Answers
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 8 000 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 880 1 Taxable income 8 940 Tax on sliding scale: Up to 5 500 770 (8 940 5 500) x 25% 860 Gross tax 1 630 1 Less credits: Medical expenses 50% x (800 + 210) (505) 1 Disabled (825) 1 300 Add 3% AIDS levy 9 1 Tax payable 309 11 (ii) PAYE for the month of December 2009 should be remitted to ZIMRA on 3 January 2010. 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 6 500 Tennis coaching fees 7 800 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 1 300 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 4 680 Tax payable at 30% 1 404 Add 3% AIDS levy 42 1 446 8 17
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 60 000 1 Submit his yearly business tax return 1 4 25 2 Assorted Fruit and Vegetable P/L (a) Computation of the minimum taxable income and corporate tax for the year ended 31 December 2009. Net profi t per income statement 345 588 Add: Water pump and tank 10 000 Traffi c fi nes 150 Motor vehicle radios 950 Radio licence fi ne 100 Depreciation 156 600 Trademark registration 2 000 1 Trade conventions excess over limit (6 800 5 000) 1 800 1 Pension contributions (385 000 330 000) 55 000 1 PAYE penalty 6 200 Long-term interest 168 012 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) (620 975) Taxable income 105 425 Taxable at 30% 31 628 1 Add 3% AIDS levy 949 Tax payable 32 577 Working 1: Capital allowances: Dehydration plant (50% x 800 000) 400 000 Generator (50% x 120 000) 60 000 Industrial building (50% x 70 000) 35 000 Essential plant and machinery (50% x 67 000) 33 500 Borehole special deduction 5 000 1 Tractor (50% x 8 000) 4 000 Delivery truck (50% x 15 000) 7 500 Staff bus (50% x 25 000) 12 500 Staff housing exceeds limit 1 Staff clinic (50% x 30 000) 15 000 Primary school (50% x 50 000) 25 000 Offi ce block (2 5% x 40 000) 1 000 Fuel tanks (50% x 6 000) 3 000 Passenger motor vehicle 1 (50% x 10 000) 5 000 1 Passenger motor vehicle 2 (50% x 8 000) 4 000 1 Passenger motor vehicle 3 (50% x 10 000) 5 000 1 Water pump and tank (50% x 10 000) 5 000 Motor vehicle radios (50% x 950) 475 18 620 975 25
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%. 2 5 30 3 Ellen Nxele (a) Computation of the capital gain and tax payable Disposal of principal private residence: Proceeds 100 000 Less cost: Property 45 000 Security wall 5 000 Swimming pool 5 000 Outbuildings 15 000 Infl ation allowance: Property (2 5% x 6 x 45 000) 6 750 1 Security wall (2 5% x 5 x 5 000) 625 1 Swimming pool and outbuilding (2 5% x 4 x 20 000) 2 000 1 Selling expenses: Commission (10% x 100 000) 10 000 (89 375) Capital gain 10 625 Disposal of Nyanga property Proceeds 85 000 Less recoupment on: Nyanga property (2 5% x 6 x 30 000) (4 500) Nyanga property improvement (2 5% x 5 x 25 000) (3 125) Less cost: Nyanga property 30 000 Nyanga property improvement 25 000 Recoupment as above (4 500 + 3 125) (7 625) (47 375) Infl ation allowance: Nyanga property (2 5% x 7 x 30 000) 5 250 1 Nyanga improvement (2 5% x 6 x 25 000) 3 750 (9 000) 1 Selling expenses Commission (10% x 85 000) (8 500) Ancillary expenses (750) Capital gain 11 750 Capital gain from sale of principal private residence 10 625 Total capital gains 22 375 Capital gain tax at 20% 4 475 1 13 (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. 1 2 15 19
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) 26 26 2 Isuzu KB250 (15/115 x 80 x 2) 21 21 3 Toyota Corolla (15/115 x 50 x 3) 20 20 1 67 67 2 (b) Computation of the VAT for September and October 2009 tax period Output tax: Desktop sales (15/115 x 125 000) 16 304 Laptop sales (15/115 x 60 000) 7 826 Components sales (15/115 x 38 000) 4 957 Software sales (15/115 x 50 000) 6 522 Computer repairs (15/115 x 17 000) 2 217 Computer bags sales (15/115 x 15 500) 2 022 Sales returns (15/115 x 9 500) (1 239) Motor vehicle benefi ts above (67 + 67) 134 Input tax: Desktop purchases (15/115 x 66 000) (8 608) Laptop purchases (15/115 x 32 000) (4 174) Components purchases (15/115 x 21 000) (2 739) Software purchases (15/115 x 20 000) (2 609) Computer bags purchases (15/115 x 10 000) (1 304) Purchases returns (15/115 x 5 000) 652 Repairs and maintenance (15/115 x 13 100) (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 10 000) (1 304) Corporate tax Value added tax payable 13 843 The tax should be remitted to ZIMRA on 20 November 2009 1 13 15 20
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) 90 000 Residential properties (3 000 x 12) 36 000 Less exemption (2 750) Other income: Pension exempt Treasury bills interest 5 000 Less exemption (2 750) Interest on deposit 4 000 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 100 250 Tax at 30% 30 075 1 Add 3% AIDS levy 902 30 977 Other income: Royalties 20 000 Dividends 7 200 Taxable income 27 200 Tax at 20% 5 440 11 (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 60 000. 1 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 (30 977 + 5 440) 36 417. 1 4 15 21