ZAMBIA INSTITUTE OF CHARTERED ACCOUNTANTS

CHARTERED ACCOUNTANTS EXAMINATIONS

TECHNICIAN LEVEL

T 5: TAXATION

SERIES: JUNE 2012

TOTAL MARKS: 100 TIME ALLOWED: THREE (3) HOURS

INSTRUCTIONS TO CANDIDATES

1. You have fifteen (15) minutes reading time. Use it to study the examination paper
carefully so that you understand what to do in each question. You will be told when to
start writing.

2. This paper is divided into TWO sections:

Section A: Ten (10) Multiple Choice Compulsory questions.

Section B: Five Optional questions. Attempt any four (4).

3. Enter your student number and your National Registration Card number on the front of
the answer booklet. Your name must NOT appear anywhere on your answer booklet.

4. Do NOT write in pencil (except for graphs and diagrams).

5. The marks shown against the requirement(s) for each question should be taken as an
indication of the expected length and depth of the answer.

6. All workings must be done in the answer booklet.

7. Present legible and tidy work.

8. A Taxation Table is provided on pages 2 and 3 of this paper.

Taxation Table for the charge year 2011/12

1. Income Tax
Chargeable Income (Kwacha) Rate (%)
Personal Income Tax
rates
First 12,000,000 0
Next 8,820,000 25
Next 29,580,000 30
Excess over 50,400,000 35
Income from farming 15

2. Company Income Tax rates

On income from manufacturing and other 35
On income from non-traditional exports 15
On income from farming 15

3. Capital Allowances
(a) Implements, plant and machinery and commercial vehicles:

Wear and Tear Allowance: Used normally 25

Used in manufacturing,
tourism,
Farming, Leasing 50

(b) Non-Commercial Vehicles

Wear and Tear Allowance 20

(c) Industrial Buildings:

Wear and Tear Allowance 5
Initial Allowance 10
Investment Allowance 10

(d) Low Cost Housing: (Cost up to K20,000,000)

Wear and Tear Allowance 10
Initial Allowance 10

(e) Commercial Buildings

Wear and Tear Allowance 2

(f) Farming
Development Allowance 10
Farm Works Allowance 100
Farm Improvement Allowance 100

2
4. Property Transfer Tax Rate %

Rate of Tax on Realised Value 5

5. Value Added Tax

Registration threshold K200, 000,000

Standard Value Added Tax Rate (on VAT exclusive turnover) 16

6. Customs and Excise

Duty rates on:

(i) Motor Cars and Motor vehicles (including station wagons) principally
designed for transport of less than ten persons, including the driver.

Customs duty 25
Excise duty:
Cylinder capacity of 1500cc and less 20
Cylinder capacity of more than 1500cc 30

(ii) Pick up trucks/lorries with gross weight not exceeding 20 tonnes:

Customs duty 15
Excise duty 10

(iii) Buses/coaches for transport of more than ten persons.

Custom duty 15
Excise duty:
Seating capacity of 16 persons and more 0

The minimum amount of customs duty on motor vehicles in categories

from (i) up to (iii) above is K2, 000,000

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SECTION A
This one question is compulsory and must be attempted.

QUESTION ONE (Multiple Choice)

1.1 Which of the following is not a quality of a good tax system?

(A) Fair and equitable for taxpayers
(B) Transparency( i.e. ease of ascertaining the tax payable)
(C) Competitiveness with other tax systems in the world
(D) Adaptable to changes in the economic conditions in the country. (2 marks)

1.2 In April 2011, Mr Pondamali had a basic salary of K 3.6 million per month. A pension
of 5% of this basic salary was deducted by the employer. The P.A.Y.E payable
was……
(A) K689,250
(B) K836,500
(C) K796,600
(D) K696,750 (2 marks)

1.3 Mr. Mulima, a commercial farmer bought a tractor for K160 million in the charge year
2011/12. The European Union assisted him by giving him a grant of 40% of the cost
as he was involved in exporting his farm produce for the European market. The
maximum, wear and tear allowance claimable in the charge year 2011/12 was…..
(A) K80 million
(B) K48 million
(C) K40 million
(D) K24 million (2 marks)

