SECTION 8.

CORPORATE BUSINESS INCOME

Meaning of business income; Section 8 of ITA
A person's income from a business for a year of income is the person's gains or profits
from conducting the business for the year of income.
Section 8(2) of ITA, describes generally the items of incomes/amounts to be included
when calculating the chargeable income from business; that is the items which are in
connection with a business, they include;

a) Service fees;

b) Incomings for trading stock;

c) Gains from the realization of business assets or liabilities of the business

d) Gains from realization of the person's depreciable assets of the business;

e) Amounts derived as consideration for accepting a restriction on the capacity to

conduct the business;

f) Gifts and other ex gratia (compensation for damage) payments received by the person
in respect of the business;
g) amounts derived that are effectively connected with the business and that would
otherwise be included in calculating the person's income from an investment; e.g.
interest, rent, royalty, dividend etc. have been listed as investment incomes but in some
cases they become closely connected to business and hence treated as business income
such as interest received from a business current deposit account.
h) Other amounts including reverse of amounts as bad debts, discount allowed and
fluctuations in foreign exchanges.

Items of income excluded in calculating chargeable income from business according to

Section 8(3) of the Income Tax Act cap 332, 2004 R.E 2019. (Excluded business income)

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(i) Exempt business income/amounts, listed under 2nd schedule of ITA
(ii) Final withholding payments under S. 86 of ITA. and
(iii) Non-business incomes e.g. dividends, royalty, salary etc.

GENERAL PRINCIPLE OF DEDUCTION UNDER BUSINESS INCOME AND / OR

INVESTMENT INCOME
Section 11(2) of ITA, The general principle of deduction states that,
(I) On computation of the person’s income from business or investment there
shall be deducted all expenditures incurred wholly and exclusively to produce
business or investment income during the year. (Allowable expenditures).
When is an expenditure considered to have been incurred wholly and exclusively for the
purpose of the business?
 Wholly means the quantum i.e., the whole amount of the expenditure
 Exclusive means for the purpose,
Therefore, for the expenditure to be treated as, been incurred wholly and exclusively, the
whole amount must have been spent for the purpose of producing the income and not a
portion of it.
Judicial tests used by judicial authority to determine whether expenditure has been
incurred wholly and exclusively for the purpose of business

(a) Dual test, an expenditure must not have been incurred to save more than one
purpose for it to be considered as been incurred wholly and exclusively in
production of business or investment income. Eg. An employee who spends
money to buy lunch during working hours, the expenditure has been incurred to
save double purposes which are employee’s survival and employee’s work.

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(b) Remoteness test, for the expenditure to be deducted must be closely related to
the income generated. Expenditures that are loosely connected with the business’
economic activities are non-allowable.

(II) Non-Allowable expenses (expenses whose deduction is prohibited)

S. 11(1) on computing person’s total income, there should be no deduction on
consumption expenditure and excluded expenditures incurred by the person.
S. 11(3) do not deduct expenditure of a capital nature
S. 11(4) “consumption expenditure” means any expenditure incurred by any person in the
maintenance of himself, his family or establishment, or for any other personal or
domestic purpose;
“Excluded expenditure” means -
(a) Tax payable under Income tax Act e.g. corporate tax.
(b) Bribes and expenditure incurred in corrupt practice;
(c) Fines and similar penalties payable to a Government or a political subdivision of a
Government of any country for breach of any law or subsidiary legislation
(d) Expenditure to the extent to which incurred by a person in deriving exempt amounts
or final withholding payments;
(e) Distributions by an entity e.g. dividend or
(f) Withholding tax paid by a withholder; and
"Expenditure of a capital nature" means expenditure that secures a benefit lasting longer
than twelve months.

SPECIFIC ALLOWABLE DEDUCTIONS

1) INTEREST EXPENSE (S. 12(1)
Interest incurred wholly and exclusively to produce business or investment income is an
allowable expense.

