Illustration 3

Mr. Madaraka is employed by International School of Arusha from 1.1.2014

The following terms, conditions and particulars relate to his employment during the year of income 2014:
(i) His salary per month 1s shs.1,300,000
(ii) He was entitled gratuity equivalent to his basic salary for each successful completed year of service
(iii) The School provided him with the following benefits:
- Free use of school’s motor vehicle, bought six years ago (Toyota Corolla, 1000cc).The
Commissioner for Income tax has accepted three quarter of the use as representing free use
of the car
- One night security guard who is on the school’s payroll at monthly wage of shs.25,000
- Electricity, gas, telephone and water bills amounting to shs.300,000. All these benefits were
paid directly to the utility companies since they were addressed to the name of employer
- A residential house for the whole year for which he paid a token rent amounting to shs.10,
000 per month. It is estimated that the market rental value of this house is shs.60,000 per
month

(iv) Other sums met by the employer during the year included:
- Shs. 50,000 per month as entertainment allowance. He however was not required to account
for the amount
- Monthly duty allowance shs.20,000

- Shs.30,000 per month to meet his traveling expenses. He was spending about 25% of such for
performing his official duties

- Free medical services under the arrangement that required the employer to pay medical bills
for Mr. Madaraka, his wife and up to four children. For the year of income 2014, this bill
amounted to 1,200,000 for nine people.

- Shs. 30,000 per month to an insurance company for policy covering his life

(v) He had two children who are enrolled at the same school. During the year, the school subsidized
the school fees and board expenses of the two children amounting to shs.2,000,000 in total
(vi) During the New Year 2014, School organized a party in which among other issues, staff were
provided with food and drinks of which they were not required to contribute anything. Mr.
Madaraka attended such party, and in addition to food, he managed to four beers. The price of one
beer by then was shs.700
(vii) The school decides to sale shares valued Tsh 1000 per share to all interested employees at Tsh 600
per share, Mr. Madaraka bought 1000 shares.

(viii) After successful of year 2014, his contract was not renewed due to employer’s financial crisis. To
this effect, he was paid a lump sum of shs.2,000,000 as compensation

Required:
Calculate his total taxable income for the year of income 2014.

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Feedback
Calculation of Employment income

Name of Tax payer: Mr. Madaraka

Year of Income: 2014
Income type: Employment income
Residential status: Resident
Tshs
Basic salary 15,600,000
Car benefits 93,750
Security Guard 300,000
Utilities 300,000
Entertainment Allowances 600,000
Monthly duty allowances 240,000
Duty allowances 270,000
Medical Allowances (1200, 000x3/9) 400,000
School Assist expenses 2,000,000
School part expenses Nil
Share price advantage 600,000
Compensation 1,000,000
Total Income before Housing benefits 21,403,750
Housing Benefits 3,090,562
Total Taxable income 24,494,312

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 REVIEW QUESTIONS

Question one
Professor Van Deer has been a Professor of Marketing and head of the marketing development Programme
of the University of Arusha. The University has a housing scheme; under which it provides accommodation
to its staff who then suffers a 10% deduction on their salaries as rent

a) Professor Van Deer was however employed under expatriate terms which provided for among other
things a salary of shs 4,000,000 per month and free housing. The total bills in this house for the year
2013 (electricity, telephone and water) was shs. 1,360,000

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 paid the full costs of the study and an additional fee of shs. 5,000,000. This study was carried
out during the months of March and April, 2013

c) On a part time basis, he was offering consultancy services to Njiro Business and Management
Consultants firm. For this, he was paid shs.200, 000 per hour. During 2013 he spent 22 hours with Njiro
firm

d) His birthday coincided with Easter, 2013. During the 2013 Easter celebrations, the University awarded
him a birthday present worth shs. 920,000. In addition, another present was given to him by his fellow
workers. This was valued at shs. 420,000

e) He was required to appear in the quarterly meetings of the University Senate. The University paid him
shs.600, 000 for attendance of such meetings. During 2013, he attended all such meetings held while he
was still in employment

f) A distribution of surplus made from short courses a consultancy carried out at the University during
2003 was made in May 2013 to all the workers. Professor Van Deer received shs. 3,000,000 from this
distribution during 2013

g) He was provided with a car (4500cc) which was wholly used for domestic purposes by his wife. This
car was purchased by the University for shs. 12,000,000 in year 2003

h) As part of the contract of employment, the employer was required to contribute an amount equivalent
to shs.150, 000 per month to a private pension scheme established in the Netherlands. The scheme was
not approved by the Commissioner

i) He received interest from the NBC of shs. 1,600,000 and a dividend from a local company of shs.1,
200,000. No withholding tax was deducted at source

j) Upon completion of his contract, university met the expenses of 4milion for transporting him and his
belongings back home to the Netherlands

