DAMAT HOTEL AND BUSINESS

COLLEGE
Accounts and Budget Support Level
III
Unit Title Calculate Taxes, Fees and Charges
Unit Code BUF ACB3 14 0812
Unit Descriptor
This unit covers the skills and knowledge required to determine liability to
pay taxes, fees and charges and calculate amounts payable. It includes
assessing goods and documents for liability; calculating taxes, fees and
charges; and completing transaction records.
In practice, calculating taxes, fees and charges may overlap with other
generalist or specialist public sector workplace activities such as acting
ethically, complying with legislation, working effectively, using resources and
financial systems, organising workplace information, etc.

Taxation is a system of raising revenue of government by collecting tax. It is a

system of collecting money by a government to finance the government

operations.

Every government is expected to finance at least three functions;

A. defense of the country

B. maintenance of law and order

C. socio – economic development

Meaning of tax

Tax is a compulsory contribution (levy) payable by an economic unit to a

government without expectation of direct and equivalent return from

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government for the contribution made. From this definition, we can understand

that tax:-

 Is not a voluntary contribution but a mandatory contribution

 Is contributed by an a economic unit which is also called a tax payer who

is liable to pay tax in accordance with the rules and regulations

prescribed by law

 Is contributed without expectation of direct and equivalent return from

the government for the contribution made means no direct relationship

between compulsory contribution and the amount of service received

from the government for the contribution made.

TAX OBJECTIVES

Initially, governments impose taxes for three basic purposes: to cover the cost

of administration, maintaining law and order in the country and for defense.

But now government’s expenditure pattern changed and gives service to the

public more than these three basic purpose and it restore social justice in the

society by providing social services such as public health, employment,

pension, housing, sanitation and other public services. Therefore, governments

need much amount of revenue than before. To generate more revenue a

government imposes taxes on various types. In general objective of taxations

are:

1. Raising revenue: to render various economic and social activities, a

government needs large amount of revenue and to meet this

government imposes various types of taxes.

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 2. Removal of inequalities in income and wealth: government adopts

progressive tax system and stressed on canon of equality to remove

inequalities in income and wealth of the people.

3. Ensuring economic stability: taxation affects the general level of

consumption and production. Hence, it can be used as effective tool for

achieving economic stability. Governments use taxation to control

inflation and deflation

4. Reduction in regional imbalances: If there is regional imbalance with

in the country, governments can use taxation to remove such imbalance

by tax exemptions and tax concessions to investors who made

investment in under developed regions.

5. Capital accumulation

Tax concession or tax rebates given for savings or investment in

provident funds, life insurance, investment in shares and debentures lead

to large amount of capital accumulation, which is essential for the

promotion of industrial development.

6. Creation of employment opportunities

Governments might minimize unemployment in the country by giving tax

concession or exemptions to small entrepreneurs and labor intensive

industries.

7. Preventing harmful consumptions

Government can reduce harmful things on the society by levying heavy

excise tax on cigarettes, alcohols and other products, which worsen

people’s health.

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 8. Beneficial diversion of resources

Governments impose heavy tax on non- essential and luxury goods to

discourage producers of such goods and give tax rate reduction or

exemption on most essential goods. This diverts produce’s attention and

enables the country utilize to utilize the limited resources for production

of essential goods only.

9. Encouragement of exports

Governments enhance foreign exchange requirement through export-

oriented strategy. These provide a certain tax exemption for those

exporters and encourage them with arranging a free trade zones and by

making a bilateral and multilateral agreement

Basic characteristics of taxation

1. Tax is a legal collection

2. Tax imposes personal obligation

3. Tax is based on taxable person income, item and /or activity

(1) Tax is a Compulsory Contribution

A tax is a compulsory payment from the person to the Government without expectation of any
direct return. Every person has to pay direct as well as indirect taxes. As it is a compulsory
contribution, no one can refuse to pay a tax on the ground that he or she does not get any benefit
from certain public services the government provides.