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S. 12(2). THIN CAPITALIZATION RULE
Is one of the tax avoidance schemes mostly used by multinational companies to avoid
tax by financing their associates with excessive loans instead of equity by taking an
advantage of interest expense which is an allowable expense. The interest deducted is
used to erode the tax base.
Therefore, to resolve this problem the law states that interest deducted by exempt
controlled resident entity must not exceed an interest on amount equivalent to 7:3 Debts
to Equity ratio (CEILING DEBT)

N.b. Exempt controlled resident entity, means a resident entity in which 25% or more of
their underlying ownership is held by entities exempted under 2nd schedule (Government
institutions, East African development bank, BOT etc), approved retirement funds,
charitable institutions, nonresident persons and associates of those persons.
For example, A TZ Company ‘X’ receives TZS 200M loans from its parent company ‘Y’
situated in South Africa. The tax rate in TZ is 30% while that of South Africa is 10%.
X’s capital structure is made of debt TZS 200Million and Equity TZS 50Mil, and the
interest shown on the statement of comprehensive income was TZS 20Mil. i.e. 10% of the
loan amount. Calculate the ceiling date and the maximum interest amount to be
deducted.
SOLN
Ceiling debt = 2 1/3 (7/3) * Equity
= 7/3 * 50Mil
= 116 .7 Million is the amount of debt whose interest must be
Deducted (Ceiling debt)
Allowable interest
200Mill. = 20Mil 116.7Mill * 20Mil = 11.67 Mill
116.7 Mil = ? 200 Mill

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Therefore, TZS 11.67 Mil will be deducted as interest

2) TRADING STOCK ALLOWANCE (Closing inventory)

The closing stock should be valued at the lower of
(a) The cost of the trading stock of the business at the end of the year of income; or
(b) The market value of the trading stock of the business at the end of the year of
income (Section 13(4).

3) REPAIR AND MAINTENANCE EXPENDITURE

There shall be deducted expenditure incurred in respect of repair and maintenance of
depreciable assets owned and employed by the person wholly and exclusively in the
production of income from the business. But expenditures incurred to improve lives of
assets or repairs and maintenance of capital nature should be capitalized in the costs of
assets rather than be deducted as revenue expenses (capital expenditures) (Section
14(2)).

4) AGRICULTURE IMPROVEMENT, RESEARCH AND DEVELOPMENT AND

ENVIRONMENTAL EXPENDITURES.
Agriculture improvement, research & development and environmental expenditure are
deductible expenses when incurred for business purposes (Section 15 (1)). In addition,
mining business might make as provision allowance account under environmental
expenditure and apply for their deductions to the Commissioner; if approved they
become deductible expenses (Section 15(3)).
Definitions
‘Agricultural improvement expenditure’ means expenditure incurred by the owner or
occupier of farm land in conducting an agriculture, livestock farming or fish farming

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business where the expenditure is incurred in clearing the land and excavating irrigation
channels; or planting perennial crops or trees bearing crops.
‘Environmental expenditure’ means expenditure incurred by the owner or occupier of
farmland for prevention of soil erosion”;
‘Research and development expenditure’ includes
 Expenditures incurred to improve business products or process or to develop the
business
 Expenditures to establish a business e.g., incorporation costs, cost to set up
organization’s systems, procedures, and regulations – including cost to issue IPO
and first listing (Not secondary listing/issue) of shares and securities at the DSE.
The expenditure shall not be associated with asset acquisition used in such
process of business establishment

5) CONTRIBUTION AND DONATIONS

Contribution and donations made by taxpayers are generally not incurred wholly and
exclusive for business purposes, then generally all these expenses should not be
deducted.
However, contribution and donations made under Section 12 of the Education Fund Act
and amount paid to local government authority, which are statutory obligations to
support community development projects, are deducted 100%.
Conversely, deduction of amount contributed to a charitable institution or other social
development project should not exceed 2% of the person's income from the business
before donation (Section 16(2).
Consider the following statement of company B’s financial performance
Gross profit 20M
Allowable expenses: X (3M)
Y (5M)

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Donation to charitable institution (4M)
PBT 8M

Compute a taxable business income and allowable donation to charitable institution

under ITA cap 332 2004 R.E 2019

Any other donations and contributions can only be deducted if they are incurred wholly
and exclusively for the purposes of business. For instance, contributions to trade
organizations can be deductible if the trade association furthers the businesses of its
members.