1.4 A business spent K 34.8 million (VAT inclusive) for a month on petrol on its fleet of
motor vehicles. The VAT claimable as input VAT was…….
(A) K4.8 million
(B) K2.4 million
(C) K3.84 million
(D) Non of the above (2 marks)

1.5 The functions of an Inspector of Taxes include the following……

(i) Inspecting the business premises of the taxpayer
(ii) Issuing the annual tax return.
(iii) Checking the assessment of the taxpayer
(A) (i) and (ii)
(B) (ii) and (iii)
(C) (i) and (iii)
(D) (iii) only (2 marks)

4
1.6 K.M. Enterprises constructed a building and brought it into use in the tax year
2011/12. The breakdown of the cost was as follows……
Km Km
Land 60
Building: -Factory 640
Canteen 80
General Offices 120 840
Total cost 900

The qualifying cost for industrial building allowances purposes will be:
(A) K720 million
(B) K640 million
(C) K840 million
(D) K900 million (2 marks)

1.7 Mr. Spekuleta sold a piece of land in May 2011, which he bought 6 years ago for
K10 million to some property developers for K 120 million and also sold a Business
truck for K 80 million. The truck was bought at a cost of K130 million two years ago.

Calculate the total Property Transfer Tax payable by Mr Spekuleta for the tax year
2011/12 will be:
(A) K300,000
(B) K1.8 million
(C) K6 million
(D) K3.6 million (2 marks)

1.8 A Zambian resident person for tax purposes is one:-

(A) With a green registration card
(B) Who has stayed in Zambia for a continuous period of 365 days in a tax year
(C) Who has stayed in Zambia for a total of at least 183 days in a tax year.
(D) Who stayed in Zambia for at least a whole year in the past 2 years.
(2 marks)

1.9 Which of the following represents the tests applied to determine whether an
individual is carrying on a trade or not (the badges of trade)?
(i) The length of the period of ownership
(ii) Frequency of a similar transaction
(iii) The total amount involved in the transaction
(A) (i) and (ii) only
(B) (i) and (iii) only
(C) (ii) and (iii) only
(D) (ii) only (2 marks)

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1.10 Zamfarm PLC, a Farming Company was listed on the Lusaka stock exchange (LUSE)
in 2011/12 tax year. The Company Income tax rate applicable was:-
(A) 35%
(B) 15%
(C) 13%
(D) 8% (2 marks)
(Total: 20 marks)

SECTION B (Attempt any Four in this section)

QUESTION TWO

Due to an economic recession in the industry in which Chikonka Limited operated in, Jack
Zanda was declared redundant on 31st January, 2012, his annual salary, from 1st
January,2011 to the date of being declared redundant was K50,400,000. Other Income
included:-

K
Housing allowance 700,000 per month
Transport allowance 400,000 per month
For the tax year 2011/12 Chikonka Limited paid for his medical expenses totaling
K3, 600,000 and K 2,500,000 for telephone bills.
On being declared redundant Jack Zanda received the following income:-

K
Leave pay 6,200,000
Repatriation pay 12,000,000
Accrued service bonus 52,800,000
Salary in lieu of notice 8,400,000

In addition, he received a total sum of K28,000,000 as pension. Half of this amount was an
employee’s pension refund and the remaining amount was an employer’s pension refund.
Being an amateur book writer, he received copyright royalties of K 4,250,000 (net) in
November, 2011.

