Answers

Fundamentals Level – Skills Module, Paper F6 (BWA)

Taxation (Botswana) June 2008 Answers

1 (a) Joyce Pabalinga

(i) Computation of the partnership chargeable income

P P
Net profit per the accounts 82,000
Add: depreciation 50,000
Susan’s salary (Note 1) 75,000
Joyce’s interest (Note 2) 10,000 135,000
––––––––
Less: capital allowances (32,000)
––––––––
185,000
Less: partnership loss brought forward (50,000)
––––––––
Partnership chargeable income 135,000
––––––––
Split as follows:
Susan 70% 94,500
Joyce 30% 40,500
––––––––
135,000
––––––––
Notes:
1. A salary for a partner is not tax deductible and is a part of the share of profits.
2. Interest paid to a partner is not tax deductible and is a part of the share of profits.
(ii) Calculation of taxable income
P
Salary 288,000
Performance bonus 50,000
Company car benefit ((320,000 – 200,000) x 15% + 10,000) 28,000
Company provided housing benefit (P476,000 x 10%) 47,600
Company provided furniture benefit ((P25,000 – 15,000) x 10%) 1,000
Company contribution to pension fund 0
Medical aid 0
Partnership chargeable income 40,500
Interest received (P32,000 – 6,000) 26,000
Profit on sale of listed shares 0
––––––––
Taxable income 481,100
––––––––
(iii) Calculation of tax payable
P P
First P120,000 10,875
Next P361,100 at 25% 90,275
––––––––
101,150
Less: ITW8 tax credit 85,600
interest tax credit 2,000 (87,600)
––––––– ––––––––
Net tax payable 13,550
––––––––

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 (b) David Kajane

(i) Chargeable income from farming

P P
Income
Sales 1,232,017
Personal consumption (30 x P430) 12,900
Settlement of debt (10 x P430) 4,300
Closing stock (472 x P430) 202,960 1,452,177
–––––––––
Purchases 865,083
Opening stock (438 x P430) 188,340 (1,053,423)
––––––––– ––––––––––
398,754
Expenditure
Salaries and wages (214,681 – 120,000) 94,681
Fencing 43,748
Vehicle expenses 67,611
Cattle feed 143,072
Construction of dam 58,869
Construction of farm buildings 70,000
Bank interest 32,674 (510,655)
––––––––– ––––––––––
Farming loss for the year (111,901)
––––––––––
(ii) Calculation of taxable income
P
Commission 140,750
Share of partnership business income 67,032
–––––––––
207,782
Less: farming loss – 50% of chargeable income (Note) (103,891)
–––––––––
Taxable income 103,891
–––––––––
Note
The offset of the farming loss is limited to 50% of chargeable income.
(iii) Farming loss carried forward
P
Loss brought forward (178,446)
Current year loss (111,901)
Less: set-off 103,891 (8,010)
––––––––– –––––––––
Farming loss carried forward (186,456)
–––––––––

2 Masedi Enterprises (Proprietary) Ltd

(a) Computation of capital allowances

Buildings Furniture Machinery Vehicles Total
Cost P P P P P
Brought forward 3,750,000 83,672 262,500 210,985 4,307,157
Additions 685,000 245,250 80,000 1,010,250
Disposals (262,500) (262,500)
–––––––––– ––––––– ––––––––– –––––––– ––––––––––
4,435,000 83,672 245,250 290,985 5,054,907
–––––––––– ––––––– ––––––––– –––––––– ––––––––––
Allowances
Brought forward 1,148,437 28,976 207,250 148,924 1,533,587
Current claim 282,125 8,367 36,788 72,746 400,026
Disposals (207,250) (207,250)
–––––––––– ––––––– ––––––––– –––––––– ––––––––––
1,430,562 37,343 36,788 221,670 1,726,363
–––––––––– ––––––– ––––––––– –––––––– ––––––––––
Tax value carried forward 3,004,438 46,329 208,462 69,315 3,328,544
––––––––––
–––––––––– –––––––
––––––– –––––––––
––––––––– ––––––––
–––––––– ––––––––––
––––––––––