6) DEPRECIATION ALLOWANCES FOR DEPRECIABLE ASSETS

An allowable depreciation allowance for a person’s depreciable assets is the one
computed as per 3rd schedule of the ITA.

7) BUSINESS AND INVESTMENT LOSSES

Losses incurred by businesses with exceptional of partnership or a foreign permanent
establishment is deductible expenses. These losses include any unrelieved loss of the
year of income of the person from any other business and any unrelieved loss of a
previous year of income of the person from any business (Section 19(1)).
Additionally, unrelieved losses from other foreign source losses can be deducted only in
calculating the person's foreign source income and unrelieved loses from agriculture
business can only be deducted from calculating business income from agriculture.

8) CAPITAL RECEIPTS (Proceeds from realisation of assets)

Proceeds from sale of depreciable assets would be treated in computation of gain from
realization of depreciable assets as required in the schedule of the Income Tax Act, Cap

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332. Likewise, receipts from disposal of investment assets should be used in calculating
investment capital gain and the investment income not in computing business income.

9) FOREIGN CURRENCY EXCHANGE GAIN/LOSSES

Gain or loses from foreign exchanges if related to business transactions are taxable
income and deductible expenses respectively. Yet the computation of foreign exchange
gains should be done when there is actual receipt of the foreign currency. Because it is at
that point the foreign currency debt is realized (Section 40(2) (c)). Nevertheless, exchange
gains or losses on translation of foreign owned operation are not allowed.

10) BUSINESS ENTERTAINMENT AND GIFTS

Expenses and gifts incurred in entertaining employees in relationship to their
employment are generally allowed as they constitute employment income. But those
expenses incurred for non-employee persons are disallowed expenditures if they are not
wholly and exclusively incurred for businesses purposes.

11) PENSION SCHEME CONTRIBUTIONS AND OTHER EMPLOYEE BENEFITS

Payment made to both approved and unapproved pension schemes and other
employee’ benefits are deductible businesses expenses so long as the payments are
included in calculations of employment income (Income Tax Regulation 4). In addition,
any employment benefits as training costs and redundancy incurred by employers are
deductible expenses provided, they are included in employees’ income.

12) LEGAL AND ACCOUNTANCY CHARGES

Expenses incurred in preparation of financial accounts and tax returns are generally
allowable expenses. Legal and other expenses in connection with normal business or
investment activities and they are incurred wholly and exclusive for business purpose are

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deductible expenses. However, those expenses incurred in connection of acquisition of
capital assets should be capitalized in the costs of assets and therefore they are not
deductible expenses (Section 37). Also legal and expenses incurred in tax appeal are not
deductible.

13) INSURANCE CLAIMS

When there are receipts from insurance compensation relating to depreciable assets;
they should be treated as incoming from realization of the depreciable assets and used
for computation of gain or loss from realization of depreciable assets. Also, insurance
compensation relating to investment assets are used in computing capital loss or gain
from that investment assets. However, any receipt of insurance against current assets,
business losses and other accident are taxable business income.

14) BAD AND DOUBTFUL DEBTS

Businesses’ bad debts of revenue nature are deductible expenses when they become bad
and actually written off (Section 25(4); Section 39). Therefore, general provision for
doubtful debts is not deductible expenses. Yet, provision `for specific doubtful debt may
be allowed. Furthermore, a bad debt arising out of business or investment activities and
its associated costs is not allowable.