Payments made by Jack during the tax year 2011/12 included:-

K
P.A.Y.E 18,620,000
NAPSA 1,780,000
Mortgage interest 12,340,000
Golf club subscription 1,600,000
Professional Subscription 1,200,000

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Required:

(a) Explain the difference in the treatment of pension paid to former employees on
retirement and the pension paid when they are declared redundant or retrenched.
(3 marks)

(b) Calculate the tax payable by Jack Zanda for the Tax year 2011/12. (17 marks)
(Total: 20 marks)

QUESTION THREE

(a) Explain any four factors used to determine whether an individual is in employment or
self-employment. (8 marks)

(b) Ms Banda owns three properties number 11, 12 and 13 which are rented out. The
details for each property for the tax year 2011/12 was as follows:-

Property 11
This is a residential property which was rented out at K 2.72 million (net) per month.
She incurred K 3,800,000 for repairs of doors and windows. The property was let
out throughout the tax year 2011/12

Property 12
This is a commercial property which was acquired on 15th July, 2011. Immediate
repair work was done to the leaking roof which amounted to K6.2 million. It was
rented out for K72 million (gross) per annum from 1st September, 2011. Expenditure
incurred by Ms. Banda from 1st September to 31st March, 2012 included:-

K000
Electricity and Water 8, 200
Repairs to doors 1,800
Extension to staff toilets 4,900

Property 13
This is a residential property which was acquired on 1st October, 2011. The property
being in good shape was immediately rented out on 1st November, 2011 for K 2.38
million (net) per month.

The first tenant moved out on 31st January, 2012 without paying for the January,
2012 rent and the amount proved to be irrecoverable. A new tenant moved in, on 1st
February, 2012 on similar rental terms. Other expenses incurred by Ms. Banda on
maintenance of the property amounted to K 2,640,000. Property expense incurred
by the tenants from 1st November, 2011 was K 1,600,000. These property expenses
incurred by the tenants were not re-imbursed by Ms. Banda as they arose due to the
tenants negligence.

Employment Income

Ms. Banda is still in employment at an annual salary of K58 million and her other
income in the tax year 2011/12 included bank interest of K680,000 (net) and
dividends of K420, 000 (net).

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 Ms. Banda’s employer deducts 5% as a pension contribution from the basic salary.
P.A.Y.E deducted amounted to K 17,980,000.

Required:
(i) Calculate the taxable rental income for Ms. Banda for the tax year 2011/12.
(6 marks)

(ii) Calculate the tax payable by Ms. Banda for the tax Year 2011/12.
(6 marks)
(Total: 20 marks)

QUESTION FOUR
Kunda, Popo and Mwila are in partnership in the construction industry. Their income
statement for the year ended 31st March, 2012 was as follows:-
K000
Gross Profit 1,830,800
Other Income (Note 1) 4,100

Commissions (Note 1) 18,900

Treasury bills interest (Note 1) 8,400

1,862,200
Less: Expenses
Depreciation 38,200
Bad debts (Note 2) 16,800
Motor car expenses (Note 3) 63,300
Property expenses (Note 4) 48,880
Premium paid (Note 5) 180,000
Salaries and Wages (Note 6) 740,620
Entertainment (Note 7) 40,400
Other expenses (Note 8) 320,660
Provision for Taxation 104,500
1,553,360
Net Profit 308,840

Note 1 These amounts are gross investment income and withholding tax had been
deducted at source.

8
NOTE 2 The bad debt account was as follows:-

Bad debt account

K000 K000

13,200 1.4.2011 General Provision 14,500

Trade debts written off

Loan of emploPopo written 8,300 1.4.2011 Trade specific Provision 8,000

Off.

31.3.2012 General 11,200 Trade debts written off 4,500

Provision now recovered

31.3.2012 specific Provision 16,800 Employee loan 5,700

previously written off
now recovered

______ Income statement 16,800

49,500 49,500

NOTE 3
The firm has 2 pool cars driven by employees and three personal to holder cars driven by
the partners. Personal to holder cars are driven 40% private and 60% business. All personal
to holder cars are 2000 cc and pool cars are 1800 cc.
Two thirds of the motor car expenses relate to personal to holder cars.

NOTE 4
One quarter of business premises at which the business is conducted is used as Mwila’s
private residence. The property expenses relate to the whole premises.

