EXAMINATION : INTERMEDIATE LEVEL

SUBJECT : PUBLIC FINANCE AND TAXATION

CODE : B4

EXAMINATION DATE : TUESDAY, 31ST OCTOBER, 2023

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 FOUR questions in Section B.

4. In total answer FIVE questions.

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

6. Calculate your answers to the nearest two decimal points where necessary.

7. Show clearly all your workings in respective answers where applicable.

8. Applicable tax rates are provided in Appendices Pg. 9.

9. This question paper comprises 9 printed pages.

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SECTION A
Compulsory Question
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QUESTION 1
(a) CPA Msema Kweli has just completed his CPA examinations and has started to
acquire practical experience at BC&J Associates as per NBAA requirements. His first
assignment was to compute the input tax credit of Janjajanja Ltd, one of the BC&J
Associates new clients who has never filed any return despite being registered for
VAT. The following purchases information was furnished to CPA Msema Kweli.
TZS.
Electricity 40,000,000
Legal fees 90,000,000
Stationaries 80,000,000
Fertilizers 100,000,000
Beverages 15,000,000
Water 12,000,000
Telephone 8,000,000
Immediately after receiving the information, CPA Msema Kweli approached his
immediate supervisor, claiming that the information furnished is not sufficient.
REQUIRED:
For each information provided and for the purpose of computing input tax credit,
discuss the extent of insufficiency of the information provided, if any. In case there is
any insufficiency, suggest relevant information to be enquired. (10 marks)

(b) A principal legislation allows the Minister of Finance to prepare regulations where
necessary as additional provisions with respect to tax laws for the better
implementation of the principles, purposes and provisions of the Principal Act. The
regulations usually carry the same authority as that of the Principal Act.
REQUIRED:
(i) State any six (6) regulations under the Income Tax and Value Added Tax
regimes. (6 marks)
(ii) From the employer’s perspective, explain tax treatment of the expenses paid by
the employer to an employee under one of the income tax regulations in
Tanzania. (2 marks)

(c) Duty drawback is a refund of all or part of any import duty paid in respect of goods
exported or used in a manner or for a purpose prescribed as a condition for granting
duty drawback.
REQUIRED:
Briefly explain at least four (4) conditions to be fulfilled for granting duty drawback.
(2 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) In complying with the self-assessment system and installment payments, there would
normally be situations where the amount of estimated income (or tax) is not the same
as the actual amount of income (or tax).

REQUIRED:
(i) State the situation where a person would be regarded to have underestimated
income/tax (1 mark)

(ii) State the implications of underestimation of income/tax. (1 mark)

(b) Kibibi Makasi (Kibibi) is a trader who operates a restaurant selling specialized trading
foods in Kinondoni – Dar es Salaam, in a restaurant just adjacent to her home. She
started informally and has been able to attract many customers from different
backgrounds through her initiative to learn different traditional Tanzanian foods. Apart
from working on a full-time basis in her business (both cooking and supervision), she
had hired the services of chefs from different indigenous localities to meet the needs of
customers from diverse cultural backgrounds. She has just learnt that apart from
different municipal levies that she has been paying for the past 18 months of
operations, she is also required to pay income tax on the business. It is now 30th
September 2023 and she has received an assessment from Tanzania Revenue
Authority that requires her to pay income tax based on an assessed income of
TZS.49,400,000 in respect of the year of income 2022. Knowing that you are a CPA
candidate preparing for Taxation examination, she has contacted you to assist her with
advice on handling this matter, before attempting to ask for any possible remission
with the TRA. This is extremely because this business is her only source of income
and she cannot afford to lose it.
REQUIRED:
Write down your responses to Kibibi (including calculations) on each of the following:
(i) The amount of income tax payable on the income above (ignore any interest
and/or penalties. (3 mark)
(ii) Any non-compliance that Kibibi has committed in relation to income taxation for
the year of income 2022 (ignore failure to register and obtain TIN). (4 mark)
(iii) Any penalties to which Kibibi is liable in relation to (ii) above (ignore
calculations) (2 mark)
(iv) Any possibility that Kibibi’s income tax may be assessed on presumptive tax
basis and whether this will reduce tax payable. (3 mark)

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 (c) Business and investment are similar such that both need a person to commit money in
anticipation of future benefit. For tax purpose, it is important to differentiate when
someone is doing business or investment because of difference in tax rates.

