MZUMBE UNIVERSITY

MBEYA CAMPUS COLLEGE

DEPARTMENT OF BUSINESS STUDIES
PUBLIC FINANCE AND TAXATION- FIN 321
Review questions
Question One
The use of investment tax incentives in developing countries has been
very popular and very controversial for decades. Despite the controversy,
many countries around the world offer investment tax incentives of one
form or another.
Required:
(i) Describe the essential features of investment tax incentives
(ii) Discuss six (6) fundamental premises that underpin
the use of investment tax incentives in developing
countries
(iii) What would be your arguments if you were to advise
against tax incentives? (any eight arguments)
Question Two
There is an emerging consensus that tax base erosion due to tax
incentives in developing countries is compounded by the lack of
transparency and clarity of provision, administration, and governance of
tax incentives.
Required:
Give five (5) advises in line with best practices as to what measures the
government might implement to promote governance of tax incentives.

Question Three
Tax exemptions aimed at Foreign Direct Investment, (FDI) are especially
important form of tax expenditure in low income developing countries
category and, in many cases, significantly undermining their tax revenue
base. The incentives for multinationals to negotiate tax breaks with
developing countries frequently results in a “race to the bottom” in which
countries in this category are made collectively worse off, to the benefit of
the multinational investors. As such, fiscal incentive based competition
strategy to attract FDI continues to be a subject of debate.
Required:
Critically appraise this statement in the light of current tax exemption practices in Tanzania.

Question Four
Free riders are actors who take more than their fair share of the benefits or do not
shoulder their fair share of the costs of their use of resource, involvement in a
project, etc. The free rider problem is the question of how to prevent free riding
from taking place, or at least limit its effects.
Required:

(a) Explain any six [6] solutions to the free rider problem.
(b) Define a public good and explain two main properties of such a good.
Question Five
In the presence of externalities, an inefficient allocation of resources can emerge if
nothing is done about it. Therefore, private individuals acting on their own and the
government may intervene to make sure there is efficient allocation of resources.
Required:

Explain any five specific measures to be taken by private individuals and the
government to reduce the effect of externalities.
Question Six

Over time, the mix between public and private modes of provision of public goods
has changed substantially. There is much greater private responsibility for
education, health, related security services and other related services than in the
past. No one can predict with greater accuracy what will happen in the future but
the right mix of public and private provision of goods should be a topical issue in
the near future.

Required:

Briefly describe any FOUR considerations which should be taken into account in
finding the right mix of public and private provision of goods.
Question Seven

The market often fails, but the government often does not succeed in correcting the
failures of the market. The recognition of the limitation of the government implies
that the government should direct its focus only to those areas in which the market
failures are most significant and where there is evidence that the government
intervention can make a significant difference.

Required:

Describe different schools of thought and perspectives on the role of the government in the
economy.

Question Eight

(a) Identify any four (4) characteristics which differentiate public goods from private goods.
 (b) ‘A perfectly competitive economy is capable of functioning satisfactorily
without formal government intervention and so without taxation. This is,
however, far apart from the world of reality’
Required:

(i) In view of this statement, discuss the economic role of the

government in supplying public goods to the economy.
(ii) Identify possible positive and negative implications of
recommended government intervention to the market system.

Question Nine
Public finance plays a vital role in deciding the fate of development of a country.
How a government raises funds, how those funds are spent and the effect of these
activities in the economy and society has been a subject of continuing interest to
thinkers since ancient times.
Required:

Discuss the rationale for government intervention in the economy.

Question Ten
(a) Describe the meaning of a “public good”.
(b) The concept of “public goods” is confusing because it confounds three
analytically distinct concepts: excludability, rivalry and public finance.
Required:
Explain why public goods are regarded as pedagogical bad.
Question Eleven
(a) Explain in detail the concept of incidence of taxation.
(b) A tax of two percent is charged on every onion produced by a farmer in Tanzania.
REQUIRED:
Explain in what circumstances the farmer will be able to pass on
the entire tax to the consumers.
Question Twelve
Taxation traces its origin to the ancient times as a major source of
revenue needed for governance. Kingdoms, monarchies, and even
dynasties had an elaborate form of taxation imposed on their subjects to
source funds that were used to run affairs of the government.
Taxation has had a long and influential history in the shaping of
civilizations throughout the World. All the great ancient civilizations such
as Egyptian, Romans, Greek, Persians, Zulu, Oyo, Malian, Songhai, and
Benin, taxed their people to achieve a collective greatness. The above
sources of revenue also apply to Tanzanian Tax system.
Required:
(a) Evaluate the requirements of a good tax system.
 (b) Explain the effect of taxes on savings.

