BUSINESS INCOME AND INVESTMENT INCOME
QUESTION ONE
(a) With reference to Income Tax Act, Cap. 332, differentiate “investment assets” from “business
assets”.
(b) In the year 2021, the Commissioner for Domestic Revenue received a return of income of a
business called GARA Shopping Centre owned by CPA MUCHU. The following are the
transactions related with business of GARA Shopping Centre:
TZS.
Sales - 273,970,710,000
Cost of Sales - 150,000,355,000
Gross profit - 123,970,355,000
Operating expenses - 27,000,000,000
Other expenses - 96,756,219,000
Included in the other expenses item is a list of the following:
(i) Exchange loss of TZS.42,143,000,000 on the importation of raw materials.
(ii) Compensation to terminated employees TZS.618,500,000.
(iii) Amortized amount to replace a roof – TZS.4,733,000,000.
(iv) Payments made to remove erroneous terms of a loan contract TZS.821,000,000.
(v) Penalties for VAT TZS.3,500,000,000.
(vi) Managing Director’s personal visitors’ entertainment expenses TZS.3,880,000,000.
(vii) Political parties contributions TZS.1,007,450,000.
(viii) Board meeting expenses TZS.4,753,205,000.
(ix) Incentives – TZS.1,473,741,000.
(x) Treasury loan used by director to go abroad on vacation TZS.3,543,123,000.
(xi) Cost to prepare revised accounts TZS.1,232,456,000.
(xii) Construction cost of a new laboratory TZS.13,520,620,000.
(xiii) Cancellation of contract TZS.8,326,124,000.
(xiv) Salaries for future services TZS.6,577,000,000.
(xv) Legal cost for unsuccessful recovery of salaries from terminated employees
TZS.627,000,000.
Assume the adjusted investment income of CPA MUCHU is TZS.50,000,000,000 and you are in
charge of one of the audit teams at the Domestic Revenue Department and the Commissioner for
Domestic Revenue has assigned you the tax file of CPA MUCHU.
REQUIRED:
Apply the provisions of the Income Tax Act, Cap. 332 to determine the taxable income
of CPA MUCHU
QUESTION TWO
Define the following terminologies
(a) Investment
(b) Investment asset
(c) Investment Income
QUESTION THREE
Mr. Mkongo is a resident individual with the following sources of income during the year of
income ended December 31, 2023:
1. Sold shares of Atmos Supplies Ltd, a resident company listed in the Dar es Stock Exchange,
whereby he owns 17% of controlling shares. These shares were bought at TZS.5,200,000 and
sold for TZS.10,400,000.
2. Received TZS.28,000,000 from Mashaka Assurance Ltd a resident company, as proceeds from
his life insurance that has matured in 2023 after 10 years of contributions. Mkongo has been
contributing of TZS.100,000 monthly.
3. Received bank interest of TZS.5,000,000 in relation to a fixed deposit with Mwananchi Bank
Ltd.
4. Mkongo is a member of ZSSF, a Zambian retirement fund, where he has been making
monthly retirement contributions of equivalent to TZS.120,000 for 5 years until last year when
he retired. This year he received a lump sum retirement payment of equivalent to
TZS.30,000,000.
5. Received TZS.200,000,000 for sale of a land situated at Kariakoo, Dar es Salaam. This land
was acquired in 1986 for TZS.8,000,000. Legal fees for the sale amounted to TZS.12,000,000.
6. Received dividend of TZS.400,000 from Musiba Ltd. This was a resident corporation where
he own 29% of the shares.
7. He was paid TZS.280,000 by Fjardings Trust, a Swedish registered trust as a compensation for
cancellation of his membership due to old age. Mkongo has made cumulative contributions of
TZS.200,000,000 for the whole period of membership.
8. Sold a residential house of which he had been occupying occasionally for more than three
years for TZS.700,000,000. The house was bought for TZS.400,000,000.
9. Dividends amounting to TZS.12,400,000 were received from Gatan Ltd, a non-resident
corporation, which is listed in DSE. 24% of Gatan Ltd shares are owned by Kamaka Ltd, a
resident company
QUESTION FOUR
Kevoo runs a tourist resort in Tarangire Tanzania. He is a resident individual by the virtue of sec
66 of ITA 2004.
The adjusted income from the business for Kevoo for the year of income 2022 is TZS
100,000,000.
During the year Kevoo conducted the following transactions.
1. Received dividend from TIGO company limited a resident corporation amounting to TZS
6,000,000.Kevoo owns 40% of shares in TIGO ltd.
2. Received dividend amounting to TZS 4,000,000 from Bonite company ltd a company
listed on DSE
3. Dividend amounting to TZS 5,000,000 received from SIEN ltd which is listed on DSE
and owned by SINE ltd a non-resident company.
4. On 13/12/2022 Kevoo received TZS 2,400,000 as interest from TPB with respect to
deposit in TCB.
5. On 6/08/2022 Kevoo received TZS 5,600,000 as a distribution from TOTOLII a resident
trust.
6. Both Kevoo and Brayoo were planning to acquire some shares in a newly formed
company Chezea ltd .Due to scarcity in number of shares available in chezea ltd Brayoo
decided to pay Kevoo TZS 3,000,000 so as to restrict him from buying the shares in
chezea ltd.
7. She also had 16 hectors of land at Arusha which was purchased for TZS 2,000,000 in
2000.On March 2022 he decided to sell the land for TZS5, 800,000. Throughout the
period the land has been used for agriculture. The market value of land at the time of sale
was 5,400,000.
8. He also received a royalty from V.N ltd amounting to TZS 8,000,000 resulting from lease
of NATIONAL PARK VIDEO TAPES which VN were using for business promotion.
9. During the year Kevoo decided to transfer for free 1000 shares owned in IPP limited to
his son. These shares were acquired at DSE at TZS 5,000 per share. At the time of
acquiring shares Kevoo paid TZS 200,000 to DSE as brokerage fee. The market value of
each share at the time of transfer was TZS 6,000.
