Answers

Paper F6ZWE
8J–ZWEIX

Fundamentals Level – Skills Module, Paper F6 (ZWE) June 2008 Answers

Taxation (Zimbabwe) and Marking Scheme

Marks
1 Emily Mhuriro
Paper F6ZWE
8J–ZWEAA

(a) Taxable employment income for the year ended 31 December 2007.
1 January 2007 to 30 June 2007
$000
Pension received (10 000 000 x 6) exempt – 1/
2
Widows pension (4 000 000 x 6) exempt – 1/
2

1 July 2007 to 31 August 2007

$000
Pension received (10 000 000 x 2) exempt – 1/
2
Widows pension (4 000 000 x 2) exempt – 1/
2

1 September 2007 to 31 December 2007

$000
Salary 240 000 1/
2
Housing allowance (exempt) – 1/
2
Representation allowance (exempt) – 1/
2
Night allowance 53 000 1/
2
Grocery allowance 28 000 1/
2
Cost of living allowance 19 670 1/
2
Cell phone allowance 6 130 1/
2
Bonus (60 000 000 – 100 000) 59 900 1
Pension contributions (maximum) (900) 1/
2
Subscriptions (3 000) 1/
2
Loan repayment (not allowable) – 1/
2
Loan benefit (16% x 80 000 000 x 3/12) 3 200 1
Motor vehicle benefit 4 000 1/
2
Pension received (10 000 000 x 4) exempt – 1/
2
Widows pension (4 000 000 x 4) exempt – 1/
2
––––––––
Taxable income 410 000
––––––––
Tax on sliding scale:
Up to 280 million 102 000
(410 000 000 – 280 000 000) x 47·5% 61 750
––––––––
Gross tax 163 750 1/
2
Less credits:
Elderly person’s credit (120) 1/
2
Disabled person’s credit (120 000 x 3/12) (30) 1
Wheelchair (80 000 000 x 50%) (40 000) 1/
2
Medical aid contributions (49 000 000 x 50%) (24 500) 1/
2
Medical expenses (25 000 000 x 50%) (12 500) 1/
2
––––––––
86 600
Add 3% AIDS levy 2 598 1/
2
––––––––
89 198
Less PAYE (108 000) 1/
2
–––––––– ––––
Tax refundable (18 802) 15
–––––––– ––––

15
 Marks
Paper F6ZWE
8J–ZWEAA

(b) Non-employment related taxable income and tax payable for the year ended 31 December 2007.
$000
Income taxable at 30%:
Kingdom Bank director’s fees 73 000 1/
2
TSL Group Limited director’s fees 21 000 1/
2
Rental income (37 000 000 – 1 344 000) 35 656 1
––––––––
Taxable income 129 656
––––––––
Tax at 30% 38 897 1/
2
3% AIDS levy 1 167 1/
2
––––––––
Tax payable 40 064
––––––––
Dividend income (subject to withholding tax as the final tax):
Zimsun Group Limited dividends 55 000 1
––––––––
Tax withheld at 15% 8 250 1/
2
––––––––
Interest income (subject to withholding tax as the final tax):
Treasury bills interest (8 000 000 – 1 344 000) 6 656 1
Bankers acceptances interest (10 000 000 – 1 344 000) 8 656 1
Interest received from Beverley Building Society 3 000 1
––––––––
18 312
––––––––
Tax withheld at 20% 3 662 1/
2
–––––––– ––––
8
––––

(c) Emily Mhuriro is legally obliged to register for corporate tax in connection with the directors’ fees received
and also the rental income. 1
She is not legally obliged to register for value added tax in connection with her rental income since the
revenue is below the threshold of $60 million for the year. 1/
2

She might be required to register for PAYE if she employs people in receipt of taxable income to manage
her holiday resort in Kariba. 1/
2
––––
2
––––
25
––––