Question Thirteen
(a) One of the desirable characteristics of a good tax system is fiscal neutrality.
Required:
(i) Explain briefly the meaning of this characteristic.
(ii) What is the underlying assumption guiding this characteristic?
Question Sixteen
(a) Briefly, define ‘taxable capacity’.
(b) Discuss briefly factors which may affect a taxable capacity of a country.
(c) Differentiate between ‘tax buoyancy’ and ‘tax elasticity’.
Question Seventeen
Ms Glory was employed for the first time by Fruto International Ltd, a private resident company
since 1st
January 2018. As a company’s Marketing Manager, Ms Glory was given a range of
responsibilities.
She has been resident of the United Republic of Tanzania solely in the years
2017 and 2018. Her duties are well balanced by a good package of remuneration
which is made up of the following;
(i) Basic salary of Tshs. 800,000 per month and medical service insurance
of Tshs. 30,000 per month and medical service insurance of Tshs.
30,000 per month as per the company’s policy to its employees.
(ii) Mobility allowances for use when on duty trips within her duty stations
of Tshs. 100,000 per month coupled with life insurance of Tshs.
50,000 each month paid directly by the company to the Insurance
Company. It is estimated that Ms Glory is spending only 50% of the
mobility allowance for the performance of her official duties.
(iii) It is the policy of the company to pay all of its employees lunch
allowances of Tshs. 2,000 each per day for 22 days each month.
(iv) Traveling allowances for home-office-home trips of Tshs. 100,000 per month.
(v) The company pays school fees and uniforms for its employees as its
contribution as per the National Education Policy. Ms Glory received
Tshs. 500,000 which the employer ensured that the sum is spent
according to agreed terms.
(vi) A fully furnished residential quarter where the value of furniture itself
amount to Tshs. 2,000,000. The company normally recognizes Tshs.
120,000 per month as expense for the provision of the house while the
market rent of a house of the same status is Tshs. 150,000 per month.
The cost of the house to the company was Tshs. 10 million.
(vii) During 2018, Ms Glory traveled to her home country, Uganda, for an
annual leave where she provided consultancy for one month for the
following remuneration: Consultancy fees amounting to Tshs. 40,000
 per day for 20 days; Upkeep allowance of Tshs. 200,000 for the period
of consultancy and free accommodation with market value of Tshs.
150,000.
(viii) During her trip to Uganda, the company paid Tshs. 450,000 for her
return air ticket, since the location of the company is Dar es Salaam.
(ix) Ms. Glory acquired a car at a cost of Tshs. 6,000,000 which was fully
used in the employment duties.
(x) Ms. Glory also received interest from her Banker on fixed deposit account, Tshs.
200,000.

(xi) Retirement contributions are made to the Social Security Fund where
the employer contributes 10% and the employee 10% of the gross
monthly salary.
Required:

On the basis of the above information, compute Ms Glory’s taxable income for
the year of income 2018 (assume today is 31st December 2018).
Question Eighteen
Mr. Torres is a Marketing Manager of Food Processors Company Ltd in Tanga
Municipal town since July 2019 .
(i) His monthly salary was Tshs.600,000 with effect from 1/7/2019.
(ii) He received a bonus of Tshs.650,000 in September 2019.
(iii) He received Tshs.250,000 entertainment allowance for the year. Of
this amount, he spent Tshs.170,000 entertaining potential
customers.
(iv) He was provided with fully furnished residential quarters at a
nominal rent of Tshs.20,000 per month payable to the employer
The cost of furniture to the employer was Tshs.350,000.The market
rental value is Tshs 100,000 p.m
(v) He was also provided with subsidized lunches on all working days
at leading hotel in the town. He personally paid Tshs.5,000 only for
each executive lunch of Tshs.20,000/=. During the year of income
2019, he took a total of 100 of such lunches. This benefit is
available to all employees.
(vi) The company provided him with a gardener in order to keep the
extensive lawns of his house in a first class condition and a night
security guard. They were both paid directly by the company Tshs.
50,000 each per month.
(vii) The company settled Mr. Torres’s domestic electricity and water
bills of Tshs. 20,000 and Tshs.10, 000 respectively per month
directly. The bills were in the name of the company.
(viii) The company issued shares to all interested employees at an issue
price of Tshs.600/= per share its market sells at Tshs.750 per
share. Mr. Torres purchased 1,000 shares.
 (ix) Taking into account the number of official trips made by Mr. Torres,
the employer insured his life and paid an annual premium of
Tshs.38,000
(x) Mr. Torres purchased a saloon car on 5/10/2019 at Tshs.4,500,000.
The employer incurred Tshs. 1,800,000 running expenses. Mr.
Torres uses the car to the proportion of two-thirds performance of
duties and one-third private.
(xi) Mr. Torres makes retirement contributions to NSSF, 10% of the
basic salary by the employer and 10 % his contribution.
(xii) Since he is provided with a residential house by his employer, he
offered his own house for rent to NSA Ltd , a company registered in
Tanzania, where he receives Tshs. 80,000 a month from July
2019.
(xiii) The employer has employees’ non-interest loan scheme. Mr Torres
borrowed Tshs. 4 million to finance finishing of his house in
August 2019 repayable in twenty monthly installments from 30th
September 2019
Required On the basis of the above information, compute Mr.
Torres’s taxable income assuming he worked for the end of the
year of income 2019 and the Bank of Tanzania discount rate at 1st
January 2019 was 15 percent.
Question Nineteen
Mr. James Musa was appointed Liaison Officer of the University of Dar es
Salaam on a salary of TZS.10,800,000 per annum with effect from 1 st July,
2023 and posted to Mkwawa University College of Education. He was paid a
transfer grant of TZS.1,250,000 on 1st July 2016