Test your understanding

Question 1
Samaria Enterprises, super dealers of construction products, has recently constructed its
office premises. The company incurred TZS 45,000,000 for planting of grasses, fruit trees,
other trees, and flowers in the surroundings of the premises. Samaria is claiming a
deduction for this expenditure on the basis that it is an agricultural expenditure.
Required:

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Comment on the Samaria claim

Question 2
KekoLtd, owns a factory which produces textile products. The chemicals released by the
factory have been claimed to be affecting the environment. Keko Ltd has thus incurred
TZS 34,000,000 to clean the environment claimed to have been affected by the
chemicals. The company claims deduction of such expenditure claiming that it is
environmental expenditures.
Required:
Is Keko Limited claim, right?
Question 3
A foreign parent company, AMADEUS LIMITED has a loan of TZS.40, 000,000 to its
wholly-owned subsidiary in Tanzania, Amazon Tanzania Limited. Amadeus Limited’s
equity in Amazon Tanzania
Limited is TZS.2, 000,000 and interest payable on the debt for the 2019 year of
assessment is TZS.6, 000,000.
Required:
Determine the interest that should be allowed for tax purposes in 2019 year of
assessment for Amazon Tanzania Limited. Explain your answer.

CALCULATION OF CHARGEABLE INCOME FROM BUSINESS

All business persons prepare their accounting records using General Accepted
Accounting Practices (GAAPs). So, for tax purposes, we do not establish new financial
statements. But we adjust profit or losses shown by the accounting statements by adding
items which are not taken into accounting by GAAPs and deducting items which are not
allowed by tax laws but included by the GAAPs. The statement below can help us when
computing taxable business income.

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Profit/loss as per accounts xxx

Add: Non-Allowable expenses

Consumption expenditure xx
Excluded expenditure xx
Capital expenditure xx

Add: business income not included/added

Compensation xx
Gain on realization of business asset xx

Less: Non allowable business income

Final withholding payments xx

Less: business expenses not deducted

Capital allowances xx
Interest expense xx
Taxable business income xxx

REVIEW QUESTION

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ABACOMBI Tours Ltd runs a tourist trade in Manyara. The following information has
been extracted from the company’s books of account and is made available to you for

scrutiny as a tax expert for the tax year 2019.

I. Expenses deducted during the period Tshs.

 Salaries and wages 18,400,000

 Telephone and electricity 1,200,000
 Insurance 10,000,000
 Repairs and maintenance 20,000,000
 Advertising and promotion 2,800,000
 Depreciation 3,160,000
 Professional charges 8,000,000
 Management and consultancy fees 24,000,000
 Travelling and transport 16,000,000
 Motor vehicle expenses 26,000,000

 General administration 1,400,000

II. Net loss during the same period after deductions (under I) above was loss;

(Tshs.30,960,000/=)

III. Additional information relating to the period:

(a) Telephone and electricity Tshs.

 Local and international calls 240,000

 Purchase of second hand switchboard 800,000

 Repairs of intercom 160,000

(b) Repairs and maintenance Tshs.

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 Cost of fire extinguisher 10,000,000
 Uniforms for staff 4,000,000
 Cost of fire alarm system 5,000,000

 Repairs of shed and painting 1,000,000

(c) Advertising and Promotion Tshs.

 Newspaper advertising 400,000

 Tourist sightseeing 1,600,000

 Large Neon Sign: Hotel name 800,000

(d) Depreciation charges Tshs.

 Loose tools 160,000

 Fixed assets 3,000,000

(e) Professional charges Tshs.

 Audit and Accountancy fees 2,000,000

 Registration of Property 5,000,000
 Tax Penalty 1,000,000

(f) General and Administration Tshs.

 Bad debts written off 400,000

 Donation to a political party 300,000
 Provision for uncollectible accounts 240,000

 Exchange loss on foreign loan 460,000

(g) The 3rd schedule depreciation allowances for depreciable assets have been agreed at

Tshs. 24,000,000.