(2) The Assessee will be required to pay Tax if is due from him
No one can be forced by any authority to pay tax, if it is not due from him. Suppose, if there is a
tax on liquor, the state can force an individual to pay the tax only when he drinks liquor. But, if
he does not drink liquor, he cannot be forced to pay the tax on liquor. Similarly, if an
individual’s income is below the exemption limit, he cannot be forced to pay tax on income. For
example individuals earning monthly salary below birr 150 can not be forced to pay tax on
income.

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 (3) Taxes are levied by the Government
No one has the right to impose taxes. Only the government has the right to impose taxes and to
collect tax proceeds from the people.
(4) Common Benefits to All
The tax, so collected by the Government, is spent for the common benefit of all the people. In
other words, when the government collects a tax, its proceeds are spent to extend common
benefits to all the people. The Government incurs expenditure on the defense of the country, on
maintenance of law and order, provision of social services such as education, health etc. Such
benefits are given to all the people- whether they are tax-payers or non-taxpayers. These benefits
satisfy social wants. But the Government also spends on subsidies to satisfy merit wants of poor
people.

(5) No Direct Benefit

In the modern times, there is no direct relationship between the payment of tax and direct
benefits. In other words, there is absence of any benefit for taxes paid to the Governmental
authorities. The government compulsorily collects all types of taxes and does not give any direct
benefit to tax-payers for taxes paid. For example, when taxable income is earned by an
individual or a corporation, he or it simply pays the tax amount at the specified rate cannot
demand any benefit against such payment.
(6) Certain Taxes Levied for Specific Objectives
Though taxes are imposed for collecting revenue for the government to meet expenditure on
social wants and merit wants, certain taxes are imposed to achieve specific objectives. For
example, heavy taxes are imposed on luxury goods to reduce their consumption so that resources
are directed to the production of essential goods, such as cheaper variety of cloth, less costly
goods of mass consumption, etc. Thus, taxes are levied not only to earn revenue but also for
diversion of resources or saving foreign exchange. Certain taxes are imposed to reduce
inequalities of income and wealth.
(7) Attitude of the Tax-Payers
The attitude of the tax-payers is an important variable determining the contents of a good tax
system. It may be assumed that each tax-payer would like to be exempted from tax paying, while
he would not mind if other bears that burden. In any case, he would want his share to be within
the general level of tax burden being borne by others. In other words, it is essential that a good
tax system should appear equitable to the tax-payers. Similarly, overall burden of the tax system
is of equal importance. The attitudes of the tax-payers in this regard are influenced by a host of
other factors like the political situation such as war or peace, natural calamities like floods and
droughts, economic situations like prosperity or depression and so on.
(8) Good tax system should be in harmony with national objectives
A good tax system should run in harmony with important national objectives and if possible
should assist the society in achieving them. It should try to accommodate the attitude and

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problems of tax-payers and should also take into consideration the goals of social and economic
justice. It should also yield adequate revenue for the treasury and should be flexible enough to
move with the changing requirements of the State and the economy.

(9) Tax-system recognizes basic rights of tax-payers

A good tax system recognizes the basic rights of the tax-payers. The tax-payer is expected to pay
his taxes but not undergo harassment. In other words, the tax law should be simple in language
and the tax liability should be determined with certainty. The mode and timings of payment
should be convenient to the tax-payer. At the same time, a tax system should be equitable
between tax-payers. It should be progressive and burden of taxation should be equitable on all
the tax-payers.

Value-added Tax (VAT) or Goods and Services Tax (GST)

A VAT is a general consumption tax assessed on the value added to goods and

services. In some countries, including Singapore, Australia, New Zealand and

Canada, this tax is known as goods and services tax or GST. Because this is a

tax on consumer expenditure, businesses that are VAT-registered and fully

taxable do not bear the final costs of VAT. Every member state of the

European Union (EU) has a VAT.

A VAT is typically assessed on the "duty paid value" of the goods (which equals

the cost of the goods, insurance and freight (CIF) plus duty).

