Answers

Fundamental Level – Skills Module, Paper F6 (ZWE) December 2008 Answers Taxation (Zimbabwe) and Marking Scheme

Marks1 Leonard Malvern

(a) Transfer of the motor vehicle

There is no tax implication for Leonard Malvern on the transfer of the motor vehicle because he is over 55 years of age and is therefore exempt from being taxed on the benefit accruing to him. 1

The tax implication for Gwanda Tin Mine is as follows:The taxation of the recoupment on the motor vehicle. The recoupment is restricted to the capital allowancespreviously granted based on a restricted deemed cost of $1 million – (50% X $1 000 000) $500 000. 11/2Transfer of the house

There is no tax implication for Leonard Malvern (as above). 1/2The tax implications for Gwanda Tin Mine on the deemed sale of the house are:15% withholding tax calculated on the basis of the market value of the property and the actual capital gains tax calculated as 20% of the deemed capital gain. The withholding tax will however be offset against the actual capital gains tax. 2

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(b) Calculation of taxable income for the following periods:

(i) 1 September 2007 to 31 December 2007$000

Salary 180 000 000 1/2Bonus – gross 20 000 000 1/2Bonus – exemption (75 000) 1Cost of living allowance 3 000 000 1/2School fees allowance 60 000 000 1/2Acting allowance 45 000 000 1/2Long service award 500 000 000 1/2Cash in lieu of leave 120 000 000 1/2Motor vehicle benefit ($6 700 000) 6 700 1Pension (exempt) – 1Pension contributions ($900 000 X 4/12) (300) 1Subscriptions – Trade union (1 700 000) 1/2

Accredited Professional Tennis Association (5 400 000) 1/2Zimbabwe Institute of Engineers (2 850 000) 1/2

Rent (not allowed) – 1/2Motor vehicle payment (not allowed) – 1/2Transfer fees (not allowed – capital) – 1/2––––––––––––Taxable income 917 981 400

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$000Tax on sliding scale:Up to $280 million 102 000($917 981 400 000 – 280 000 000) X 47·5% 435 908 165

––––––––––––Gross tax 436 010 165 1/2Less credits:Elderly person’s credit (120 000 X 4/12) (40) 1/2Medical aid contributions (7 650 000 000 X 50%) (3 825 000) 1/2––––––––––––

432 185 125Add 3% AIDS levy 12 965 554 1/2––––––––––––

445 150 679Less PAYE (63 000 000) 1/2–––––––––––– –––Tax payable 382 150 679 13

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Marks(ii) 1 January 2008 to 31 March 2008

$000Salary 100 000 000 1/2Representation allowance (exempt) – 1Grocery allowance 17 000 000 1/2House benefit ($5 000 000 000 X 2) 10 000 000 1Motor vehicle benefit ($900 000 000 X 2/12) 150 000 1Cell phone benefit ($750 000 000 X 2) 1 500 000 1/2Fuel allocation ($3 600 000 000 X 2) 7 200 000 1Pension (exempt) – 1/2Pension contributions ($11 500 000 X 2/12) (1 917) 1

––––––––––––Taxable income 135 848 083

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2 Giant Food Processors Limited

(a) Calculation of the maximum capital allowances claimable for the year ended 31 December 2007