NOTE 5
The business premises were acquired on 1 April 2011 on a 10 year lease. The premium
shown in the accounts relate to the lease.

NOTE 6
Salaries and wages include K360 million for partners.

NOTE 7
Entertainment expenses include entertaining potential clients for K18 million, K14 million for
current customers and K8, 400,000 for a staff Christmas party.

NOTE 8
These include canteen expense K48 million and legal fees of K7 million relating to the
acquisition of new business land from which they expect to build their new business

9
premises and move into it in 10 years time after the expiry of the lease. The balances of
K265, 660,000 are all tax allowable.

NOTE 9
Capital allowance calculated for the tax year 2011/12 amounted to K116 million.

NOTE 10
The partnership agreement was as follows:-

Kunda Popo Mwila

Salaries (Kmillion) 160 120 80
Profit sharing ⅓ ⅓ ⅓

Required:

Calculate the taxable income of the partners for the tax year 2011/12. (20 marks)
(Total: 20 marks)

QUESTION FIVE

(a) Alpha Limited is a manufacturing company and sold its products in March, 2012 to
Beta Ltd a wholesaler for K250 million. Alpha limited does not incur any input VAT on
its raw materials. Beta Ltd sold the same products to Gamma Ltd a retailer for
K350 million. Gamma Ltd, a retailer sold the same products to consumers for K450
million. These three companies are all registered for VAT purposes and all of the
above figures are VAT exclusive.

Required:

Compute the VAT payable by each of the three companies and state the due date for
the payment of the VAT. (5 marks)

(b) In relation to the Value Added Tax:-

(i) Explain the Cash accounting scheme and the advantages and disadvantages
of the Cash accounting scheme. (6 marks)
(ii) The types of registration for Value Added Tax. (3 marks)

(c) Mr. Sebi imported a saloon car (1500 cc) from Japan at a cost of US $840. He paid
insurance charges of US $120 and transportation costs of US $650. Transportation
and other costs from Nakonde boarder post to Mr. Sebi premises amounted to US
$180.

The exchange rate issued by the commissioner General at that time was K4, 900 per
US $.

However, the exchange rate at Mr. Sebi’s bank when he paid for the saloon car was
K4,950 per US$.

10
Required:

(i) Calculate the customs value (value for duty purposes) of the Saloon car.
(2marks)
(ii) Calculate the total amount of import taxes paid for the saloon car. (4 marks)
(Total: marks 20)
QUESTION SIX

(a) A Small and Medium Enterprise may apply for a Small and Medium Enterprise
certificate and the certificate may be granted confirming the entity’s small and
medium enterprise status under the Small and Medium Enterprises Act.

Required:

(i) Explain what a Small and Medium Enterprise is in terms of the business
activities that are acceptable. (2 marks)

(ii) Explain the tax incentives available for a small and medium enterprise.
(6 marks)

(b) Three companies have the following data:-

1. Company A has 20 employees with an annual turnover of K 300 million and
the total Investment excluding Land and Building of K 120 million.
2. Company B has 5 employees with an annual turn over of K180 million and
total Investment excluding Land Building of K 70 million.
4. Company C has 2 employees with an annual turn over of K400 million and
total Investment excluding land Building of K 100 million.
All above the companies applied for small and medium enterprise status in the
tax year 2011/12.

Required:

(i) State and give reasons which of the above stated companies will receive
small and medium enterprise certificates in 2011/12. (6 marks)

(ii) Assuming none of the above companies applied for small and medium
enterprises certificate state the type of taxes to be paid on their
income (i.e. whether provisional or turnover taxes) and the due dates
for payments of these taxes. (6 marks)
(Total: 20marks)

END OF PAPER

11
T5: SUGGESTED SOLUTIONS

SOLUTION ONE

1.1 (C)
1.2 (D)
1.3 (B)
1.4 (B)
1.5 (B)
1.6 (A)
1.7 (C)
1.8 (C)
1.9 (A)

1.10 (C)

(2 marks for each solution – Total 20 marks)

