CAT-ADVANCED

FOUNDATIONS IN TAXATION
MOCK 1
29th October 2024

QUESTION PAPER

Time allowed:2 hours

Section A :All Fifteen questions are compulsory and MUST be attempted

Section B: All Eight questions are compulsory and MUST be attempted
TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used when answering the
questions:

Second schedule
Resident Individual Income Tax Rates

Chargeable Income Rate of tax

First M69,120 20%
Over M69,120 30%
Personal tax credit M10,824

Withholding tax rates

Payments to resident contractors 5%

Payments of interest by a resident to a resident 10%
Payments of Lesotho services contract to a non-contract 10%
Payments of international transactions 25%

(A lower withholding tax rate may apply under a double tax treaty entered into by the
government of Lesotho
Third schedule
Resident Company Income Tax Rates

Nature of income Rate of tax

1 Manufacturing income derived from a manufacturing 10%
activity of an industrial, scientific or educational nature
which promotes industrial, scientific, educational or other
development within Lesotho

2 Other manufacturing income 10%

3 Other income 25%

4 Commercial farming income 10%

Fourth Schedule
Tax rate for trustees, minors, fringe benefits and electing non-residents 30%
 Fifth Schedule
Minimum chargeable income

The multiplication factors are:

Air travel 100%

Electricity amount 100%
Principal residence amount 5%
Schooling amount 100%
Secondary home amount 5%
Vehicle amount 25%

The amounts specified are:

Air travel M2,500

Electricity amount M3,000
Principal residence amount M150,000
Schooling amount, per child M1,000
Secondary home amount M20,000
Vehicle amount M20,000

Sixth Schedule
Declining Balance Depreciation Rates

Group Assets included Depreciation rate

1 Automobiles; taxis; light general purpose trucks; 25%
tractors for use over-the-road; special tools and
devices
2
Office furniture, fixtures and equipment; computers
and buses; heavy general purpose trucks; trailers 20%
and trailer mounted containers; construction
3 equipment

4 Any depreciable asset not included in another group 10%

Railroad cars and locomotives and railroad

equipment; vessels, barges, tugs and similar water 5%
transportation equipment, industrial buildings,
5 engines and turbines, public utility plant

Mining 100%
 Value Added Tax (VAT)
Standard rate (all other taxable supplies and 15%
services)
Suppliers of electricity 10%

Telecommunications 15%

Basic foods and agricultural inputs 0%

Exports 0%
SECTION A
ALL FIFTEEN QUESTION ARE COMPULSORY AND MUST BE ATTEMPTED

1. Peipi is a resident individual who works in Lesotho and Mauritius. During the year
ended 31 March 2024, he earned the following income:
M
Net salary (Lesotho) 428,325
Net salary (Mauritius) 474,114
Property income (Lesotho source) 39,689
Dividend from Rutang Ltd (Lesotho resident company) 88,334

The net salaries are stated after deduction of pay as you earn (PAYE) income taxes
of M32,600 (Lesotho) and M26,756 (Mauritius).

What is Peipi’s chargeable income for the purposes of calculating his Lesotho
income tax liability in the year ended 31 March 2024?

A. M500,614
B. M1,001,484
C. M1,089,818
D. M468,014

2. Mahausung General Dealer Ltd’s (Mahausung) light motor vehicle was stolen on
30 November 2023. On 5 February 2024, the insurance company paid M514,660
as settlement for a claim lodged in respect of the theft.

On 1 March 2024, Mahausung acquired a smaller motor vehicle for M402,800 and
invested the excess proceeds in a deposit account with a resident bank. The adjusted
cost base (ACB) of the stolen vehicle on 1 April 2023 was M451,466.

What is Mahausung General Dealer Ltd’s chargeable gain assessable to tax in

the year ended 31 March 2024 in respect of the stolen motor vehicle?

A. M138,438
B. M0
C. M111,860
D. M63,194
3. Which of the following statements outlines the correct tax treatment of
expenditure incurred in starting up a business (start-up costs) under the
Income Tax Act?

A. They are amortised at a rate of 10%

B. They are amortised at a rate of 20%
C. They are amortised at a rate of 25%
D. Start - up costs are not allowable for tax purposes

4. Jane is a Lesotho resident with a number of different sources of income and gains
during the year ended 31 March 2024 as follows:

- A gain of M65,000 realised on the disposal of shares in Normal Ltd, a resident company;
- M30,000 of rental income from the rental of movable property used in Malawi; and
- M25,000 of director’s fees received from a company resident in Korea.

What is Jane’s total Lesotho-source income in the year ended 31 March 2024?

A. M65,000
B. M30,000
C. M90,000
D. M120,000

5. Thupa Ltd had nil taxable profit for the year ended 31 March 2023 and carried
forward a manufacturing loss of M98,623 at 31 March 2023.