1. Value Added Tax (VAT) – is levied by the government on the commodities sold at
specified percentage (15%) on the value of sales.
The following are some of the terms that are common in VAT.
 Input VAT – the VAT that your business pays over on taxable supplies made (VAT
paid on purchase) and can be recovered only insofar as your business is VAT-
registered.
 Output VAT – the VAT that your business collects over taxable supplies (VAT paid
on sales)
 VAT payable – this is the net VAT to be paid to ERCA by a taxable person.
VAT payable = output VAT – INPUT vat

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  VAT refundable – the net VAT that is a taxable person expected from ERCA
when input VAT exceeds output VAT.
 Zero-rating – the supply is charged with VAT at 0% but credit can be taken for
VAT paid on purchases used to make supply.
 Exemptions – the supply is exempted from VAT. No VAT is charged on supply
and no credit can be taken for VAT paid on purchases used to make the supply.
Example 1 ABC company purchase material at acost of birr 30000and

earned birr 500,000 from sales. Based ob the given information above

compute

1. Input vat

2. Out put vat

3. Vat payable or net vat

Sollution

1. Input vat = 30000*15/100 = 1500

2. Out put vat = 500,000 *15/100 =75,000

3. Net vat = out put vat – in put vat =75,000 – 1500 = 73,500`

Example 2 ABC company purchase material at acost of birr 30000 inclusive

vat and earned birr 500,000 inclusive vat from sales. Based ob the given

information above compute

1. Input vat

2. Out put vat

3. Vat payable or net vat

Sollution

1. Input vat = 30000*15/115 = 3913.04

2. Out put vat = 500,000 *15/115 = 65,217.39

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3. Net vat = out put vat – in put vat =75,000 – 1500 = 61304.35

2. Turnover tax – is levied by the government on the sales which are not

covered under VAT (value added tax).aperson who sells goods and service

has the obligation to collect the turn over tax from the buyer and transfer to

the tax authority

The base of computation of the turnover tax is the gross receipts in

respect of goods supplied or services rendered.

Tax rate

 2% (two percent) on goods sold locally

 for services rendered locally

a) 2% on contractors, grain mills, tractors and combine-harvesters

b) 10% on others such as :

 Advice

 Training

 Publication

The base of computation of the Turnover Tax is the gross receipts in respect of

goods supplied or services rendered. A person who sells goods and services

has the obligation to collect the Turnover Tax from the buyer and transfer it to

the Tax Authority. Hence, the seller is principally accountable for the payment

of the tax.

The following would be exempted:

 Sale or transfer of dwelling used for a minimum of two years

or the lease of a dwelling;

 Rendering of financial services

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  Supply of national or foreign currency and of securities

 Rendering by religious organizations of religious or other

related services;

 Rendering of educational services provided by educational

institutions;

 Supply of goods and rendering of services in the form of

humanitarian aid

 Supply of electricity, kerosene and water

 Provision of transport

 Permits and license fees

 Supply of goods or services by a workshop employing

disabled individuals (if more than 60% of the employees are

disabled)

 Supply of books.

Ex 1 selam sew leather factory purchase leatherproduct for shoe for birr 1000

and it sales other leather factory. This leather factory also sales other

merchandaiser company for bir 2500. Based on the given information above

above compute the TOT for the following

 1st purchaser or selam sew leather factory = 1000*2/100 =20

 2nd purchaser = 2000*2/100 = 40

 3rd purchaser = 2500 * 2/100 =50

Total TOT is = 20+40+50 = 110

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3. Excise tax – are levied on the commodities produced in the country. It is

believed that this tax should be imposedon on luxury goods and basic

goods, which are demand inelastic. It is also believed that imposing the tax

on goods that are hazardous to health and which are causes to social

problems will reduce the consumption thereof. The base of computation of

excise tax is the cost of production for goods produced locally; whereas

for goods imported the base of computation would be the cost of

importation, insurance and freight cost (CIF).