Workings

Q 1.2

K000
Basic Salary 3,600
Less: Pension (155)
Taxable income (pay) 3,445

Tax computation (PAYE)

1st K1m @ 0% -
Next K0.735m @ 25% 183.75
Balance K1.71m @ 30% 513.00
K3.445 696.75

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Q1.3

K000 K000
Tractor 160,000
Less: Grant 40% (64,000)
Net cost 96,000
Wear and fear allowances
50% X K96m= 48,000

Q1.4 Petrol cost K34.8million

Input VAT claimable (deductible)

34.8m X X 50% = K2.4million

Q1.6 Total cost (K800m – K60m) = K840million

Commercial building part

Proportion = 14.3% > 10%

 Industrial building =
Km
Factory 640
Canteen 80
720
Q1.7 PTT only induces land and buildings and shares not listed on the LUSE as properties.

The PTT on land and buildings is based on the market value at the time of the sale.

Therefore the PTT payable =

K120m X 5% = K6 million.

13
SOLUTION TWO

(a) Pension paid to employees on retirement is exempt whether the retirement is early
retirement or normal retirement. (1 mark)

For employees declared redundant or retrenched, the pension is split between

employees’ pension refund and employer pension refund. The employee Pension
refund is taxed separately at 10%, while the employer Pension refund is taxed under
normal P.A.Y.E. (2 marks)

(b) Jack Zanda – Tax Payable 2011/12

K000 K 000 marks

10
Basic salary (K50,400,000 X /12) 42,000 ½

Housing allowance (K700,000 X 10) 7,000 ½

Transport allowance (K400,000 X 10) 4,000 ½

Telephone bills 2,500 ½

Employer Pension refund 14,000 ½

Leave pay 6,200 ½

Salary in lieu of notice 8,400 ½

84,100 ½

Add: other income

Royalties (K4,250,000/85%) 5,000 1

89,100

Less: Allowable deductions

NAPSA 1,780 ½

Professional subscription 1,200 ½

(2,980) ½

Taxable Income 86,120 ½

14
Tax computation – (on P.A.Y.E.) K’000 marks

1st K12,000,000 @ 0% - ½

Next K8,820,000 @ 25% 2,205 ½

Next K29,580,000 @ 30% 8,874 ½

Bal K35,720,000 @ 35% 12,502 ½

Less: Tax Credit 23,581 ½

(18,620) ½
- P.A.Y.E
(750) 1
- WHT – Royalties (15% X K5,000,000)
4,211 ½
Tax Payable
Tax on Terminal Duties

K’000 marks

Repatriation pay 12,000 ½

Accrued service bonus 52,800 ½

64,800 ½

Less: Exempt (35,000) ½

29,800 ½

Tax K29,800,000 X 10% = K2,980,000 1

Tax on Employee Pension Refund

Pension – K14,000,000 X 10% = K1,400,000 1

Summary of Tax K000

Tax on normal – P.A.Y.E. 4,211

Tax on - Terminal Due 2,980

Tax on – Pension 1,400

8,591 1
(Total marks – 20 marks)

15
SOLUTION THREE

The factors used to determine whether an individual is in employment or self employment

include:-

(i) Work performance

Employees must perform the duties assigned to them themselves, while the self-
employed may hire other people to perform the work for them. (2 marks)

(ii) Control

The work of an employee is controlled by the employer who normally stipulates

working hours and other conditions. A self-employed person decides when to
perform the duties and how to perform them. (2 marks)

(iii) Payment and financial risk

Employees are paid an agreed salary on a monthly or weekly basis and incur no
form of financial risk. In order to earn an extra sum employees work overtime.
Self employed persons are normally paid a proportion of the contract price based
on the amount of work performed. They also bear the full financial risk of their
business. (2 marks)

(iv) Place of work

Employees are normally told where the duties are to be performed from. This is
normally at the employer’s premises or at the premises of a client. Self-
employed persons perform the duties at a place of their choice. (2 marks)