REQUIRED:

(i) Highlight five (5) indicators of an activity to be identified as one of an

investment nature rather than a business nature. (2 mark)

(ii) Awena Property Developers (APD) Ltd purchased a residential house on 1st
January 2015 through a 12% per annum mortgage loan of TZS.40,000,000
from AB Bank. APD incurred the following expenses in obtaining the loan:

• Audit fees and Legal fees TZS.1,284,000.

• Valuation of the house TZS.1,200,000.

Additional information:

1. The house was being used by the General Manager of APD, Mr.
Nguvukazi since 2018.

2. The company replaced all doors in the residential house with metallic
doors at a cost of TZS.960,000.

3. Property tax from 1st January 2015 to December 2022 amounted to

TZS.150,000.

4. On 31st December 2022, APD sold the house at a price of

TZS.80,000,000 after incurring the following expenses:
• Repair of the house TZS.780,000
• Newspaper advertisement TZS.242,000
• Agent’s commission TZS.120,000
• Valuation fee TZS.1,480,000
• Legal fee TZS.428,000.

REQUIRED:

Comptute the capital gain or loss arising from the sale of the above house.
(4 marks)
(Total: 20 marks)

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QUESTION 3

(a) When public expenditure exceeds public revenue, governments resort to internal or
external borrowings. While every government should strike a balance between
internal and external borrowings, some governments struggle to borrow externally.

REQUIRED:

(i) Explain any two (2) limitations of external borrowings. (4 marks)

(ii) Explain the circumstances under which the government may struggle to raise her
revenue through external borrowing. (2 marks)

(b) While tax remains the most reliable and sustainable sources of government revenue,
governments may also raise revenue from non-tax sources.

REQUIRED:

Describe any six (6) factors distinguishing tax from other sources of government
revenue. (6 marks)

(c) Briefly explain two advantages and two limitations of national income per capital.
(2 marks)

(d) The importance of establishing a closer relationship with taxpayers and other
stakeholders is crucial for any tax authority in any country. In cognizant to this,
Tanzania Revenue Authority has put forward Taxpayer’s Service Charter as a
pronouncement of its commitment to deliver quality services to taxpayer and other
stakeholders towards discharging its statutory functions.

The eight editions of the Taxpayer’s Service Charter has been prepared to replace the
seventh edition.

REQUIRED:

(i) With examples, explain any two (2) reasons behind replacing the seventh edition
of the Taxpayer’s Service Charter. (2 marks)

(ii) Briefly explain the two (2) main objectives of the taxpayer’s Service Charter.
(2 marks)

(iii) As stipulated in the taxpayer’s service Charter, explain any four (4) obligations of
the Tanzania Revenue Authority to both taxpayers an shareholders. (2 marks)
(Total: 20 marks)

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QUESTION 4
(a) After her retirement, Prof. Zuri Zuri decided to carry out agricultural business. Taking
into account her age and the risks associated with business operations, Prof. Zuri Zuri
decided to engage in some investment activities.

During the first year of her operation in 2022, she purchased the following assets:
(i) Computers and data handling equipment, which were used by the secretary and
the accountant. One extra computer was purchased in December 2022 with the
aim of using it earlier 2023. The three computers were purchased at
TZS.900,000 each.

(ii) Three 30 seaters minibuses which were used to shuttle staffs were purchased,
each at TZS.15,000,000, and two more seaters’ buses were added during the
year at a value of TZS. 80,000,000 in total.

(iii) Two bulldozers each costing TZS.10,000,000, one second hand Datsun pickup
for TZS.5,000,000, one brand new saloon car for TZS.18,000,000 and furniture
and fittings costing in total TZS.7,500,000.

(iv) During the year, the company purchased a grain storage warehouse and rice
milling building for the purpose of renting. These buildings were constructed
and completed at a cost of TZS.85,000,000 and TZS.60,000,000 respectively
and were let out from 15th May 2023.
(v) While the business was continuing, she purchased two 10 tonnes Leyland
lorries for TZS.12,000,000 each, and a second-hand van for TZS.5,000,000.
(vi) During the year the following agricultural equipment, which arrived at Dar es
Salaam port were cleared immediately and railed to Iringa to commence
farming work. All values are CIF DSM, plus transportation to Iringa. All the
expenses were covered by her twin sister, Prof, Zuriana who has also retired.
• Komatsu Caterpillar TZS.40,000,000, five Fuso tractors @
TZS.12,000,000.
• Harrows and one planter all costs TZS.6,000,000, three heavy duty Isuzu
trucks TZS.180,000,000 in total.
• Grain milling machines plus conveyor belts system for automatic sack
filling and loading to trucks all costs TZS.10,000,000 including cost of
installation.
(vii) A gain storage warehouse was constructed and completed at a cost of
TZS.5,000,000, and it was put into use from 15th May 2022.
(viii) A concrete sucking grain yard was constructed for automatic suction of rice
grain into grain silos leading into the milling machines at a cost of
TZS.12,000,000 and effectively used from 1st February 2022.
(ix) Bought shares of Wanazuoni Ltd at TZS.25,000,000.

