CPA(U) TAX Exam 1

Namanve Cable Makers Ltd: capital allowances, year of income 2026/27 (Shs'000)

Workings

• W1 Class 1: 48,000 + 22,000 = 70,000; wear and tear 70,000 x 40% = 28,000.
• W2 Class 2: the extrusion line 340,000 and the wire-drawing machine 64,000 (wrongly expensed, so capitalised here) are both plant used in manufacturing: 1,260,000 + 404,000 = 1,664,000; wear and tear 1,664,000 x 30% = 499,200.
• W3 Class 3: delivery trucks 150,000 and furniture 16,000 are added and the truck sale proceeds deducted: 210,000 + 166,000 less 38,000 = 338,000; wear and tear 338,000 x 20% = 67,600. The accounting profit on the truck is ignored because the proceeds go through the pool.
• W4 Industrial building deduction: original factory 5% x 900,000 = 45,000; new production hall 5% x 360,000 = 18,000 (land does not qualify, so the 120,000 is left out); total 63,000.

Total capital allowances = 28,000 + 499,200 + 67,600 + 63,000 = 657,800.

In full shillings: class 1 wear and tear 28,000,000; class 2 pool including the expensed machine 1,664,000,000; class 2 wear and tear 499,200,000; class 3 pool after additions and proceeds 338,000,000; class 3 wear and tear 67,600,000; industrial building deduction on both buildings, excluding land 63,000,000; total capital allowances 657,800,000.

📋 Objective: 5.5 (Determination of taxable business income)

Namanve Cable Makers Ltd: chargeable income and tax, year of income 2026/27 (Shs'000)

Workings

• W1 Adjusted business income: 3,180,000 + 284,000 + 15,000 + 23,000 + 31,000 + 64,000 less 11,000 = 3,586,000.
• W2 Chargeable income: 3,586,000 less 657,800 = 2,928,200 (Shs 2,928,200,000).
• W3 Tax: 2,928,200 x 30% = 878,460 (Shs 878,460,000); less withholding tax credits 132,000 = 746,460; less provisional tax 620,000 = 126,460 (Shs 126,460,000).

The final return of income and the balance of 126,460 are due within six months after the end of the year of income, that is by 31 December 2027. The credit for tax withheld by customers is allowed only with the withholding certificates.

In full shillings: adjusted business income 3,586,000,000.

📋 Objective: 5.6 (Computation of chargeable income and tax for an individual, a partnership and partners, and a company)

Provisional return and tax. As a non-individual, the company had to file a provisional return estimating its chargeable income and tax for 2026/27 by the last day of the sixth month of the year of income, that is by 31 December 2026. The estimated tax is paid in two instalments, each half due by the last day of the sixth month and of the twelfth month of the year of income. The estimate may be revised during the year if results change, and the provisional tax paid (620,000) is credited against the final assessment when the final return is filed six months after the year end. A deliberately low estimate exposes the company to penal tax and interest under the Tax Procedures Code Act.

Management fee to the Kenyan shareholder. A management fee paid by a resident company to a non-resident is subject to non-resident withholding tax at 15% of the gross amount: 96,000 x 15% = 14,400 (Shs 14,400,000). The company must withhold the tax when it pays or credits the fee, file the withholding return and pay the tax to URA by the 15th of the following month, and give the Kenyan company a certificate. Uganda has no bilateral double taxation agreement with Kenya, and the East African Community double taxation agreement is not in force, so no treaty rate applies and the domestic 15% stands. If the company fails to withhold, it is personally liable for the tax plus penal tax and interest.

📋 Objective: 10.2 (Returns of income)

Sarah Akello: chargeable employment income, year of income 2026/27 (Shs)

Her own 5% NSSF contribution is not deductible, so it does not reduce her chargeable income; PAYE is computed on gross pay.

📋 Objective: 4.3 (Taxable and non-taxable benefits)

Annual liability. Chargeable income 95,820,000 is above 5,820,000 and below 120,000,000: tax = 405,000 + 30% x (95,820,000 less 5,820,000) = 405,000 + 27,000,000 = 27,405,000. The extra 10% band does not apply.

July 2026 PAYE. Monthly chargeable pay = 6,350,000 + 750,000 + 280,000 + 430,000 car benefit = 7,810,000. PAYE = 33,750 + 30% x (7,810,000 less 485,000) = 33,750 + 2,197,500 = 2,231,250.

December 2026 PAYE. Pay 7,810,000 + bonus 2,100,000 = 9,910,000, still below 10,000,000 so no extra 10%. PAYE = 33,750 + 30% x (9,910,000 less 485,000) = 33,750 + 2,827,500 = 2,861,250.

Check: 11 x 2,231,250 + 2,861,250 = 24,543,750 + 2,861,250 = 27,405,000, equal to the annual liability, so no further tax is due at the year end.

Net cash pay for July 2026. Cash earnings 6,350,000 + 750,000 + 280,000 = 7,380,000; less PAYE 2,231,250; less her NSSF 5% x 6,350,000 = 317,500; net cash pay 4,831,250. The car benefit is taxed but not paid in cash.