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Required: Calculate the company’s business income for tax purpose for the accounting

period covered by this information

DEPRECIATION ALLOWANCE FOR DEPRECIABLE ASSETS ACCORDING TO THE 3 rd

SCHEDULE OF ITA
Depreciation allowance refers to an annual allowance for the wear and tear of an asset. It
is granted/calculated using the rules under the 3rd schedule of the income tax ACT Cap
332.
Depreciable asset means an asset employed wholly and exclusively in the production of
income from a business, and which is likely to lose value because of wear and tear,
obsolescence or the passing of time but excludes
 goodwill,
 an interest in land,
 a membership interest in an entity
 Trading stock and
 Mineral and petroleum rights

CLASSIFICATION OF DEPRECIABLE ASSETS

There are 8 classes of depreciable assets according to 3rd schedule par 1(1) of Income
Tax Act Cap 332. These are as follows:
Class 1
Computers and data handling equipment together with peripheral devices,
Automobiles(Motorcars), buses and minibuses with a seating capacity of less than 30
passengers, goods vehicles with a load capacity of less than 7 tones; Construction and
earth-moving equipment
Class 2

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Buses with a seating capacity of 30 or more passengers, heavy general purpose or
specialized trucks, trailers and trailer-mounted containers; other self-propelling vehicles,
Railroad cars, locomotives and equipment; Vessels, barges, tugs and similar water
transportation equipment; Aircraft; Plant and machinery (including windmills, electric
generators and distribution equipment) used in manufacturing or mining operations;
specialized public utility plant and equipment; and machinery or other irrigation
installations and equipment.
Class 3
Office furniture, fixtures, all equipment except for those listed in Class 2, any asset not
included in another Class
Class 4
Deleted
Class 5
Buildings, structures, dams, water reservoirs, fences and similar works of a permanent
nature used in agriculture, livestock farming or fishing farming;
Class 6
Buildings, structures and similar works of permanent nature other than those mentioned
in Class 5
Class 7
Intangible assets e.g. Trade mark, patent right, natural resource exploration and
production rights
Class 8
Plant and machinery (including windmills, electric generators and distribution equipment)
used in agriculture and electronic fiscal device purchased by a non Value Added Tax
registered trader,
Equipment used for prospecting and exploration of minerals or petroleum

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RULES ON COMPUTATION OF DEPRECIATION ALLOWANCE
Under 3rd schedule of ITA, in order to determine depreciation allowance, assets must be
added to a pool of depreciable assets. In which there two types of pools of depreciable
assets.
(i) General Pools
This is a pool which comprises of all assets of the same class. This means all depreciable
assets belonging to, say, class 1 are all pooled to one pool. In this case a class becomes a
pool. However, this applies for all classes except class 7 assets and moveable tangible
assets used by a person in conducting international transportation business [land, sea, or
air] –transporting passengers, mail, livestock or other moveable tangible assets. These
assets are pooled using specific pools.
(ii) Specific Pools
In this pooling strategy each individual asset forms a pool of its own, different from
assets of its class. An asset, say copy rights, plane, bus, vessel, etc, each form its own
pool. Therefore, depreciation allowance will be calculated for each copy rights, plane,
bus, vessel, etc. All the assets that do not follow general pooling strategy will fall under
specific pooling.

ADDING DEPRECIABLE ASSETS IN THE POOLS OF DEPRECIABLE ASSETS

Depreciation allowance is charged on depreciable assets which are found within the
pool. Depreciable assets outside the pool cannot be charged depreciation allowances.
Not every depreciable asset owned by the person qualifies for addition in the pool. There
are conditions to fulfill. These are:
i) The depreciable asset must have been employed by the person wholly and exclusively
in the production of business income of a person in the year of income.

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ii) The person claiming the deduction must be beneficial owner and not the legal owner
of the asset. The beneficial owner is the person who incurred the qualifying expenditure
to or paid to acquire the depreciable asset.

COMPUTATION OF DEPRECIATION ALLOWANCES

There are 3 types of depreciation allowance charges:
i] Initial Allowance
ii] Annual Allowance
iii] Terminal allowance

1. INITIAL ALLOWANCE
There are some depreciable assets which will be granted initial depreciation allowance
immediately when added to the pool of depreciable assets. These depreciable assets
include each item of plant or machinery which are
i] Used in manufacturing processes and fixed in a factory;
ii] Used for providing services to tourists and fixed in a hotel
iii] Used in fish farming.
However, the machine or plant mentioned above must be the one belonging to class 2,
3, or 8 of the pool of depreciable assets.
The amount of initial depreciation allowance is 50% of the net cost of the asset for assets
belonging to class 2 or 3. In the year in which initial allowance is charged, the asset
granted this allowance will not be included in computation of annual allowance. In other
words, the asset granted initial allowance will not be added in the pool of depreciable
assets until after the preceding year (after twelve months).
The initial allowance granted to a person shall be available in two portions as follows –
i] The first portion shall be available in the year of income in which the asset is added to
the person’s pool of depreciable assets; and