Rate of Excise tax:

The excise tax would be imposed on goods imported or either produced

locally in accordance with the following schedule,

Goods to be liable to Excise Tax (produced locally or imported)

Ser. no. Type of Product Excise Tax

Rate

Any type of sugar (in solid form) excluding molasses ----------------33%

Dring

- All types of soft drinks (except fruit juices)------------ -------------40%

- Powder soft drinks-----------------------------------------------------40%

- Water bottled or canned in a factory---------------------------------30%

Salt ----------------------------------------------------------------------30%

Alcoholic Drinks:

- All types of beer + stout-----------------------------------------------50%

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 - All types of wine-------------------------------------------------------50%

- Whisky------------------------------------------------------------------50%

- Other alcoholic drinks--------------------------------------------------100%

obacco + tobacco products

- Tobacco leaf-------------------------------------------------------------20%

Cigarettes, cigar, cigarillos,pipetobacco,snuff and other tobacco products 75%

Fuel-Super Benzene, Regular Benzene, Petrol, Gasoline and other Motor

Spirits-- 30%

Perfumes and toilet waters ------------------------------------------1 00%

Textile and textile products

- Textile fabrics, knitted or woven of natural

silk, rayon, nylon, wool or other similar materials---------------------10%

- Textile of any type partly or wholly made from cotton, which is grey,

white, dyed or printed, in pieces of any length or width (except Mosquito

net and Abudgedid) and including, blankets, bed-sheets, counterpanes,

towels, table clothes and similar articles and Garments----------------10%

Washing machines of a kind for domestic purposes --------------------30%

Video decks---------------------------------------------------------------- 40%

Television and video cameras---------------------------------------------- 40%

Clocks and watches ---------------------------------------------------------20%

Motor passenger cars, StationWagons, utility cars, and Land Rovers, jeeps
pickups, similar vehicles (including motorized caravans), whether assembled,
together with their appropriate initial equipment:
- up to 1,300 c.c.-------------------------------------------------------- 30%

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- from 1,301 c.c. up to 1,800 c.c. ------------------------------------------60%
- above 1,800 c.c.----------------------------------------------------------- 100%

The excise tax rate range from 10% to textile and textile products to 100% for

other alcohol drinks, perfume and motor vehicles above 1800 c.c.

Example 1 KK textile factory produced 2000 tons of printed bed sheet in

meskerem1, 2009. The unit cost of production for a ton of printed bed sheet is

as follows:

Direct labor Br. 5000

Raw material 6,500

Cost of indirect inputs 2000

Overhead costs 1000

Required:
a) Unit base of excise tax (unit cost of production per ton for tax

purpose)

b) Total amount of excise tax

Total unit cost = direct labor + raw material + cost of indirect inputs +

overhead costs

= 5,000 + 6,500 + 2000 + 1000

= 14,500

Total production cost = tons of bed sheet produced * total unit cost

= 2000 * 14,500

= 29,000,000

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Excise tax payable = total cost of production * tax rate

= 29,000,000 * 10%

= 2,900,000

Example 2 salt manufacturing company produce or manufacture salt at the

time of produce the product total amount of birr 12,000. Based on the given

information compuet the excise tax of salt manufacturing company.

So’n the salt rate is 10% then 12,000 * 10/100=1200

Example 3 : ABC traiding import Clocks and watches from out sid country at

at acost of birr 110 000 , 25000, 15000 for invoice price , insurance and freight

respectively. Based on the given information above compute the excise tax of

ABC traiding at the time of import.

Example 4 : XYZ company also imported diseas vehecle at acost of 75,000

USD ,45000 birr and 30000 birr for invoice price , insurance and freight

respectively. Based on the given information above compute the following

quastion

1. Calculate the total cost of the imported vehecle assume to pay 1.5 % for

service charge in FOB Value.

2. Calculate The Excise Tax liability of xyz company.

4. Customs duty – includes both import and export duties. These duties are

levied when the goods cross the boundaries of the country.

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 Any good imported or exported would be subject to:

 Payment of duties and taxes according to the tariff of Harmonized

Commodity Description and coding system

 Payment of duties and taxes according to the preferential tariff rate where

goods are imported from the preferred country;

 Payment of duties and taxes at the rate in force on the day the declaration

of the goods are presented to, and accepted by the customs office.