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Required:
Calculate the total taxable income of Professor Van Deer for the year of income 2013

Question two
Mr. Cheyo is a resident employee who is employed by the Chipeta and Advocates in Dar Es Salaam,
effectively from 1st January, 2013. The facts relating to his employment are as follows:

(i) Monthly receipts:

Tshs.
Basic Salary 1,000,000/=
Transport Allowance 850,000/=
Lunch Allowance 350,000/=
Medical Allowance 100,000/=

(ii) Mr. Cheyo was given residential house free of charge but the Company claimed expenditure
of Tshs. 150,000/=. The rental market value of the house was Tshs. 300,000/= of which Mr.
Cheyo contributed Tshs. 100,000/= as rent.
(iii) Mr. Cheyo was given a new self-driven car of above 3000cc that was used for private use. This
car claims expenditure on the maintenance and ownership against taxable income.
(iv) Mr. Cheyo was given an interest free loan of Tshs. 4,000,000/= payable in 24 monthly
installments (assume the statutory interest rate in relation to the calendar year was 14.8% p.a.)
(v) Other benefits which were enjoyed by Mr. Cheyo included:
Electricity Tshs. 150,000 p.m
Water Tshs. 120,000 p.m
Gardner Tshs 80,000 p.m

Additional information was given as follows:

(i) Leave passage allowance of Tshs. 500,000/= for 7 members of the family (Spouse, 5 children and
for Mr Cheyo himself = Tshs. 3,500,000 has been given to Mr. Cheyo. Mr Cheyo’s domicile is
sengerema Mwanza.
(ii) Mr. Cheyo was given Tshs. 2, 800,000 cash to be paid as tuition fee to Makerere University by the
IFDA Scholarship where he is enrolled for a full time Master’s degree course.
(iii) Mr Cheyo was being deducted 10% from his monthly salary as NSSF contributions and his employer
was contributing 10% for the same

Required:
i) Calculate the monthly income for Mr. Cheyo and Total income for FY 2013
ii) Calculate the Housing Benefit and Car Benefit enjoyed by Mr. Cheyo per month.
iii) Briefly explain the meaning of ‘employment’ in line with the Income Tax Act, 2004

Question three
Princes Precious Design makers employed M/s Amne Mary as the Company Accountant with effect from
1st January 2014. By the time the company submitted a statement of employment income for year 2005, the
following information was revealed to her as her Annual emoluments:

Basic salary Tshs. 7,200,000

Transport allowance monthly Tshs. 3,000,000

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 Lunch allowance monthly Tshs. 1,800,000
Medical allowance monthly Tshs. 1,200,000

The employer houses her freely. The market value of rental at that area was shs. 400,000 per month
and the expenditure claimed by the company for that premise was Tshs. 150,000. The contribution
made monthly by the employee was Tshs. 50,000 as rent. Beside the emoluments stated above, the
employee had the following benefits.

(i) Self-driven car for private use, which is 3000 cc, brand new. The company claims
expenditure of car maintenance.
(ii) Loan advances of Tshs. 3,000,000 payables in 15 monthly installments and free of interest.
Statutory rate was 10% per annum.
(iii) Other benefits included electricity Tshs. 360,000 and water Tshs. 300,000 per month.
The employer was contributing 15% of basic salary to the approved retirement fund, while the
employee contributed 5%.
Though her employment services were terminated on 31st December 2005, the company paid her Tshs.
30,000,000 as termination benefits (Compensation for lost employment).
Other income she received in 2005 was Tshs. 300,000 interest from CRDB Bank, Tshs. 1,500,000 – lease
amount from Milk Shake Company for the building she leased to the company since 2003.

Required:
Calculate monthly taxable income of Amne Mary for the year 2005

Question Four
Queen B is a Market Manager of Food Processor Company Ltd in Tanga Municipal town since 1 st
January 2007.
(i) His monthly salary was Shs. 600,000 with effect from 1/1/2007
(ii) He received a bonus of 650,000 in September 2007
(iii) He received Shs. 250,000 entertainment allowance for the year of this amount; he spent Shs.
170,000 entertaining potential customers.
(iv) He was provided with fully finished residential quarters at nominal rent of Shs. 20,000 per
month payable to the employer. The employer claims Shs. 200,000 per year.
(v) The company provided him with a gardener in order to keep the extensive of his house in a
first class condition and a right security guard. They were both paid directly by the
company Shs. 50,000 each per month.
(vi) He was provided with subsidezed lunches on all working days at leading hotel in town. He
personal paid Shs. 5,000 only for each executive lunch of Shs. 20,000. During the year of
income 2007 he took a total of 100 of such lunches. This benefit is available to only
managers.
(vii) During the year, he was given a loan of Shs 4 million to finance finishing his house. The
loan had 5% interest. At the beginning of the year BOT interest rate was 15%.