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ii] The remaining portion shall be available during the year of income following the year
that the first portion is added.
Example
A ltd deal with manufacturing activities, during the year of income 2016 on 1st Jan, A ltd
acquired a machine and fixed it in a factory, the price of the machine was TZS
50,000,000. Also the company acquired a staff bus with the capacity of carrying 30
passengers for TZS 45,000,000

SOLUTION

DATE Details CLASS 2

1/1/2017 Written down value(WDV) 60,000,000

Staff buss 45,000,000

Depreciation base (A) 105,000,000

Rate (B) 25%

Annual allowance (25% of A) 26,250,000

Initial allowance for the new machine 25,000,000

Depreciation allowance = 26,250,000 + 25M/2

= TZS 38,750,000
N.b. An asset should not enjoy initial allowance and annual allowance at the same time
during the year of income.

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2. ANNUAL ALLOWANCE
This is the annual charge of depreciation allowance from assets which are already in the
pools of depreciable assets.
The allowance is calculated using the following methods,
 Reducing balance (Diminishing value) method in the case of Class 1, 2 and 3
pools, and
 According to straight line method in the case of Class 5, 6 and 7 pools.

Depreciation Formula
The depreciation formula put forward by the Act is the following:
Annual Depreciation Allowance = A x B x C/365
Where –
A is the depreciation basis of the pool at the end of the year of income;
B is the depreciation rate applicable to the pool; and
C is the number of days in the person's year of income the asset was employed.

DEPRECIATION BASIS – Reducing balance method for class 1,2 & 3

Written down value at the start of the year xxx
Add: Additional cost of the assets xxx
Less: Incomings of the assets xxx
Depreciation Base for current year xxx

n.b. when using Diminishing value method ignore number of years/days

DEPRECIATION BASIS – Straight line method for class 5, 6 , & 7

Written down value at the start of the year xxx
Add: Accumulated depreciation allowance xxx

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Original Cost of the assets xxx
Add: costs of the assets xxx
Less: Incomings of the assets xxx
Depreciation base of the assets during the year xxx

Depreciation basis for these classes can only be reduced to zero but not below it. That is,
if the depreciation basis turns to be negative, then it shall instead be reported as zero.
Moreover, if the depreciation basis reduced by the depreciation allowance at the end of
year is below TZS 1,000,000, the depreciation of the pool shall be equal to the
depreciation basis plus the allowance at the end of that year.

Details Class 1

WDV 1,200,000

Costs of Assets Nil

A 1,200,000

B 37.5%

Allowance 450000+750000

WDV 0

Depreciation allowance = 450000 + 750000

= 1,200,000

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3. TERMINAL ALLOWANCES ON POOL DISPOSAL
Where the pool of assets is disposed of and the disposal proceeds are less than the tax
written down value of the pool of assets (loss on disposal), the disposer is entitled to
claim the difference as addition allowance; i.e. this amount is granted as addition
depreciation allowance based on residual concept of transactional tax treatment. In case
of a gain in disposal the amount shall be included in Profit or Gain.

Depreciation Rates
The depreciation rates applicable to each pool are as follows:

Class Rates

1 37.5%

2 25%

3 12.5%

5 20%

6 5%

7 1/Useful life

8 100%

ADDITION OF NON-COMMERCIAL VEHICLES

Commercial vehicle means a road vehicle designed to carry loads of more than half a
tone or more than thirteen passengers or a vehicle used in a transportation or vehicle
rental business. Where a person acquires a non-commercial road vehicle e.g. A station
wagon vehicle, whose value exceeds TZS 30,000,000, the amount of the expenditure

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allowed to be added to the pool in respect of the vehicle shall be only TZS 30,000,000.
Any expenditure in excess of TZS 30,000,000 shall not be recognized.