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 Notes:
1. The cost of the new machine is reduced by the balancing charge – see working 2.
2. There is no time apportionment in calculating capital allowances.
3. The building allowance includes a 25% initial allowance – see working 1.
Working 1 – Industrial building
P
Original cost 3,750,000
Additions 685,000
––––––––––
New cost 4,435,000
––––––––––
Initial allowance 25% x P685,000 171,250
Annual allowance 2·5% x P4,435,000 110,875
––––––––––
282,125
––––––––––
Working 2 – Rollover relief
P
Cost of old machine 262,500
Allowances (207,250)
–––––––––
55,250
Insurance proceeds (150,000)
–––––––––
Rollover relief (94,750)
–––––––––
Cost of new machine 340,000
Rollover relief (94,750)
–––––––––
Net cost 245,250
–––––––––

(b) Computation of taxable income

P
Net profit per accounts 912,792
Add: depreciation 710,361
donations 4,610
amortisation 35,000 749,971
––––––––
Less: capital allowances (from part (a)) 400,026
balancing charge (Note 1) 0
fair value adjustment (Note 2) 273,689
profit on disposal of machinery 45,981
profit on disposal of investment 84,026 (803,722)
–––––––– –––––––––
Chargeable income from manufacturing 859,041
Add: chargeable income from disposal gain (working) 23,971
–––––––––
Total chargeable income 883,012
Less: assessed loss brought forward (279,201)
–––––––––
Taxable income 603,811
–––––––––
Working – Capital gain
P
Sale price of shares 212,526
Cost price (128,500)
–––––––––
Gross gain 84,026
Less: 25% allowance (Note 3) (21,007)
Less: capital loss brought forward (Note 4) (39,048)
–––––––––
Chargeable income 23,971
–––––––––
Notes:
1. The balancing charge has been rolled over against the cost of the new machine – see working 1 of part (a).
2. Fair value adjustments relate to accounting valuations of assets and have no relevance in tax computations.
3. There is a 25% inflationary allowance in calculating the capital gain arising on the sale of shares – sometimes referred
to as moveable property allowance.
4. The capital loss brought forward is deducted after calculating the 25% allowance.

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 (c) Calculation of tax payable
P
Basic tax at 5% 30,191
Additional company tax at 10% 60,381
Less: dividend withholding tax paid (18,382) 41,999
–––––––– –––––––
Net tax payable 72,190
–––––––

(d) Withholding tax on payments to non-residents

There is no withholding tax on the import of raw materials or any other kinds of goods.
There is, however, withholding tax on payment of administrative, managerial and technical fees paid to non-residents. In
practice this will encompass virtually all types of payments for services rendered. In this case withholding tax is payable on
the marketing and engineering fees. There is also withholding tax on payments of interest to non-residents.
The normal rate of withholding is 15% but this amount can be reduced by the respective double taxation treaties that
Botswana enters into. For example, the rate of withholding tax payable in respect of payments to South Africa is 10%.The
payment must be made by the 15th of the month following which the withholding tax was deducted.

3 Phuti (Proprietary) Ltd

(a) Computation of chargeable disposal gains

1. Kolobeng Ltd
P
No taxable gain because the company is listed on the BSE and
any gain is therefore exempt. –
2. Gaborone Securities (Proprietary) Ltd
P
Total proceeds 250,000
Less: loan account (Note) (120,000)
–––––––––
Sale proceeds of shares 130,000
Less: cost of shares (1,450) 128,550
–––––––––
3. Tswana Diamonds (Proprietary) Ltd
P
Sale proceeds (1,400 x 500) 700,000
Less: cost of shares (1,000 x 500) (500,000) 200,000
–––––––––
4. Pennington Enterprises (Proprietary) Ltd
Sale proceeds of 700 shares 600,000
Less: cost of shares (700/1,500 x 850,000) (396,667) 203,333
–––––––––
5. Tlokweng Foundries (Proprietary) Ltd
P
Sale proceeds (300 x 1,000) 300,000
Less: cost of shares (80,000) 220,000
––––––––– –––––––––
Gross disposal gains 751,883
Less: 25% moveable property allowance (187,971)
–––––––––
Chargeable disposal gains (net) 563,912
–––––––––
Note
The loan account is sold at par and only the balance of the proceeds is applied to the sale of shares.