Employer's duties. Kololo Advisory Ltd is the withholding agent: it must deduct PAYE each month, file the monthly PAYE return and pay the tax to URA by the 15th day of the following month (for example by 15 August 2026 for July), keep payroll records and give Sarah a certificate of the tax withheld. An employer that fails to withhold or remit is personally liable for the tax, with penal tax and interest under the Tax Procedures Code Act.

📋 Objective: 4.7 (Computation of employment income and the tax liability (PAYE))

Harriet Tumusiime: rental tax, year of income 2026/27 (Shs)

Rent is taxed when derived, so the shop counts only for the eight months it was let. An individual's residential and commercial rents are added together. An individual is allowed no deductions other than the threshold, so her repairs, property rates and loan interest (16,800,000 in total) do not reduce the tax.

📋 Objective: 7.2 (Tax treatment of rental income)

Kulambiro Court Apartments Ltd: rental tax, year of income 2026/27 (Shs)

Expenses incurred: repairs 96,000,000 + cleaning and security 74,000,000 + management fees 38,000,000 + mortgage interest 62,000,000 + rent paid for the second block 4,200,000 x 12 = 50,400,000; total 320,400,000. The rent paid to the landlord is the gross amount before withholding tax, because the tax withheld is part of the rent.

Limit: 50% x 486,000,000 = 243,000,000. Expenses exceed the limit, so excess expenses of 77,400,000 (320,400,000 less 243,000,000) are disallowed.

Chargeable rental income = 486,000,000 less 243,000,000 = 243,000,000.

Rental tax at 30% = 72,900,000.

📋 Objective: 7.1 (Meaning of rental income and rental tax)

Rent paid by a resident person to a non-resident is subject to non-resident withholding tax at 15% of the gross rent. Monthly: 15% x 4,200,000 = 630,000, so Claudine Uwase receives 3,570,000 a month. For the year: 630,000 x 12 = 7,560,000.

Rwanda is covered only by the East African Community double taxation agreement, which is not in force, so the domestic 15% applies with no treaty reduction.

The company must withhold the tax at each payment, file the withholding tax return and pay the tax to URA by the 15th of the month after payment, and give her a withholding tax certificate. If it fails to withhold, it is personally liable for the tax, plus penal tax and interest.

📋 Objective: 9.5 (Determination of withholding tax on various payments)

Kasese Avocado Exporters Ltd: VAT return for April 2027 (Shs)

Output tax

• Exports to South Africa 420,000,000: exported goods are zero-rated, so output tax is nil but input tax on the related costs is recoverable.
• Fresh avocados sold in Kampala 85,000,000: an exempt supply because the fruit is unprocessed agricultural produce, so no output tax is charged and input tax on costs used only for these sales cannot be claimed.
• Avocado oil 64,000,000 is processed and standard-rated: 64,000,000 x 18% = 11,520,000.

Input tax

• Export cartons 52,000,000 x 18% = 9,360,000, claimable (used for zero-rated supplies).
• Bottles, caps and labels 9,500,000 x 18% = 1,710,000, claimable (used for standard-rated oil).
• Refrigerated truck hire 18,000,000 x 18% = 3,240,000, claimable (used for exports).
• Fruit from unregistered outgrowers: no VAT was charged, so there is no input tax.
• Crates for the local fresh fruit: input tax of 1,080,000 is not claimable because the crates are used only to make exempt supplies.
• Station wagon: input tax of 21,600,000 is blocked because it is a passenger automobile and the company does not deal in or hire out cars.
• Dinner and lodge stay for buyers: input tax of 720,000 is blocked as entertainment.

Allowable input tax = 9,360,000 + 1,710,000 + 3,240,000 = 14,310,000.

Net position = output tax 11,520,000 less input tax 14,310,000 = excess input tax (credit) of 2,790,000, so no VAT is payable for April 2027.

📋 Objective: 11.7 (Computation of input tax and output tax)

Due date. A monthly VAT return must be filed, and any tax paid, by the 15th day of the following month, so the April 2027 return is due by 15 May 2027. It must be filed even though no tax is payable; late filing attracts penal tax under the Tax Procedures Code Act.

Recovering the credit. The excess input tax of 2,790,000 is carried forward and set against output tax in the next tax period. Because most of its sales are zero-rated exports, the company is likely to stay in a credit position, so it may instead lodge an application with the Commissioner for repayment of the excess, supported by the export entries and proof of shipment. From 1 July 2026, interest on a repayment made late is payable only where the amount delayed exceeds 5% of the refund claimed.

Invoicing. As a registered person the company must issue a tax invoice for every taxable sale, including the zero-rated exports and the standard-rated oil, through the electronic fiscal receipting and invoicing solution (EFRIS) as an e-invoice. Where it issues an e-invoice, a designated customer such as a supermarket does not withhold VAT from the payment. Failure to issue an e-invoice now attracts penal tax under the amended Tax Procedures Code Act of double the tax involved or 10 currency points. Its own input tax claims also depend on holding valid e-invoices from suppliers.

📋 Objective: 11.8 (VAT refund procedures)