5. Stamp duty tax – a duty levied on the legal recognition of certain

documents.

When the value of the right or obligation executed by means of an instrument

can be determined, the rate chargeable on such instrument shall be the

percentage of such value.

 The following instruments shall be chargeable with stamp duty:

 Memorandum and articles of association of any business organization,

cooperative or any other form of association;

 Award; Bonds; Warehouse bond

 Contract and agreements and memoranda

 Security deeds

 Collective agreement

 Contract of employment

 Lease, including sub-lease and transfer of similar rights

 Power of attorney

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  Documents of title to property.

Time and Manner of Payment

The stamp duty would be paid:

On memorandum and articles of association, before or at the time of

registration;

on awards, before or at the time of issuance of the award

on contracts or agreements, before or at time of signature

on leases or sub-leases, before or at the time of signature

on notarial acts, at the time of issuance

on security deeds, before or at the time of signature

on documents of title to property, before or at the time issuance is effected.

2) The payment of stamp duty

Under Birr 50 would be effected by affixing stamp of appropriate value to the

instrument;

when the stamp duty exceeds Birr 50 or where the type and nature of

instrument so requires, the Federal GovernmentRevenue Board may by

directive provide that stamp duty be paid by means other than affixing stamp

Rate of Stamp Duty: The stamp duty on each instrument to be charged,

levied and collected at the following rates:

memorandum and articles of association of any business organizations, or any

association:

a) upon 1 st execution--------------------------------------------- flat Birr 350

b) upon any subsequent execution------------------------------- flat Birr 1 00

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Memorandum and articles of association of cooperatives

a) upon 1 st execution------------------------------------------------ flat Birr 35

b) upon any subsequent execution--------------------------------- flat Birr 1 0

Award on ---------------------------------------value a) determinable value 1 %

b) undeterminable value Birr 35 Bonds ------------------------------on value 1 %

Contracts and agreements and memoranda-------------------------flat Birr 5

Security deeds --------------------------------------------------------on value 1 %

Collective agreement

a) on 1 st execution---------------------------------------------------- flat Birr 350

b) on any subsequent execution------------------------------------- flat Birr 1 00

Contract of employment salary------------------------------------------ 1 %

Notarial act----------------------------------------------------------- flat Birr 5

Power of attorney----------------------------------------------------- flat Birr 35

Register title to property --------------------------------------------on value 2%

Assess goods and documents for duty and tax liability

Taxes and Fees for New Car Purchases

Purchasing a new vehicle, whether it's new or used, is a huge investment. You

must, before buying, be aware of all extra costs including insurance,

maintenance, registration, titling, and new car fees and taxes. Otherwise, you

risk receiving surprise bills, causing your carefully calculated car-budget to be

compromised.

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Generally, purchasing or leasing a new car in any state will require:

Buying car insurance.

ransferring the title.

ing registration fees.

ing for a vehicle inspection/smog check/emissions test. AND

Sales taxes.

itle Transfers

Car Registration

Smog Check and Vehicle Inspections

Additional, you can visit car insurance center to shop around your locality and

compare policy quotes to find a car insurance policy that's right for you. It's

important to factor in all the costs that come with a vehicle purchase or lease,

regardless or whether the car is new or used.

Sales Taxes When Buying a Vehicle

Surprising costs bear especially true with the often overlooked auto sales tax.

Since it varies from state to state, new and used car sales tax is difficult to

pinpoint and follow.

The sales tax rate may vary between new and used car purchases, however,

along with the state tax; you may also be responsible for:

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 County taxes.

City taxes.

School district taxes.

Certain states may also assess an annual property tax on your vehicle, which

you'll need to pay before you can renew your registration.

If you are unsure about the taxes you'll be responsible for when buying a new

car, you can visit our tax and tag fee calculator & chart links page (see below)

or contact your state's motor vehicle office.