Q&A, November 2023 Page 73 of 127

 REQUIRED:
With reference to Third Schedule of Income Tax Cap. 332, classify and pool the above
assets into their respective classes for the year ended 31st December 2022.
Note: Indicate by NA in a respective class where assets are not required to be
pooled in 2022. (10 marks)

(b) Briefly explain the bases upon which income tax is imposed under section 4(1) of the
Income Tax Act, Cap.332. (4 marks)

(c) Under each of the following cases, determine the possible sets of the year of income
for:
(i) In 2022, Mr. Faustine requested to change his year of income from January -
December to April – March. (3 marks)
(ii) In 2022, Mrs. Faustine requested to change her year of income from January –
December to August – July. (3 marks)
(Total: 20 marks)

QUESTION 5
(a) The establishment of the East African Community aimed at widening cooperations
among the partner states. To achieve this, customs union was agreed to be the entry
point.

REQUIRED:
Explain any six (6) features of customs union. (6 marks)

(b) Describe inward processing and outward processing as used in customs laws:
(4 marks)
(c) Mwanzalima is a returning resident who has been working in Toronto, Canada for the
past 12 years. After a change of residence from Toronto to Mwanza, it took him 7
months to import his brand new 4 x 4 Isuzu wagon. This was due to the effect of
COVID-19 on the international shipping industry. The motor vehicle was purchased
by Mwanzalima five years ago. The following information is provided.

US$
One 4 x 4 Isuzu wagon 3000cc 120w USD FOB 12,000
Freight, Tokyo – Dar 1000
Transport cost Dar to Mwanza 500
Insurance cost Tokyo to Dar 1500
Primage cost Dar to Mwanza 100

Assume the following:

(i) Exchange rate TZS.2300/USD
(ii) Import duty 25%
(iii) Excise duty 30%
(iv) VAT 18%

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 REQUIRED:
Compute import duty, excise duty, VAT paid on importation of Isuzu wagon.
(5 marks)

(d) Explain any five (5) categories of goods exempted from customs duties.
(5 marks)
(Total: 20 Marks)

QUESTION 6

(a) Mr. Ngoma has recently been appointed as a tax manager at a reputable financial
consulting firm. With his background in finance and taxation, he has been highly
recommended for his expertise in managing and advising on various tax-related matters.
However, despite his qualification, Mr. Ngoma lacks a comprehensive understanding of
the causes of tax evasion, a critical issue in the world of taxation.

REQUIRED:
(i) Differentiate tax evasion from tax avoidance (3 marks)
(ii) Explain any seven (7) measures which can be taken to minimize tax evasion.
(7 marks)
(b) Explain the nature and two (2) objectives of stamp duties. (4 marks)

(c) Income tax law in Tanzania includes certain provisions in which a resident person will
be treated differently as compared to a non-resident person.

REQUIRED:

State any six (6) areas where a resident person is different from a non-resident person in
treatment as per the Income Tax Act, Cap.332. (6 marks)
(Total: 20 marks)

Q&A, November 2023 Page 75 of 127

Appendices
(1) Applicable resident individual income tax rates:
Monthly income Tax rate
Where total income does NIL
not exceed TZS.270,000
Where total income exceeds TZS.270,000 8% of the amount in excess of TZS.270,000
but does not exceed TZS.520,000
Where total income exceeds TZS.520,000 TZS.20,000 plus 20% of the amount in excess of
but does not exceed TZS.760,000 TZS.520,000
Where total income exceeds TZS.760,000 TZS.68,000 plus 25% of the amount in excess of
but does not exceed TZS.1,000,000 TZS.760,000
Where total income exceeds TZS.1,000,000 TZS.128,000/ plus 30% of the amount in excess of
TZS.1,000,000
(2) Applicable presumptive income tax rates:
Annual turnover 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 turnover exceeds TZS.11,000,000 but
3.5% of turnover
does not exceed TZS.100,000,000
(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 5%
(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%.
(8) Unless otherwise specified, Corporate tax rate = 30%

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