His other entitlements included the following:

(i) Responsibility allowance TZS.250,000 per month

(ii) Transport allowance TZS.350,000 per month

(iii) Inconvenience allowance TZS.250,000 per month

He contributed 5% of his salary to an approved Social Security Scheme.

The University of Dar es Salaam provided him with free accommodation, a car
and a driver as detailed below:

(i) The university record TZS.200,000 each month as expenses relating

to provision of residential house to Mr. Musa while the market rental
charge stood at TZS.300,000 per month throughout the year. The
University incurred TZS.45,000,000 to construct each on these houses
 though their current market value is TZS.30,000,000 each.

(ii) In addition to housing benefit, he was also provided with brand new
TOYOTA RAV4 worth TZS.50 million. The car had 3000cc and was
used for both official and private trips though it was estimated that
during the year official trips was three quarters of the whole trips. The
University claims for both car maintenance expenditure and Musa’s
driver salary where during the year it paid TZS.1,080,000 as salary to
the Musa’s driver.

The University contributed also TZS.2,550,000 per annum towards his

children’s education at the University of Dar es Salaam Engineering College.

While at University of Dar es Salaam, Mr. Musa took a life assurance policy with
the University of Dar es Salaam Insurance (T) Ltd. He paid a monthly premium
of TZS.1,000,000 for a capital sum of TZS.6,000,000.

Mr. Musa’s aged mother, wife and two children live at his residence at Maswa in
Simiyu Region. He is solely responsible for them. The guest house, a two
bedroom self contained residential facility at his residence, has been rented to
Mr. & Mrs. Bagosha at TZS.250,000 per month for the year of assessment.

Required:
Compute Mr. Musa’s chargeable total income, if any, for the year of
assessment 2016. State any basic tax principles underlying your
computation.

Question Twenty
Maziku Limited is a cooking oil processing company located in Ndala, Tabora
region, and is registered for value added tax (VAT). Maziku Limited entered into
the following transactions in the month of September 2018:
1. Sold taxable supplies to customers as follows: Sales to VAT registered
customers Tshs 3,835,000 (VAT inclusive) and Tshs 675,000 to
unregistered customers.
2. Bought a brand new pick-up from Toyota at Tshs 3,250,000.
3. Bought stationery worth Tshs 65,000 from suppliers who are not registered for VAT.
4. Entertained major customers at a local hotel at a cost of Tshs 246,100.
5. Bought ground nuts from local farmers at a cost of Tshs 1,250,000.
6. Paid for electricity and telephone at Tshs 32,140 and Tshs 44,100, respectively.
7. A consultant on production processes was hired from South Africa.
The consultant has no local office; as a result he is not registered for
VAT. He invoiced Tshs 1,650,000 for the work done.
8. Bought an EFD machine from BMTL Suppliers at Tshs 175,800.
 9. Received a deposit on sale to a customer amounting to Tshs 465,000.
Unless specifically stated, all the above persons are registered for VAT
and the transactions are stated exclusive of VAT.

Required:

Calculate the VAT payable or any excess carried forward for the period
Question Twenty-one
i. Define VAT (5 Marks)
ii. The taxable person indicates through his records that during the month of October 2006, VAT was
paid on his purchases as follows:
Items Value (Tshs) VAT (Tshs) VAT (Inclusive)
a Sugar 50,000 10,000 60,000
b Cooking oil 75,000 15,000 90,000
c Laundry Soap 60,000 12,000 72,000
d Bread 50,00 10,000 60,000
0
e Transportation of wheat flower and maize 10,000 2,000 12,000
f Bags for re-packing wheat 12,500 2,500 15,000
g Tax invoice books 37,500 7,500 45,000
h Electricity 10,000 2,000 12,000
i Telephone 12,500 2,500 15,000
Total 267,500 63,500 321,000
Also during the same months, the taxable person supplies goods with the value indicated below:

Items Value (Tshs) VAT (Tshs) VAT Inclusive

a Sugar 60,000 12,000 72,000
b Cooking oil 90,000 18,000 108,000
c Breads 60,000 12,000 72,000
d Laundry soap 80,000 16,000 96,000
e Unprocessed edible meet 100,000 exempt 100,000
f Wheat flour 40,000 exempt 40,000
g Maize 30,000 exempt 30,000
h Unprocessed fish 20,000 exempt 20,000
Required,
By the first method, compute the input tax deductible.