Required:
Compute Queen B taxable income for the year ended.

Question Five
Mr. Zakaria a Tanzanian citizen is employed by WBC Marketing Company as a Marketing Manager.
Mr. Zakaria is provided with fully furnished house belonging to the company, which also pays for his
telephone, water and electricity bills. Mr. Zakaria is paying Tshs 80,000 per month as rent.

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Mr. Zakaria's Basic Salary per month is Tshs 300,000/ and he was contributing 10% of his basic Salary
to NSSF, every month.

Mr. Zakaria is also holding a part-time marketing consultancy to a private firm belonging to his mother
in law, where he is being paid a monthly salary of Tshs 100,000.

During the year Mr. Zakaria, traveled to Nairobi Kenya, as a resource person in a Marketing course
organized by Tanzania Marketing Association, in collaboration with Kenya Institute of Marketing.
While the return air ticket and other traveling costs totaling to Tshs 800,000 were met by WBC
Marketing Company. Kenya Institute of Marketing paid him Kshs 50,000, equivalent to Tshs 700,000
as honorarium for being a resource person and best course presenter in the course.

WBC Marketing Company has a policy whereby if any employee manages to secure an order worth
Tshs 20m and above he is paid 10% of the order value as a commission. For 2013 Mr. Zakaria secured
an order worth 30m, and was accordingly paid the commission.
The terms of his service agreement with the company provided for payment to him, so as not to work
to any competitor after his retirement. In return for this covenant the company paid Mr. Zakaria Tshs
1000,000 in December 2013.

He was now and then called upon to participate in certain ad-hoc probe committees. In addition to
having their hotel and travel expenses fully paid for, every member of such committee was being paid
sitting allowance of Tshs 50,000. During 2013 Tshs 600,000 were incurred as hotel and travel expenses
and Tshs 400,000 as sitting allowance in respect of Mr Zakaria.

The Market Value of rental in the area where the house provided to Mr. Zakaria is located is Tshs
500,000 per month.

Mr. Zakaria is also entitled for self-drive car, for private use, which is 1800 cc, the vehicle is 8 years old.
The Company claims expenditure for the car maintenance.

During the year Mr. Zakaria was given loan advances of Tshs 1,000,000 payable in 18 months
installments, 6% p.a interest was paid by Mr. Zakaria (assume the statutory rate is 12% p.a charged on
total loan)

During the year Mr. Zakaria had 200 meals worth Tshs 500,000, all these meals were provided on
premises cafeteria operated by WBC Marketing Company. These meals were provided only to top
Managers like Mr. Zakaria.

Mr. Zakaria is married, with two kids, and National Insurance Corporation MEDICARE department
insures the whole family. The annual cover is Tshs 350,000. The Cover was also enjoyed by all other
company Employees as well.

Other Expenses met by Mr. Zakaria during 2013 includes:

a) Tshs 60,000 as membership fees to Tanzania Marketing Association
b) Tshs 30,000 as subscription fees to Chartered Institute of Marketers
c) Tshs 45,000 per month towards a pension fund established by the WBC employees

Other Expenses met by the Employer during the year includes:

a) Telephone bills Tshs 800,000
b) Water and Electricity bills Tshs 600,000
c) A return tickets for him, his wife a two sons proceeding on leave to Mombasa. Total cost of the
ticket was Tshs 1600,000, in addition to leave allowance of Tshs 800,000 was paid to him.

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 On 31st May 2013, Mr. Zakaria received Dividend distribution, for the year 2003, from TIJA (T) Limited,
where he is holding some shares. The Dividend paid to Mr. Zakaria amounted to Tshs 2500,000.

Mr. Zakaria is holding Savings Account with CRBD Bank. On 15 th July 2013 Mr. Zakaria received Tshs
685,000 as interest from his savings account.

On 31st December 2013, he received Rent, paid to him for the occupation of his residential house
situated at Tegeta Dar Es Salaam, from Mr. Mpungu, a Tanzania citizen amounting to Tshs 480,000.

Required:
Compute Mr. Zakaria Taxable income for the year 2013. Apply Income Tax Act 2004

Question Six
Mr. Cheza is a resident Director in a private Limited Company, engaged in manufacture of plastic
goods.