16
 Marks
Paper F6ZWE
8J–ZWEAB

2 Heavenly Delicacies Group Limited

(a) The provisional corporate tax payable for the year ended 31 December 2007.
$000 $000
Budgeted net profit 73 799 000 1/
2
Add:
Depreciation 18 300 000 1/
2
Finance costs 72 000 000 90 300 000 1
––––––––––– ––––––––––––
164 099 000
Less:
Capital allowances – special initial allowance (SIA) on:
Office equipment (50% x 3 500 000) 1 750 000 1/
2
Office equipment (50% x 2 000 000) 1 000 000 1/
2
Furniture and fittings (50% x 2 750 000) 1 375 000 1/
2
Furniture and fittings (50% x 1 800 000) 900 000 1/
2
Computer equipment (50% x 4 000 000) 2 000 000 1/
2
Computer equipment (50% x 3 000 000) 1 500 000 1/
2
Plant and equipment (50% x 8 000 000) 4 000 000 1/
2
Plant and equipment (50% x 7 000 000) 3 500 000 1/
2
Delivery trucks (50% x 15 000 000) 7 500 000 1/
2
Delivery trucks (50% x 13 000 000) 6 500 000 1/
2
Passenger vehicles (50% x 10 000) x 4 20 000 1
Passenger vehicles (50% x 10 000) x 3 15 000 (30 060 000) 1
–––––––––––
Capital allowances – wear and tear on:
Office block (2·5% x 60 000 000) 1 500 000 1
Office block (2·5% x 50 000 000) 1 250 000 (2 750 000) 1
––––––––––– ––––––––––––
Provisional taxable income 131 289 000
––––––––––––
Tax at 30% 39 386 700 1/
2
Add 3% AIDS levy 1 181 601 1/
2
–––––––––––
Total provisional tax payable 40 568 301
–––––––––––
Payable as follows:
10% on 25 March 2007 4 056 830 2
25% on 25 June 2007 10 142 075 2
30% on 25 September 2007 12 170 490 2
35% on 20 December 2007 14 198 906 2
––––––––––– ––––
40 568 301 20
––––––––––– ––––

17
 Marks
Paper F6ZWE
8J–ZWEAB

(b) The taxable income/loss for the year ended 31 December 2007.
$000 $000
Net loss per accounts (5 000 000) 1/
2
Add:
Depreciation 12 790 000 1/
2
Inducement fee 1 000 000 1
Finance costs 54 400 000 68 190 000 1/
2
––––––––––– –––––––––––
63 190 000
Less:
Finance costs 14 400 000 1
Profit on disposal of shares 10 000 000 1
Interest on tax reserve certificates 3 000 000 1
Commercial bank interest 2 000 000 1
Capital allowances:
Capitalised interest (2·5% x 40 000 000) 1 000 000 1
SIA (from (a)) 30 060 000 1
Wear and tear (from (a)) 2 750 000 (63 210 000) 1
––––––––––– –––––––––––
Assessed loss (20 000)
–––––––––––
Provisional tax paid (from (a)) 40 568 301
–––––––––––
Tax refundable 40 568 301 1/
2
––––––––––– –––––
10
–––––
30
–––––

3 Golden Leaf (Private) Limited

Paper F6ZWE
8J–ZWEAC

(a) (i) The amount to be included in gross income for the year ended 31 December 2007
$000
Recoupment on:
Tractors (500 000 – 0) 500 1
Tractors (850 000 000 – 212 500 000) 637 500 1
Irrigation equipment (300 000 – 0) 300 1
Tobacco barns (650 000 – 0) 650 1
–––––––– ––––
638 950 4
–––––––– ––––
(ii) The capital gains withholding tax payable for the year ended 31 December 2007
$000
Withholding tax on the sale of immovable property:
Land 30 000 000
Tobacco barns 1 000 000
Staff housing 37 500 000
Farmhouse 35 000 000
––––––––––––
Total sale proceeds 103 500 000
––––––––––––
15% withholding tax 15 525 000 2
–––––––––––– ––––

18
 Marks
Paper F6ZWE
8J–ZWEAC

(b) The capital gain/loss and tax payable for the year ended 31 December 2007
$000 $000
Proceeds from the sale of immovable property (from (a)(ii)) 103 500 000 1/
2
Less recoupment on immovable property (from (a)(i))
Tobacco barns (650) 1/
2
––––––––––––
103 499 350
Less: Cost
Land 800
Tobacco barns 650
Staff housing 1 500 000
Farmhouse 1 800 000
––––––––––
3 301 450 1
Less recoupment (from (a)(i)) (650) (3 300 800) 1/
2
–––––––––– ––––––––––––
Inflation allowance: 100 198 550
Land
(11666826·7 – 233·2) (40 022 619) 1
800 000 x ––––––––––––––––––––
233·2
Tobacco barns
(11666826·7 – 233·2) (32 518 378) 1
650 000 x ––––––––––––––––––––
233·2
Staff housing
(11666826·7 – 16486·4) (1 059 995 539) 1
1 500 000 000 x ––––––––––––––––––––––
16486·4
Farmhouse
(11666826·7 – 16486·4) (1 271 994 647) 1
1 800 000 000 x ––––––––––––––––––––––
16486·4
Selling expenses:
Property valuation 561 000 1/
2
Advertisements 15 000 1/
2
Legal fees 250 000 1/
2
Estate agents’ fees (10% x 103 500 000) 10 350 000 (11 176 000) 1
––––––––––– –––––––––––––– ––––
Capital loss (2 315 508 633) 9
–––––––––––––– ––––
15
––––