(v) Equipment

An employer provides the tools and equipment which the employees use in the
performance of duties. Self-employed persons normally provide their own tools
and equipment. (2 marks)

(vi) Correction of work

Employees normally rectify any faulty work during the normal working hours and
they are still paid for the time spent on work correction. Self-employed persons
rectify any faulty work outside the contract time and they are not paid for that
extra work. (2 marks)

(vii) Engagement and dismissal

The employer takes on and dismisses employees. A self-employed person

normally enters into a contract with a client specifying the beginning and end.
(2 marks)

(viii) Insurance

Employers normally provide insurance cover for the actions of their employees.
Self-employed persons have to provide for their own insurance needs.

16
 (viii) Exclusivity
Employees normally work for one employer. A self-employed person normally
works for many clients. (2marks)

(2 marks for any four of the points above – Total 8 maximum)

K000 marks
(b) Property 11

Rent – Gross – (K2.72m/0.85) X 12 38,400 ½

Less: Expenses

Repairs (3,800) ½

34,600

Property 12 K000 K000

Rent – Gross – 42,000 ½

(K72,000,000 X 7/12)

Less: Expenses

Electricity & Water 8,200 ½

Repairs – doors 1,800 ½

(10,000)

32,000

17
Property 13 K000 K000

Rent – Gross – (K2,380,000 / 0.85) X 5 months 14,000 ½

Less: Expenses

Bad debt 2,800 ½

Other expenses 2,640 ½

(5440)

8560

Total taxable rental income 75,160

Workings K000
W.H.T – Property 11 – K38.4m X 15% 5,760 ½
12 – K42m X 15% 6,300 ½
13 – K14m X 15% 2,100 ½
14,160 ½
(6 marks)

(b)(ii) Ms Banda Tax payable – 2011/12

K000 marks

Basic Salary 58,000 1

Add: other income

75,160 1
Rental Income
133,160

Less: pension (1,860) 1

Taxable income 131,300

Tax computation K000

1st K12,000,000 @ 0% - ½

Next K8,820,000 @ 25% 2205 ½

Next K29,580,000 @ 30% 8874 ½

Bal K80,900,000 @ 35% 28,315 ½

18
 39,394

Less: Tax credit

W.H.T – Rental (14,160) 1

P.A.Y.E (17,980)

Tax payable 7,254

(6 marks)

(Total – 20 marks)

SOLUTION FOUR

Adjusted taxable business profit

K000 K000 marks

Net profit 308,840 ½

Add: Depreciation 38,200 1

104,500 1
- Provision for taxation
8,300 1
- Loan to employee written off
16,880 2
- Motor car expenses (2/3X K63.3m) X 40%
12,220 1
- Property expenses (K48,880 X ¼)
166,500 2
- Premium (K180m – ( )
360,000 1
- Salaries and wages
18,000 1
- Entertainment – potential clients
14,000 1
- current customers
- Canteen expenses 48,000 1

- Legal fees 7,000 793,500 1

1102,440 ½

Less: Decrease in General provision of Bad debts 3,300 1

- Employee loan – recovered 5,700 1
- Capital allowances 116,000 1
(125,000)
977,440

Partners appropriation account

19
 Kunda Popo Mwila Total marks

K000 K000 K000 K000

Salaries 160,000 120,000 80,000 360,000 1

Bal 1:1:1 205,284 205,883 205,813 617,440 1

Taxable income 265,284 325,883 285,813 977,440 1

(Total – 20 marks)

SOLUTION FIVE

(a)

Sales input output payable marks

VAT VAT to ZRA

K000 K000 K000

1. Manufacturing company
- 40,000 40,000 1
To a wholesaler
40,000 56,000 16,000 1
2. Wholesaler to Retailer
56,000 72,000 16,000 1
3. Retailer to consumer
96,000 168,000 72,000 1
The amount paid to ZRA by Alpha Limited was K40million, Beta Ltd. Was K16million and
Gamma Ltd. Was K16 million. The final consumer bears the total VAT. For March 2012, the
VAT was due on 21 April 2012. 1