Vehicle Sales Tax and Fee Calculator

Online sales tax and fee calculators will give you an estimate of what you'll pay

when buying a new car. Keep in mind calculation factors vary by state. It's best

to use a sales tax calculator specific to where you'll be purchasing the vehicle

to ensure you budget properly.

 For many tax and tax calculators, you should be prepared to enter:

 The vehicle's year, make, and model OR its vehicle identification number

(VIN).

 The purchase price of the vehicle.

 The odometer/mileage reading on the vehicle when you bought it.

 The date you purchased the vehicle.

 The date the vehicle was or will be operated in the state.

Understanding Duties and Taxes

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It is important to consider the effects of duties, taxes, port handling fees and

other customs charges when determining your shipment's total shipping

charges. Depending on the content of your shipment and the destination

country, customs charges will affect the price the recipient is willing to pay for

your product. Being able to calculate and communicate the "landed" cost

upfront can often save both you and the recipient valuable time and money.

Almost all shipments crossing international borders are subject to the

assessment of duties and taxes imposed by the importing country's

government. Duties and taxes are imposed to generate revenue, protect local

industries against foreign competition or both. The duties and taxes normally

must be paid before the goods are released from customs. A shipment's duty

and tax amount may be based on:

roduct value

rade agreements

Country of manufacture

How should I record my business transactions?

A good recordkeeping system includes a summary of your business

transactions. Business transactions are ordinarily summarized in books called

journals and ledgers. You can buy them at your local stationery or office supply

store.

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A journal is a book where you record each business transaction shown on your

supporting documents. You may have to keep separate journals for

transactions that occur frequently.

A ledger is a book that contains the totals from all of your journals. It is

organized into different accounts.

Electronic Records: All requirements that apply to hard copy books and

records also apply to business records which are maintained using electronic

accounting software, point of sale software, financial software or any other

electronic records system. The electronic system must provide a complete and

accurate record of your data that is accessible to the IRS.

Whether you keep paper or electronic journals and ledgers and how you keep

them depends on the type of business you are in. For example, a

recordkeeping system for a small business might include the following items:


 Business checkbook

 Daily and monthly summary of cash receipts

 Check disbursements journal

 Depreciation worksheet

 Employee compensation records

Note: The system you use to record business transactions will be more

effective if you follow good recordkeeping practices. For example, record

expenses when they occur, and identify the sources of income. Generally, it is

best to record transactions on a daily basis.

Business and Keeping Records

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 Keeping accurate, complete records

Starting a business is exciting. You're doing what you love and what you're

good at. It's important you keep accurate and complete records. Your

business records should include:

 banking information

 proof of income

 expenses

 cash books, and

 Wage books.

Good records are important for your business because they:

make filling in your tax returns easier and quicker make it quicker for your tax

agent or accountant to do your books and will save you money give you the

information you need to manage your business and help it grow, and make it

easier to get a loan.

Tax records are a legal requirement of running a business.

What tax records are፡

A tax record includes any information or document about:

 sales

 income

 expenses

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  assets, and

 liabilities

Fees & Charges

Taxes, Fees and charges are imposed on air transportation by government

authorities. taxes and fees are subject to change at the discretion of each

country's government and may be adjusted for inflation and/or currency

fluctuation. You may also be required to pay taxes, fees and charges not

already collected.

Fares, taxes, fees and charges

1. General

Fares apply only for carriage from the airport at the point of origin to the

airport at the point of destination, unless otherwise stated.

Fares do not include ground transport service between airports and between

airport and town terminals.

2. Applicable fares

Applicable fares are those published by Carrier or, if not so published,

constructed in accordance with Carrier's tariff regulations.

Except as otherwise provided applicable fare is the fare in effect on the date of

payment of the ticket for travel on the specific dates and itinerary shown on it,

Should the passenger change his itinerary or dates of travel, this may impact

the fare to be paid. When the amount that has been collected is not the

applicable fare the difference shall be paid by the passenger, or, as the case

may be, refunded by the Carrier.

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Routing

Unless otherwise provided in the Carrier's regulations, fares apply only to

routings published in connection therewith. If there is more than one routing at

the same fare, he passenger, prior to issue of the ticket, ay specify the routing

of the specifies no routing, Carrier may determine the routing.