Question 1.
J ltd is a manufacturing company established under the laws of the United Republic of
Tanzania. The company was registered for VAT purpose since it was established. The
company is owned by Mrs. K (a resident individual) for 40%, Mrs. A (a nonresident
individual) by 30% and 30% of shares issued to the public since January 2012 in Dar es

Salaam Stock of Exchange. J ltd year of income runs from 1st January each year.

The following information obtained by the tax auditors in order to make re computation

of Depreciation allowance for deduction.

Non Current Assets

Name Written Down Value Accumulated

(TZS) Depreciation

(TZS)

Computers and data 8,000,000 4,300,000

handling equipment

Land 60,000,000 -

Office furniture and 22,000,000 8,400,000

fixtures

2 Pick ups 35,000,000 6,000,000

Trade mark(10 years 21,000,000 9,000,000

Useful life)

Patent rights (20 years 1,000,000 9,000,000

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useful life)

3 Buildings 200,000,000 65,000,000

20 Air conditioners 20,000,000 9,000,000

3 saloon cars 25,000,000 15,000,000

Plant and machines 98,000,000 42,000,000

5 EFD machines 3,100,000 1,900,000

One Dam 25,000,000 7,000,000

During the year 2019 the following assets were acquired

20th February: One station wagon imported for a cost of TZS 40,000,000

13th March: One machine used for manufacturing activities imported from Japan costing
TZS 40,000,000 installation cost incurred TZS 1,500,000 and testing cost TZS 500,000. The
machine was fixed in a factory.

20th June: Office furniture purchased costing TZS 12,000,000

30th June: One building purchased of TZS 35,000,000

30th June: 2 EFD machines for TZS 1,800,000

10th Oct: One dam constructed for TZS 20,000,000

The following assets were realized/disposed/sold

10th January: 3 Computers for TZS 800,000

7th July: One pick up for TZS 7,000,000

10th July: Office furniture for TZS 4,000,000

Required

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On the basis of the information provided above, compute the Depreciation allowance for
year 2019 as per Income tax Act Cap 332 provisions

Question 2:

Kadogo Business Engineering (T) Ltd, a construction engineering company, submitted

the following profit and loss account covering the period 1st January, 2016 to 31st

December, 2016.

TZS. TZS.

Gross profit b/f 480,000,000

Dividends 30,000,000

Rent income 90,000,000

600,000,000

Less expenses

Salaries and wages 210,000,000

Electricity and water 29,300,000

Repairs and maintenance 46,700,000

Registration and licenses 1,750,000

Audit fees 500,000

Bank charges 800,000

Subscriptions and donations 700,000

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Legal expenses 4,000,000

Office rent 12,000,000

Depreciation 59,000,000

Sundry expenses 11,000,000 375,750,000

Net profit 224,250,000

=========

Notes to the accounts

1. Repair and maintenance TZS.

Repair on vehicles 19,000,000

Iron gate (MD’s private residence) 800,000

Fuel and lubricants 8,500,000

Tyres and tubes 19,300,000

New terrazzo floor (Office) 9,000,000

2. Subscription and donations TZS.

Professional associations 300,000

Periodicals & Newspapers 100,000

Deaf & Dumb School 100,000

Sundry 200,000

3. Legal Expenses TZS.

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Formation of business 1,400,000

Registration of Title Deeds 800,000

Acquisition of land for staff canteen 1,800,000

4. Sundry expenses

Various miscellaneous expenses 11,000,000

5. The Company acquired the following assets for its business and were used in 2016

unless indicated otherwise: (TZS)

a) Office building 34,000,000

b) Workshop 12,500,000

c) Work in progress 80,000,000

d) Furniture and fittings 15,000,000

e) Computers and data handling equipment 12,500,000

f) Plant and equipment (earth moving) 20,000,000

Required:

(a) Compute the depreciation allowance as per the third Schedule of the Income Tax Act,

Cap 332.

(b) Commencing with the net profit figure, compute the chargeable income of the

Company for the year of assessment 2016.

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