(b)(i) A cash accounting scheme is where VAT is only accounted for when receipts from
sales are received and payments made for the purchase. This is deferent from the
normal VAT accounting where both cash and credit transactions have to be
accounted for. The only business allowed are members of the association of building
and civil engineering contractors. (2 marks)

The advantages of a cash accounting scheme are:-

(a) Bad debts for VAT do not arise

(b) A cash book can be used for preparing VAT returns
(c) VAT is only accounted for when cash is received and payments made.
(3 marks)

The disadvantages of using a cash accounting scheme are that input VAT is only
recoverable when payments are made for purchases. (1 mark)

20
(b(ii) There are two types of VAT registration:-

- Statutory (compulsory or mandatory) registration where any supplier making

taxable turnover exceeding or equal to K200m per annum or K50m per quarter
is required to register. (2 marks)

- Voluntary registration is allowed for business whose taxable turnover is less

than K200m. (1 mark)

(a)(i) The customs value is:-

$ marks

Cost 840

Insurance 120

Freight 650

1610

VDP CIF x Exchange rate

$1,610 X K4,900 = K7,889,000 2

(ii) Computation of import taxes paid

Value Taxes

V.D.P K K
Customer duty @ 25% 7,889,000
(minimum – K2m) 2,000,000 2,000,000 1
9,889,000
Excise duty @ 20% 1,977,800 1,977,800 1
11,866,800
VAT @ 16% 1,898,688 1,898,688 1
13,765,488
Total Import Taxes Paid 5,876,488 1

(Total – 20 marks)

21
SOLUTION SIX

(a)(i) The business activities acceptable under the Small and Medium Enterprise Act are
any undertaking engaged in the manufacture or provision of services or any
business in the construction and trading services but does not include mining or
recovery of minerals. (2 marks)

(ii) Enterprises registered under Small and Medium Enterprises Act, are entitled to the
following tax incentives:-

1. Exemption from payment of tax on income for the first 3 years of an

enterprise operating in an urban area.

The first five years of operations for an enterprise in a rural area.

2. Where a building is let by a private person to a Small and Medium Enterprise,

the following tax incentives apply:-
(i) Exemption from payment of tax on income received from rentals on
such premises.

(ii) Exemption from the payment of rates on factory premises.

(1½ marks for each point – total 6 marks)

(b)(i) For a company to register under Small and Medium Enterprise Act, the following
criteria (conditions) must apply:-

- Total investment excluding land and building of between K80m and K200m.
- Annual turnover must be between K150m and K300million.
- Employing up to 10 and 50 employees.
(1½ mark for each point – total 4½)
(i) Company A meets all the three conditions and therefore may register.
(ii) Company B can not register as there are less than 10 employees and
the total investment excluding land and buildings of less than
K80million.
(iii) Company C can also not register as employees are only 2 but the
other two criteria are met as regards investment and turnover.
(½mark for each company – Total 11/2)
(Total – 6 marks)

(ii) If none of the companies applied for a small and medium enterprise
certificate, the type of taxes to be paid by the companies are:-

- Company A with a turnover of K300million would be required to pay

taxes under the provisional taxes on quarterly basis as the turnover
threshold of K200million has been exceeded. (1 mark)
- Company B with a turnover of K180million would pay turnover tax at
3% of the turnover. (1 mark)
- Company C with annual turnover of K400million, would entail the
company to pay quarterly provisional tax. (1 mark)

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The due dates for payments of the quarterly provisional tax are:-

1st quarter 30th June – deadline – 14th July

2nd quarter 30th September – deadline – 14th October

3rd quarter 31st December – deadline 14th January

4th quarter 31st March – deadline – 14th April. (2 marks)

The turnover tax is accounted for on monthly basis and is due for payment on
the 14th of the subsequent month. (1 mark)

(Total 6 marks)

(Total – 20 marks)

END OF PAPER

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