(b) The chargeable disposal gains will be aggregated with Phuti (Proprietary) Ltd’s chargeable income from business and charged
to tax at the applicable standard and additional rates.

(c) Relief available in the case of the merger (transaction 5)

Holdover relief is available in situations where shares are disposed of in consequence of a merger or restructure of two or
more resident companies. The relief provides for any gain arising on the ‘paper profit’ to be held over until such time as the
shares received (in this case those in Jupiter Metals) are sold and the current disposal is deemed to be not at market value
but at a value which is not greater than cost.

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 The conditions that need to be satisfied are:
– the beneficial ownership of the shares must remain unchanged;
– no one shareholder benefits at the expense of another; and
– the holdover relief is approved by the Commissioner General.

4 (a) Conditions for input credit

1. The claimant must be a taxable person;
2. The supply must be for business purposes or creating taxable supplies;
3. There must be a valid tax invoice;
4. The input must not be a prohibited input.

(b) BG Retailers (Pty) Ltd

Input tax claimable
P
Purchases of goods 86,240
Commercial rentals 5,400
Salaries and wages (Note 1) 0
Interest paid (Note 2) 0
Contribution to pension fund (Note 2) 0
Electricity 7,930
Purchase of computers 12,700
Purchase of company car (Note 3) 0
Imported services (Note 4) 0
Petrol and diesel costs (Note 5) 0
Sales returns 1,050
Advertising 4,970
Bank charges 240
––––––––
Total input tax claimable 118,530
––––––––
Notes:
1. Not within the scope of VAT
2. Exempt supply
3. Prohibited input
4. There is no VAT on imported services provided the services are used to make taxable supplies.
5. Zero-rated supply

5 Greenwood Enterprises (Proprietary) Ltd

(a) Calculation of dividend withholding tax payable

P
1. November 2007 dividend 500,000
––––––––
15% withholding tax thereon 75,000
Less: ACT brought forward (107,226)
––––––––
ACT carried forward (32,226)
––––––––
P
2. April 2008 dividend 750,000
––––––––
15% withholding tax payable 112,500
Less: ACT brought forward (32,226)
––––––––
Withholding tax payable 80,274
––––––––

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(b) Calculation of net tax payable
P P
Taxable income (2,438,675 + 581,266) 3,019,941
––––––––––
Standard tax at 15% 452,991
Additional company tax at 10% 301,994
Less: withholding tax paid (80,274) 221,720
––––––––– ––––––––––
674,711
Less: withholding tax on interest (27,823)
––––––––––
646,888
Less: SAT paid (560,000)
––––––––––
Net tax payable 86,888
––––––––––

(c) The latest date for filing the return is 31 August 2008.
The witholding tax on the April dividend is payable by 15 May 2008.

(d) Interest on SAT payments

P
Net tax payable 646,888
––––––––
80% thereof 517,510
––––––––
Minimum quarterly SAT payments (P517,510/4) 129,378
––––––––
At the financial year end – i.e. 30 April 2008 – the tax that should have been paid to date is 80% of the final liability. This
figure is then divided by four to determine what the minimum quarterly payment should be.
In this case the minimum is P129,378 but two payments of P120,000 were made, which is less than the minimum and so
interest will be payable. No credit is given for overpayments.