$000Industrial building – SIA (187 000 000 000 X 50%) 93 500 000 1/215% GP allowance (187 000 000 000 X 15%) 28 050 000 1/2Showroom – SIA (123 000 000 000 X 50%) 61 500 000 1/215% GP allowance (123 000 000 000 X 15%) 18 450 000 1/2Plant and machinery – SIA (243 000 000 000 X 50%) 121 500 000 1/215% GP allowance (243 000 000 000 X 15%) 36 450 000 1/2Furniture and fittings – SIA (28 730 000 000 X 50%) 14 365 000 1/215% GP allowance (28 730 000 000 X 15%) 4 309 500 1/2Office partitions – SIA (13 000 000 000 X 50%) 6 500 000 1/215% GP allowance (13 000 000 000 X 15%) 1 950 000 1/2Office equipment – SIA (50 000 000 000 X 50%) 25 000 000 1/215% GP allowance (50 000 000 000 X 15%) 7 500 000 1/2Mazda T35 – SIA (45 800 000 000 X 50%) 22 900 000 1Mazda B2500 (10 000 000 X 50%) 5 000 1HP laserjet 1320 printer – SIA (25 000 000 000 X 50%) 12 500 000 1/215% GP allowance (25 000 000 000 X 15%) 3 750 000 1/2Diesel generator – SIA (49 000 000 000 X 50%) 24 500 000 1/215% GP allowance (49 000 000 000 X 15%) 7 350 000 1/2–––––––––––– –––Total 490 079 500 10

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Marks(b) Calculation of the taxable income and corporate tax payable for the year ended 31 December 2007

$000Net profit per income statement 380 000 000 1/2Add:Total pension contributions 12 000 000 1/2Less allowable portion (900 000 X 15) (13 500) 1ZIMRA – PAYE penalty 7 500 000 1Donations – political party 5 000 000 1Depreciation 83 000 000 1/2Operating licence – penalty 5 000 000 1Computer consumables – printer 25 000 000 1Electricity and water – interest 7 000 000 1

– reconnection charges 3 000 000 1– diesel generator 49 000 000 1

Interest paid – overdraft raising fee 5 653 000 1ZIMRA payment – corporate tax penalty 20 000 000 1Less:Gross dividends (29 290 000) 1/2Capital allowances – from (a) (490 079 500) 1/2South Africa trip – export promotion (double deduction) (80 000 000) 2

–––––––––––––Taxable income 2 770 000

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$000Taxable at 10% 277 000 1Add 3% AIDS levy 8 310 1/2–––––––– –––Tax payable 285 310 16

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(c) Due dates and payments

10% due on 25 March 2007 28 531 125% due on 25 June 2007 71 328 130% due on 25 September 2007 85 593 135% due on 20 December 2007 99 858 1

–––––––– –––285 310 4–––––––– –––––––––––

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Marks3 Mr and Mrs Patel

Calculation of the capital gain and tax payable for the year ended 31 December 2007

$000Proceeds from:Sale of Avondale property (exempt – over 55 years) – 1Graniteside warehouse (520 000 000 000 X 1·75) 910 000 000 1Less recoupment (500 000 000 – 462 500 000) (37 500) 1Kensington garden flat (750 000 000 000 X 1·75) 1 312 500 000 1Less recoupment (610 000 000 – 564 250 000) (45 750) 1Patel Auction floor (930 000 000 000 X 1·75%) 1 627 500 000 1Less recoupment (972 000 000 – 923 400 000) (48 600) 1Less:CostAvondale property (exempt) –Graniteside warehouse 500 000 1/2Kensington garden flat 610 000 1/2Patel Auction floor 972 000 1/2Recoupment (37 500 + 47 750 + 48 600) (133 850) (1 948 150) 1/2–––––––––Inflation allowanceGraniteside warehouse

500 000 000 X (12 562 581·7 – 4 880·3) (1 286 570 641) 1––––––––––––––––––––––––––––––––––––––

4 880·3Kensington garden flat

610 000 000 X (12 562 581·7 – 4 880·3) (1 569 616 182) 1––––––––––––––––––––––––––––––––––––––

4 880·3Patel Auction floor

972 000 000 X (12 562 581·7 – 16 486·4) (739 688 751) 1––––––––––––––––––––––––––––––––––––––

16 486·4Selling expenses:Estate agent commission (4 541 250) 1/2Property valuation charges (2 500 000) 1/2Legal fees (1 800 000) 1/2––––––––––––Capital gain 243 201 176