The company realised a non - manufacturing taxable profit of M383,228 for the year
ended 31 March 2024 and paid corporate tax instalments of M61,053 during the year.

What is the corporate tax payable by Thupa Ltd in respect of the year ended 31
March 2024 on 30 June 2024?

A. M71,151
B. M10,098
C. M95,807
D. M34,754
6. Which ONE of the following is a taxable fringe benefit for the purposes of fringe
benefits tax (FBT) when provided by an employer to an employee?

A. The provision of a security guard

B. Medical aid which is available to all employees on equal terms
C. The provision of a domestic assistant
D. The provision of a loan with interest charged at the same rate as the Central Bank
of Lesotho discount rate

7. The Lesotho tax system includes both direct and indirect taxes.

Which of the following taxes applicable in Lesotho are examples of direct

taxes?

(1) Corporation tax

(2) Customs duty
(3) Value added tax (VAT)
(4) Withholding tax

A. 1 and 4
B. 2 and 3
C. 1 and 3
D. 1 and 2

8. Three friends - Lineo, Thato and Sello - are all Lesotho resident individuals engaged
in business in Lesotho. They all file a tax return for the year ended 31 March 2024
and each of the tax returns contains an error as follows:

Lineo overstated her tax-deductible expenses by claiming a tax deduction for a

-
non-deductible expense in error;
Thato overstated her chargeable income by including non-taxable dividend income
-
in error; and
- Sello understated his chargeable income by omitting some sales revenue in error.
 Which of the three friends may be charged additional tax by the Revenue
Services Lesotho (RSL) in respect of the errors made in the tax returns filed for
the year ended 31 March 2024?

A. Lineo and Sello only

B. Lineo only
C. Lineo, Thato and Sello
D. Sello only

9. Lebota Ltd paid its final tax liability of M107,620 in respect of the year ended 31
March 2023 on 30 June 2023. On 15 July 2023, Lebota Ltd paid a dividend of
M428,500 of which M100,000 was paid out of manufacturing income.

What is the advance corporation tax (ACT) payable by Lebota Ltd on the
dividend payment of M428,500?

A. M142,833
B. M109,500
C. M1,880
D. M35,213

10. Which ONE of the following groups of supplies are ALL zero-rated for the
purposes of value added tax (VAT)?

A. Peas, seeds and petrol

B. Wheat flour, pesticides and fruit
C. Wheat grain, paraffin and nuts
D. Fertilisers, milk and poultry feed

11. Mercy is employed by BigCorp Ltd. BigCorp Ltd withholds personal income tax
(PAYE) from Mercy’s employment earnings and remits the PAYE tax to the Revenue
Services Lesotho (RSL).

BigCorp Ltd is required to file a PAYE return annually showing all PAYE taxes
deducted from employees in the year.
 Mercy shows the PAYE tax deducted from her employment income in the income tax
return she files with the RSL.

What are the relevant deadlines for both BigCorp Ltd’s annual PAYE tax return
and Mercy’s income tax return in respect of the year ended 31 March 2024 to
be filed with the Revenue Services Lesotho (RSL)?

BigCorp Ltd’s deadline for filing the Mercy’s deadline for filing her
Option
annual PAYE return annual tax return
1 28 April 2024 28 April 2024
2 28 April 2024 30 June 2024
3 30 June 2024 28 April 2024
4 30 June 2024 30 June 2024

A. Option 2
B. Option 1
C. Option 3
D. Option 4

12. Bela Bela Football Club has been approved as an exempt organisation. The club
also owns a building which it rents out to a tenant. During the year ended 31 March
2024, the club recorded the following transactions:

M
Match gate takings 62,300
Property income received 56,005
Property expenses (12,000)
Bus fares of players to matches (11,900)
Purchase of players’ jerseys (7,750)

The property expenses relate to insurance and other costs incurred in relation to the
rental of the building by Bela Bela Football Club to the tenant.
What is the chargeable income of Bela Bela Football Club for the year ended 31
March 2024?

A. M42,650
B. M86,655
C. M44,005
D. M98,655

13. Tsepiso and Litsepiso are partners in a partnership sharing profits equally. Tsepiso
is a resident individual while Litsepiso is an electing non – resident partner. During
the year ended 31 March 2024, the partnership’s chargeable income was M357,453.

Litsepiso’s only other income in the year was interest income of M38,117 received
from a Namibian bank.

What is the income tax payable in Lesotho by Litsepiso for the year ended 31
March 2024?

A. M107,236
B. M44,682
C. M65,053
D. M53,618

14. Khanya Phuthi, a resident individual, filed a tax return for the year ended 31 March
2024 showing chargeable income of M978,903 composed entirely of employment
income. The employment income of M978,903 took no account of a medical aid
contribution of M66,428 made by Khanya during the year. The Commissioner
General conducted a lifestyle audit which revealed the following in respect of Khanya
for the year ended 31 March 2024:

- A motor vehicle worth M2,442,328.