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Fundamentals Level – Skills Module, Paper F6 (BWA)
Taxation (Botswana) June 2008 Marking Scheme

Marks
1 (a) Joyce Pabalinga

(i) Depreciation 0·5

Susan’s salary 1
Joyce’s interest 1
Capital allowances 0·5
Partnership loss brought forward 1
Split of chargeable income 2
––––
6
––––
(ii) Salary 0·5
Performance bonus 0·5
Company car benefit 2
Housing benefit 1
Furniture benefit 1
Pension fund 1
Medical aid 0·5
Partnership income 0·5
Interest 1
Profit on sale of shares 1
––––
9
––––
(iii) Gross tax payable 1
ITW8 credit 0·5
Interest credit 0·5
––––
2
––––

(b) David Kajane

(i) Personal consumption 1

Settlement of debt 1
Closing stock 0·5
Opening stock 0·5
Salaries and wages 0·5
Fencing 1
Vehicle expenses 0·5
Cattle feed 0·5
Construction of dam 1
Construction of farm buildings 1
Bank interest 0·5
––––
8
––––
(ii) Commission 0·5
Business income 0·5
50% farming loss 2
––––
3
––––
(iii) Loss brought forward 0·5
Current year loss less amount set off 1
Loss carried forward 0·5
––––
2
––––
30
––––

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 Marks
2 Masedi Enterprises (Proprietary) Limited

(a) Addition building 0·5

Addition vehicle 0·5
Addition machinery 2
Disposal machinery 1
Current claim: industrial building 1·5
other assets 1·5
Tax values carried forward 2
––––
9
––––

(b) Depreciation 0·5

Donations 0·5
Amortisation 1
Capital allowances 0·5
Fair value adjustment 1
Profit on disposal of machinery 0·5
Profit on disposal of investment 1
Disposal gain 3
Loss brought forward 1
––––
9
––––

(c) Basic tax 1

Additional company tax 1
Dividend withholding tax paid 1
––––
3
––––

(d) No withholding tax on goods 1

Withholding tax on marketing fees 0·5
Witholding tax on engineering fees 0·5
Withholding tax on interest 0·5
Normal rate of withholding 0·5
Payable by 15th of following month 1
––––
4
––––
25
––––

3 Phuti (Proprietary) Ltd

(a) Kolobeng 1
Gaborone Securities 2
Tswana Diamonds 1
Pennington Enterprises 2
Tlokweng Foundries 2
Moveable property allowance 1
––––
9
––––

(b) Basis of taxation 1

––––

(c) Holdover relief 0·5

Merger or reconstruction of two or more resident companies 1
Gain on paper profit held over 1
Disposal not at market value, but not greater than cost 1
Beneficial ownership remains unchanged 0·5
No one shareholder benefits 0·5
Approval required 0·5
––––
5
––––
15
––––

22
 Marks
4 (a) Taxable person 1
Supply for business purposes 1
Valid VAT invoice 1
Not prohibited 1
––––
4
––––

(b) BG Retailers (Pty) Ltd

Purchases of goods 0·5

Commercial rentals 0·5
Salaries and wages 1
Interest paid 1
Contribution to pension fund 1
Electricity 0·5
Purchase of computers 1
Purchase of company car 1
Imported services 1
Petrol and diesel costs 1
Sales returns 1
Advertising 0·5
Bank charges 1
––––
11
––––
15
––––

5 Greenwood Enterprises (Proprietary) Ltd

(a) November dividend – withholding tax 0·5

– ACT brought forward 1
– ACT carried forward 0·5
April dividend – withholding tax 0·5
– ACT brought forward 1
Witholding tax payable 0·5
––––
4
––––

(b) Taxable income 1

Standard tax 0·5
Additional company tax 0·5
Withholding tax credit 1
Withholding tax on interest 1
SAT paid 1
––––
5
––––

(c) Tax return 1

Withholding tax on dividend 1
––––
2
––––

(d) Calculation of minimum payment 2

Interest payable due to two payments below minimum 1·5
No credit for overpayments 0·5
––––
4
––––
15
––––

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