19
 Marks
Paper F6ZWE
8J–ZWEAD

4 Hardware Home Limited

(a) (i) The return for the month of October was not submitted on the correct due date as the return should
have been submitted on the 20th of the first month following the tax period. The correct date would
have been the 20th of November 2007. 2
––––
(ii) The outstanding returns should have been submitted to ZIMRA on the following dates:
Due date
November 2007 20 December 2007 1/
2
December 2007 20 January 2008 1/
2

ZIMRA might charge a penalty of up to 100% of the value added tax due on the particular
date and interest in accordance with the prevailing rates. 2
––––
3
––––

(b) Value added tax (VAT) liability for the two months ended 31 December 2007.
November December
$000 $000
Output tax:
Sales x 15/115 30 000 000 23 478 261 1
Sales returns x 15/115 (2 347 826) – 1/
2
––––––––––– –––––––––––
Total output tax 27 652 174 23 478 261
––––––––––– –––––––––––
Input tax:
Purchases x 15/115 (12 130 435) (11 739 130) 1
Purchases returns x 15/115 – 1 826 087 1/
2
Repairs and maintenance x 15/115 (1 244 348) (1 018 696) 1
Payroll expenses – – 1/
2
Depreciation – – 1/
2
Utility costs x 15/115 (105 652) (176 087) 1
Stationery x 15/115 (367 826) (219 652) 1
Cleaning materials and protective wear x 15/115 (439 174) (256 435) 1
Motor vehicle costs x 80% x 15/115 (3 057 391) (3 592 696) 2
––––––––––– –––––––––––
Total input tax 17 344 826 15 176 609
––––––––––– ––––––––––– ––––
VAT payable 10 307 348 8 301 652 10
––––––––––– ––––––––––– ––––
15
––––

20
 Marks
Paper F6ZWE
8J–ZWEAD

5 Tigere Hurudza

(a) The tax relief available to livestock farmers under drought conditions:
(i) The farmers are allowed to carry forward the assessed losses incurred in their business for
up to six years. 1
(ii) The farmers can elect to spread the taxable income that is attributable to forced sales as a result
of a drought or epidemic outbreak over a period of three years. 1
(iii) The farmers are also allowed to claim a restocking allowance of 50% of the cost incurred in
restocking their herd after a drought or disease outbreak. The restocking allowance is calculated
taking into account the assessed carrying capacity of the farm before the drought or disease outbreak. 1
––––
3
––––

(b) Taxable income/ loss for the year ended 31 December 2007
$000 $000
Net loss per accounts (6 572 000) 1/
2
Add:
Depreciation 1 300 000 1/
2
Loan repayment 4 000 000 1/
2
Interest paid 2 400 000 1
Pension contributions 1 000 000 8 700 000 1/
2
–––––––––– ––––––––––
2 128 000
Less:
Borehole and water tank 1 950 000 1/
2
Fencing 280 000 1/
2
Stumping and clearing of land 650 000 1/
2
Geophysical survey expenses 55 000 1/
2
Contour ridges 76 000 1/
2
Pension contributions (900 000 x 12) 10 800 1/
2
Capital allowances: SIA
Farm implements (900 000 000 x 50%) 450 000 1/
2
Tractor (1 115 000 000 x 50%) 557 500 1/
2
Combine harvester (3 000 000 000 x 50%) 1 500 000 1/
2
Staff housing (50 000 x 10 x 50%) 250 000 1
Farm manager’s house (exceeds limit) – 1
Fowl runs (78 000 000 x 50%) 39 000 1/
2
Tobacco barns (1 000 000 000 x 50%) 500 000 1/
2
Irrigation equipment (869 000 000 x 50%) 434 500 1/
2
Passenger vehicles (10 000 000 x 2 x 50%) 10 000 (6 762 800) 1
–––––––––– –––––––––– ––––
Assessed loss carried forward (4 634 800) 12
–––––––––– ––––
15
––––

21