- A primary house in Maseru West, Lesotho worth M2,298,662.
- School fees paid by Khanya in respect of his children were M89,300.
- Telephone costs amounted to M38,200 and electricity costs amounted to M27,000.
 What is the chargeable income of Khanya Phuthi for the year ended 31 March
2024?

A. M841,815
B. M880,015
C. M978,903
D. M912,475

15. Mpati Enterprises Ltd acquired equipment on a finance lease from a Lesotho-
resident bank. The cash price of the equipment if it had been purchased outright was
M478,423 and the finance lease amount was M328,818. The equipment was
purchased and delivered on the 30 November 2023. The rate of interest on the
finance lease was 16%.

What is the allowable interest of Mpati Enterprises Ltd in respect of the finance
lease for the year ended 31 March 2024?

A. M17,537
B. M52,611
C. M25,516
D. M76,548
SECTION A
ALL EIGHT QUESTIONS ARE COMPULSORY AND MUST BE ATTEMPTED

Question 16 Mobu Litsila (Mobu)

This scenario relates to three requirements.

Mobu Litsila (Mobu), a resident individual, is employed by a public international

organisation. During the year ended 31 March 2024, the following transactions were
extracted from the records of Mobu Litsila:

Notes M
Receipts
Salary 802,760
Cash allowance 98,450
Company’s contribution to a medical aid scheme 1 43,017
Interest received 2 28,499

Payments by Mobu
Tuition fees 3 66,420
Travelling costs 3 2,200
Own pension contribution 80,276
Own medical aid contribution 32,995

Other benefits received from employer

Provision of a motor vehicle –
Value of vehicle when first provided to Mobu 420,667
Provision of a domestic assistant –
Salary paid by employer 16,400
 Notes:
(1) Mobu’s employer pays an equal amount of medical aid for all employees.
(2) Mobu does not receive any other income except from employment income and
interest income. The interest income is from a nominated account with a Lesotho
resident bank.
(3) Mobu pays tuition fees to a local training institution to improve his skills related
to his current employment. The training has not been approved by the
Commissioner General. The travelling costs of M2,200 were incurred when
travelling to and from the local training institution.

Requirements:
(a)(i) State the general rules which must be satisfied in order for employment-
related expenses to be deductible against employment income for income tax
purposes.
(1 mark)

(a)(ii) For each of the following categories, provide a brief explanation of the
type of expenses which would be deductible against employment income:

- Travel expenses incurred for work;

- Motor vehicle expenses incurred for work;
- Expenses for technical and trade books and professional subscriptions;
- Education expenses; and
- Home office expenses.
(5 marks)
(b) Calculate the income tax payable by Mobu Litsila for the year ended 31 March
2024.

Note: Your answer should deal with all items referred to in the question, indicating
those not resulting in taxable income or tax deductions by the use of a zero (0).
(9 marks)

(15 marks)
Question 17 Lithabaneng (Pty) Ltd

This scenario relates to one requirement.

Lithabaneng (Pty) Ltd is a resident company engaged in commercial farming and

leasing of equipment. The following transactions were recorded in its revenue and
expenditure records for the year ended 29 February 2024:

Notes Commerical Farming Leasing

M M
Revenue 1 928,300 1,020,666
Purchases 2 198,620 328,980
Closing stock - 48,040
Sales commission received 3 33,750 -
Salary costs 4 108,200 182,350
Staff training costs 5 22,640 52,810
Depreciation of equipment 6 - 43,373

Notes:
(1) Revenues from the leasing of equipment include VAT. All other amounts are
stated exclusive of VAT.
(2) Owing to a misunderstanding, purchases amounting to M400,000 in respect of
the company’s commercial farming activities have not been included in the
company’s accounting records.
(3) Sales commission of M12,500 paid by the leasing department has instead been
deducted from the total commission received by the farming department in error.
(4) Salaries are stated net of personal income tax withheld (PAYE) of M9,200 in
respect of staff engaged in commercial farming and M17,420 in respect of staff
engaged in leasing activities.
(5) Only the staff training provided to the leasing department has been approved by
the Commissioner General.
(6) Depreciation has been computed using a rate of 15% in accordance with the
company’s accounting policy. The adjusted cost base (ACB) of equipment
owned on 1 March 2023 was M238,932. Additional equipment amounting to
M120,523 was acquired on 30 September 2023.
(7) The company paid advance corporate tax (ACT) of M51,644 on 15 January
2024.
Requirement:
Calculate the corporation tax payable by Lithabaneng (Pty) Ltd for the year
ended 29 February 2024.