––––––––––––––––––––––––Capital gain tax at 20% 48 640 235

Payable by Mr Patel – 50% 24 320 118 1/2Payable by Mrs Patel – 50% 24 320 117 1/2The tax should be remitted to ZIMRA within 30 days of signing the sale agreements. 1/2–––

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4 Mary Ann Tsindi

(a) (i) Tax implications of the NIPC order

– Reduced output tax without a corresponding change to the input tax results in more value added tax refund claims hence cash flow constraints to ZIMRA 1

– Reduced value added tax cash inflows to ZIMRA 1–––

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(ii) Mary Ann is registered for value added tax under category C. The return for the month of October 2007 should be submitted by 20 November 2007. 2

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Marks(b) Value added tax computation for the month of October 2007

$000Output tax:SalesGroceries (398 600 000 000 X 50% X 15%) 29 895 000 1/2Household appliances (500 000 000 000 X 50% X 15%) 37 500 000 1/2Hardware (916 000 000 000 X 50% X 15%) 68 700 000 1/2Hardware returns (87 613 000 000 X 50% X 15%) (6 570 975) 1

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LessInput tax:PurchasesGroceries (230 000 000 000 X 15%) (34 500 000) 1/2Household appliances (242 000 000 000 X 15%) (36 300 000) 1/2Hardware (679 500 000 000 X 15%) (101 925 000) (172 725 000) 1/2OverheadsElectricity and water (15/115 X 1 623 000 000) (211 696) 1/2Telephone and internet (15/115 X 28 000 000 000) (3 652 174) 1/2Salaries and wages – 1/2Stationery (15/115 X 17 862 000 000) (2 329 826) 1/2Depreciation – 1/2Transportation (15/115 X 45 000 000 000) (5 869 565) 1/2Motor vehicle expenses (15/115 X 39 950 000 000) (5 210 870) 1/2Repairs and maintenance (15/115 X 11 840 000 000) (1 544 348) 1/2Benefits: Motor vehicles – Isuzu (15/115 X 5 000 000 X 1/4) (163 043) 1

Mazda 323 (15/115 X 2 400 000 X 1/4) (78 261) 1Cell phone (15/115 X 800 000 000 X 2) (208 696) (19 268 479) 1

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Value added tax refundable 62 469 454 11–––––––––––– –––––––––––––––

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5 MCM Group Limited

(a) (i) Calculation of the loss to be carried forward as at 31 December 2007

MCM Removals P/L MCM Property Developers P/L$000 $000

2002 profit/(loss) (645 000) 1/22003 (170 000) 1/22004 (243 000) 88 000 12005 (560 000) 93 000 12006 (845 000) 107 000 12007 (919 000) 325 000 1

––––––––––– –––––––––Loss to be carried forward (2 567 000) (202 000)

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(ii) A recorded loss can be carried forward for a maximum of six years from the year incurred. 1–––

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Marks(b) Tax implications of the transfer of assets for MCM Removals P/L

The transfer of assets is treated as a deemed sale and hence gives rise to the following tax implications: 1

– Capital gains tax of 20% on the capital gain on the immovable asset, i.e. the land, parking lot andoffice block. 1

– Capital gains withholding tax calculated as 15% of the selling price or market value applicable at thedate of sale of the immovable asset 1

– Corporate tax of 30% on the recoupment of capital allowances previously granted on the movable assets as follows: 1

Recoupment($000)

Haulage trucks 300 000Passenger motor vehicles 165 000Office equipment 248 000Furniture and fittings 200 000

––––––––Total 913 000 1

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However, the company has sufficient losses ($800 million expected for the current year, 2008 and $2 567 million carried forward) to offset this recoupment in full, thus no tax will actually be payable. 1

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(c) A newly incorporated company is required to register for the following:

(i) Corporate tax – to be remitted quarterly according to specified quarterly payment dates. 1

(ii) PAYE – to be remitted on the 15th of the month following the month of deduction. 1

(iii) VAT – to be remitted in accordance with the specific registration category. 1–––

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