with economic reform such as E-commerce and technological

development taking place in different parts of the world.

 To ascertain the meaning of some of the phrases or words used in the tax statute
which are ambiguous in their context.

(c) The following are sources of tax laws in Tanzania

 The Constitution of the United Republic of Tanzania – The Constitution of the

United Republic of Tanzania under Article 138 (1) prohibits taxation except in
accordance with laws duly enacted by the legislative authority. It provides that no
tax of any kind shall be imposed save in accordance with a law enacted by the
Parliament or pursuant to a procedure lawfully prescribed and have the force of
law or by virtue of a law enacted by the Parliament.

 Statutes – The statues governing tax matters in Tanzania are provided under the
first schedule to the Tanzania Revenue Authority Act as amended by S.51 of the
Finance Act 2016 and S.46A of the Finance Act. The statutes in this schedules
are; The Income Tax Act 2004. The Value Added Tax Act 2014. The East
African Customs Management Act 2005. The Excise (Management and Tariff)
Act, The Airport Services Charge Act, The Stamp Duty Act etc.
Intermediate Level, November 2019 113
  Case law – This is another source of tax law. There are different cases decided by
the Tax Revenue Appeals Board. The Tax Revenue Appeals Tribunal and the
Court of Appeal of Tanzania. The selected cases from these institutions are
normally reported in the special law report called Tanzania Tax Law Reports
divided into different volumes. There are both reported cases and also non-
reported cases from these institutions which can be used as precedents in deciding
future cases.

 Practice Notes – Section 9(1) of the Tax Administration Act provides that the
Commissioner General may issue practice notes with a view to ensure consistency
in the administration of tax laws and to provide guidance to persons affected by
the tax law. In practice, the practice notes provide interpretation of certain
sections or part of any revenue law for the purpose of ensuring consistence in
collection of revenue. The practice notes should be consistent with the Parent Act,
otherwise the practice note shall be revoked by the Parent Act in respect of such
inconsistence.

 Tax Agreements – Tanzania has entered into various tax agreement with
different countries like Canada, Denmark, Finland, India, Italy, Norway, South
Africa, Sweden, Zambia etc. These agreements are recognized by the law and
form part of the tax laws.

______________  ______________

114 Intermediate Level, November 2019