Note: Your answer should deal with all items referred to in the question, indicating
those not resulting in taxable income or tax deductions by the use of a zero (0).
(15 marks)

Question 18 Marung Plc

This scenario relates to one requirement.

Marung Plc is a value added tax (VAT) registered vendor. During the month of
November 2023, the company recorded the following transactions. All amounts are
stated inclusive of VAT, where relevant:

Notes M
Income 1 1,420,620
Purchase of heavy duty motor vehicle 834,400
Purchases of trading stock 620,498
Purchases of fertilisers 276,907
Water and sewerage costs 2 36,420
Ground rent and property rates 130,000
Heavy duty motor vehicle running costs 66,133

Notes:
(1) Income is comprised of: M
- Sales of trading stock 1,020,720
- Interest received 98,272
- Sales of fertilisers 301,628
1,420,620

(2) 80% of the water and sewerage costs consist of sewerage costs.
Requirement:
Calculate the value added tax (VAT) payable or reclaimable by Marung Plc for
the month of November 2023.

Note: Your answer should deal with all items referred to in the question, indicating
those not impacting on the calculation of VAT by the use of a zero (0).
(10 marks)

Question 19 Makhuleng Logistics Ltd

This scenario relates to one requirement.

Makhuleng Logistics Ltd provided the following benefits to one of its executives in
the quarter ended 30 September 2023:

- Provision of a motor vehicle with a market value of M557,650 when first

provided to the executive. The executive contributes M5,000 per quarter for the
use of the motor vehicle.
- Payment of telephone bills amounting to M2,060 per month. This monthly bill
includes M1,210 which is a monthly payment for the purchase of a mobile
phone (cellphone) handset included in the executive’s contract.
- Provision of meals in a canteen. The executive’s meals cost M1,145 per month.
However, the executive reimbursed the company M700 per month which was
the amount by which the monthly cost of the executive’s meals exceeded the
amount of subsidy available to all employees.
- Provision of a loan of M138,000 at an interest rate of 6.7% per annum. The
Central Bank of Lesotho discount rate is 13.5% per annum.
- Payment of school fees in respect of the executive’s children amounting to
M32,900 per month.

Requirement:
Calculate the fringe benefits tax (FBT) payable by Makhuleng Logistics Ltd in
respect of the executive for the quarter ended 30 September 2023.
Note: Your answer should deal with all items referred to in the question, indicating
those not subject to fringe benefits tax (FBT) by the use of a zero (0). (10 marks)
Question 20 Mekaling (Pty) Ltd

This scenario relates to one requirement.

During the year ended 31 March 2024, Mekaling (Pty) Ltd, a resident company,
made the following payments:

(i) A dividend of M360,000 was paid to Abrey Ltd, a non – resident company.
M89,000 of the dividend was paid out of manufacturing income and the balance
was paid out of non-manufacturing income.
(ii) Interest of M226,136 was paid to a non – resident company, Mapeleng Trading,
on a loan to acquire material to be used for manufacturing jeans.
(iii) A management fee of M303,318 was paid to a non –resident company, Mejali
Ltd.
(iv) A fee of M2,995 was paid to a resident company, Lesco Ltd, for the provision of
plumbing services.

None of the non-resident companies referred to in the scenario are resident in

countries with which Lesotho has a double tax treaty.

Requirement:
Calculate the withholding tax which applies to each of the payments made by
Mekaling (Pty) Ltd.

Note: Your answer should deal with all items referred to in the question, showing the
amount of withholding tax as zero (0), if relevant.
(5 marks)

Question 21

State the TWO offences that can be committed by a taxpayer under the Income
Tax Act in relation to the maintenance of proper tax records and the possible
penalties which apply to each offence.
(5 marks)
 Q22 Letseng Properties Ltd

This scenario relates to one requirement.

Letseng Properties Ltd disposed of the following assets during the year ended 31
March 2024:

(i) The lower level of flats within a 2-storey block of flats.

The 2-storey block of flats were constructed for a total cost of M3,080,950 in
June 2016. The cost base of the lower level of flats was M1,848,570 (60%). The
properties on the lower level were used for rental purposes and this lower level of
flats only was extended at a cost of M305,600 in May 2022.

The lower level of flats was sold for M2,928,000 on 31 January 2024.

(ii) Equipment which was acquired for M139,656 on 1 June 2023.

This equipment was sold for M73,400 on 31 January 2024.

The relevant consumer price indices are given as follows:

June 2016 104

May 2022 129
January 2024 136

Requirement:
Calculate the total chargeable gain or allowable loss arising to Letseng
Properties Ltd on the disposals in the year ended 31 March 2024.
(5 marks)

23. Outline the whole process of appeal, including to whom the appeal is made
and any relevant time limits.
(5 marks)