Fundamentals Level Skills Module, Paper F6 (ZWE)

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2 Fundamentals Level Skills Module, Paper F6 (ZWE) Taxation (Zimbabwe) 1 Peter Potter December 2009 Answers and Marking Scheme Marks (a) (i) Computation of taxable income and tax payable from employment PTA salary Civil service allowance exempt 1 Pension contributions (600) 1 Representation allowance exempt 1 Accommodation allowance exempt 1 PTA grocery allowance 330 PTA mobile phone allowance 110 PTA fuel allowance 220 Motor vehicle benefi t Taxable income Tax on sliding scale: Up to ( ) x 25% 860 Gross tax Less credits: Medical expenses 50% x ( ) (505) 1 Disabled (825) Add 3% AIDS levy 9 1 Tax payable (ii) PAYE for the month of December 2009 should be remitted to ZIMRA on 3 January The employer is liable to pay the tax upon deduction from the salary for the respective month. 2 (b) (i) Computation of the taxable income and tax payable from business venture Swimming fees Tennis coaching fees Assistants wages (2 000) Electricity (400) Water and rates charges (550) Students books (1 000) Tennis rackets and balls (1 400) Rent expense (900) Communication expenses (250) Rental income Borehole repairs (420) Capital allowances: SIA Tennis court (50% x 5 000) (2 500) Computer equipment (50% x 1 200) (600) Furniture and fi ttings (50% x 1 800) (900) Taxable income Tax payable at 30% Add 3% AIDS levy

3 Marks (ii) Peter Potter should comply with the following: Register with ZIMRA within 14 days of becoming an employer 1 Register for corporate tax, project his yearly income and expenditure and remit corporate tax in accordance with the Quarterly Payments Dates (QPDs) 1 Register for VAT if his yearly turnover is Submit his yearly business tax return Assorted Fruit and Vegetable P/L (a) Computation of the minimum taxable income and corporate tax for the year ended 31 December Net profi t per income statement Add: Water pump and tank Traffi c fi nes 150 Motor vehicle radios 950 Radio licence fi ne 100 Depreciation Trademark registration Trade conventions excess over limit ( ) Pension contributions ( ) PAYE penalty Long-term interest Less: Commercial bank interest (300) Interest on tax reserve certifi cate (200) Pre-trading expenses: Fruit and vegetable seedlings and inputs (3 000) 1 Land preparation costs (5 000) 1 Recruitment expenses (1 500) 1 Salaries and wages (10 000) 1 Capital allowances (Working 1) ( ) Taxable income Taxable at 30% Add 3% AIDS levy 949 Tax payable Working 1: Capital allowances: Dehydration plant (50% x ) Generator (50% x ) Industrial building (50% x ) Essential plant and machinery (50% x ) Borehole special deduction Tractor (50% x 8 000) Delivery truck (50% x ) Staff bus (50% x ) Staff housing exceeds limit 1 Staff clinic (50% x ) Primary school (50% x ) Offi ce block (2 5% x ) Fuel tanks (50% x 6 000) Passenger motor vehicle 1 (50% x ) Passenger motor vehicle 2 (50% x 8 000) Passenger motor vehicle 3 (50% x ) Water pump and tank (50% x ) Motor vehicle radios (50% x 950)

4 Marks (b) Possible legal ways to minimise the tax burden The directors of Assorted Fruit and Vegetable P/L (AFV) could have set up their business premises at a growth point in proximity to the farm in order to benefi t from the 15% investment allowance applicable to businesses operating at a growth point. By so doing, the commercial building could have qualifi ed for the SIA thereby increasing the total capital allowances claim. 3 Further, AFV could then have applied to ZIMRA for approval status as a manufacturing company operating at a growth point area in order to be taxed at a reduced corporate tax rate of 10% Ellen Nxele (a) Computation of the capital gain and tax payable Disposal of principal private residence: Proceeds Less cost: Property Security wall Swimming pool Outbuildings Infl ation allowance: Property (2 5% x 6 x ) Security wall (2 5% x 5 x 5 000) Swimming pool and outbuilding (2 5% x 4 x ) Selling expenses: Commission (10% x ) (89 375) Capital gain Disposal of Nyanga property Proceeds Less recoupment on: Nyanga property (2 5% x 6 x ) (4 500) Nyanga property improvement (2 5% x 5 x ) (3 125) Less cost: Nyanga property Nyanga property improvement Recoupment as above ( ) (7 625) (47 375) Infl ation allowance: Nyanga property (2 5% x 7 x ) Nyanga improvement (2 5% x 6 x ) (9 000) 1 Selling expenses Commission (10% x ) (8 500) Ancillary expenses (750) Capital gain Capital gain from sale of principal private residence Total capital gains Capital gain tax at 20% (b) Capital gains tax should be remitted to ZIMRA on the third working day following the month of sale. 1 The possible consequences of non-compliance are that ZIMRA might charge a penalty of 100% of the tax due as well as interest on the outstanding amount

5 4 Computech Limited Marks (a) Computation of the output tax on the deemed motor vehicle benefits: September October 2 Mercedes Benz (15/115 x 100 x 2) Isuzu KB250 (15/115 x 80 x 2) Toyota Corolla (15/115 x 50 x 3) (b) Computation of the VAT for September and October 2009 tax period Output tax: Desktop sales (15/115 x ) Laptop sales (15/115 x ) Components sales (15/115 x ) Software sales (15/115 x ) Computer repairs (15/115 x ) Computer bags sales (15/115 x ) Sales returns (15/115 x 9 500) (1 239) Motor vehicle benefi ts above ( ) 134 Input tax: Desktop purchases (15/115 x ) (8 608) Laptop purchases (15/115 x ) (4 174) Components purchases (15/115 x ) (2 739) Software purchases (15/115 x ) (2 609) Computer bags purchases (15/115 x ) (1 304) Purchases returns (15/115 x 5 000) 652 Repairs and maintenance (15/115 x ) (1 709) Salaries and wages Stationery (15/115 x 6 000) (783) Communication expenses (15/115 x 2 700) (352) Motor vehicle expenses (15/115 x 8 500) (1 109) Electricity and water (15/115 x 1 600) (209) Security costs (15/115 x 5 000) (652) Depreciation Rent (15/115 x ) (1 304) Corporate tax Value added tax payable The tax should be remitted to ZIMRA on 20 November

6 5 Jim Michelin Marks (a) Computation of taxable income and tax payable for the year ended 31 December 2009 Rental income: Commercial building (7 500 x 12) Residential properties (3 000 x 12) Less exemption (2 750) Other income: Pension exempt Treasury bills interest Less exemption (2 750) Interest on deposit Less exemption (2 750) Less expenses: Staff costs (6 000) Repairs and maintenance (11 200) Security costs (5 000) Owners association charges (2 000) Commercial building repainting capital Concrete wall capital Billing costs (1 300) Rates (1 000) Taxable income Tax at 30% Add 3% AIDS levy Other income: Royalties Dividends Taxable income Tax at 20% (b) Jim Michelin should register for the following tax heads: (1) business tax in connection with his business 1 (2) PAYE 1 (3) Value added tax since his yearly rental income is above the registration threshold of The potential penalty to be paid if he fails to register is 100% of the tax due. Based on the calculation above the total penalty will be ( )