The following additional information About Mr. Cheza is made available to you.
(i) His monthly Salary was fixed at Tshs 600,000
(ii) He was paid entertainment allowance of Tshs 100,000 per month for entertaining customers.
However, he is required to account for.
(iii) During the year, he secured a loan from the company amounting to Tshs 800,000 and payable
within 6 months. The statutory interest rate was 10% p.a, however Mr. Cheza did not pay any
interest for that loan during the year
(iv) He was occupying a luxurious beach house belonging to the employer. During the year the
employer provided him with Gardner to maintaining the extensive lawns of the house. Further,
in order to ensure his safety at night security guard was provided to him at his beach house. These
two employees were both in the payroll of the company earring Tshs 60,000 per month each
(v) The employer also met the following bills during the year:

 Electricity Tshs 350,000

 Gas Tshs 210,000
 Water Tshs 121, 950
 Medical bills Tshs 311,900
 Meals Tshs 420,000
Total 1,413,850

Note: All these bills were paid directly to the utility companies and persons supplying the services.
And Meals is in respects to Lunch provided in the Company's cafeteria. Both Medical and meals were
provided to all company employees

(vi) As Mentioned above, Mr. Cheza was provided with a full-furnished premise along Mbezi beach area.
The premise had cost the employer Tshs 50,000,000, whereas furniture and fittings contained therein
had cost 10,000,000. The market rental value of the house was 350,000, while the employer was
claiming expenditure to the tune of Tshs 250,000 p.m for repair and maintenance of the house. In this
year Mr. Cheza occupied the company house only for 9 months and moved to his new residence at
Tegeta – Ununio. From that date the company paid him a monthly housing allowance of Tshs 90,000.
He received Salary arrears from his former employer of Tshs 1200,000. These in respect of service
rendered to the former employer for years 2000-2002 He received them on December 31.
(vii) Cheza was provided with a company car, which is 1000cc, and the vehicle is of 2001 model. The
Company does not claim expenditure for the maintenance of the car.

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(viii) The company was not performing well, hence was forced to lay off some of the employees. On
31st December 2010 Mr. Cheza’s employment was terminated. During his termination Tshs
9,500,000 was promised to be paid to as compensation for the loss of employment in the 1 st month
of the following year. On top of the Compensation, he was also provided with a TV set as golden
handshake. The TV was purchased by employer for Tshs 400,000, however the market value for
the same was 500,000

Note: There were no contributions made to approve retirement fund by either employer or employee.

Required:
By applying relevant provisions of the Income Tax Act 2004, calculate the total taxable income of Mr.
Cheza for the Year of Income

Question Seven
Assume Mrs. Makundi resident employee was employed by ZMK Ltd since 1 January 2010 as an
Accountant. He is provided with a house along Mbezi Beach area whose rental market value was
Tshs 200,000 per month. The company will be claiming rental expenditure to the Commissioner of
Income Tax to the Tune of Tshs 150,000 per month.

For the Year the following are the cash and benefits in kind that were be made available to him:
i) Basic Salary 400,000 p.m
ii) She was given transport allowance of Tshs 250,000 p.m
iii) She was entitled to free medical services at one of the big private hospitals in the city.
During the year of income under consideration, the employer was paying Tshs 300,000
directly to the owners of the hospital as medical charges in respect of Mrs. Makundi. The
Employer provides medical services only to 15 employees, others are not covered.
iv) During the year, she was provided with a brand new private car (3000cc). The company
was claiming expenditure for the maintenance of the car. 1/3 was for official use, and 2/3
was for private use.
v) During the year, the company advanced Mrs. Makundi Tshs 3000,000 as a loan payable
in 24 equal installments and free of interest (Assume statutory rate of interest is 12% p.a
charged on total loan)
vi) Other benefits that was given to Mrs. Makundi during the year include electricity Tshs
50,000 p.m and water 20,000 p.m
vii) The company contributed 15% of her basic salary every month to NSSF (Approved) at
the same time the employee was contributing 5% of her basic salary to NSSF.
viii) Mrs. Makundi received gratuity worth Tshs 300,000 , for compensation of wounds due to
accident suffered while on duty.
ix) The Employer also paid for Mrs. Makundi’s scholarship fees of Tshs 1,000,000 which was
for full time course ending August 2010.
x) Mrs. Makundi received alimony from her E-x husband worth Tshs 150,000 monthly to
compensate for care of the children.
xi) Assume the employee was terminated from employment on 31 st Sept. 2010 and
20,000,000 was paid to ho her to compensate for the loss of office. Despite the
termination, the employer allowed her to continue paying the advanced loan as per
terms of loan agreement.
xii) Assume Mrs. Makundi is required by Law to file the returns
Required:
By applying relevant provisions of the Income Tax Act 2004, calculate the total the total taxable income
of Mr. Hamza and Income tax payable for

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