4. Taxes, fees and charges

Applicable taxes, fees and charges imposed by governments or other

authorities or by the operator of the airport will be in addition to the otherwise

applicable fares and shall be payable by the passenger to the extent they are

not already included in the fare.

The taxes, fees and charges imposed on air travel are constantly changing and

can be imposed after the date of ticket issuance.

If a new tax, fee or charge is imposed even after ticket issuance or there is an

increase in a tax, fee or charge shown on the ticket, passenger will have to pay

it. Similarly, in the event any taxes, fees or charges already paid at the time of

ticket issuance are abolished or reduced such that they no longer apply, or a

lesser amount is due, passenger will be entitled to claim a refund.

5. Currency

To the extent the applicable law permits, fares, taxes fees and charges are

payable in any currency acceptable to Carrier. When payment is made in a

currency other than the currency in which the fare is published, such payment

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will be made at the rate of exchange established for such purpose by the

Carrier.

6. Payment of fares, taxes and charges

Carrier shall not be obliged to carry, and may refuse onward carriage of a

passenger or his baggage, if the applicable fare or any charges or taxes

payable have not been paid.

Tax

A fee charged ("levied") by a government on a product, income, or activity. If

tax is levied directly on personal or corporate income, then it is a direct tax. If

tax is levied on the price of a good or service, then it is called an indirect tax.

The purpose of taxation is to finance government expenditure. One of the most

important uses of taxes is to finance public goods and services, such as street

lighting and street cleaning. Since public goods and services do not allow a

non-payer to be excluded, or allow exclusion by a consumer, there cannot be a

market in the good or service, and so they need to be provided by the

government or a quasi-government agency, which tend to finance themselves

largely through taxes

Fee

1. A fixed sum charged, as by an institution or by law, for a privilege: a license

fee; tuition fees.

2. A charge for professional services: a surgeon's fee.

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3. A tip; a gratuity.

4. Law See fee simple.

5. A. In feudal law, an estate in land granted by a lord to his vassal on

condition of homage and service.

1. Remuneration: In contracts based on cost reimbursement pricing, the 'fee'

represents an amount beyond the initial cost estimates, and reflects factors

such as the risks involved. Fee is usually subject to statutory limitations, and

may be either fixed (as in a cost plus fixed fee contract) or allowed to vary

within a specified range (as in a cost plus incentive fee contract).

2. Land law: Estate capable of being transferred. See also fee simple absolute

in possession and fee tail.

Tax Service Fee

A legitimate closing cost used to ensure that mortgagors pay their property

taxes. A tax service fee is typically paid by the buyer at the time the home is

purchased, the lender then passes this sum on to a tax service agency. The

role of a tax service agency is to look for delinquent property taxes and alert

the mortgage company to prevent tax liens from existing against their

mortgagors' homes. Since tax liens have priority over lender liens, banks wants

to ensure that they, not the state, become the owner of these properties.

'Tax Service Fee'

For borrowers with impound accounts, property taxes are collected monthly

with mortgage payments; in this case, the tax service agency's job is to

provide the lender with your property tax bills so that they will be paid on time.

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For borrowers without impound accounts, the mortgage company will often

remit any unpaid property taxes on behalf of the homeowner and then bill him

or her for the sum, plus penalties and fees.

Deferred Charge

A prepaid expense that is treated as an asset on a balance sheet and is carried

forward until it is actually used. Deferred charges often stem from a business

making a payment for a good or service that it has not yet received, such as

the prepaying of insurance premiums or rent. A company may pay for a year of

rent in advance, for example, to receive more favorable terms; this advanced

payment is recorded as a deferred charge on the balance sheet. Each month,

the company can then use a portion of the funds in its deferred charges

account and recognize this amount as an expense on any financial statements.

Also called prepaid expense

'Deferred Charge'

Recording deferred charges ensures that a company's accounting practices are

operating within the generally accepted accounting principles (GAAP) by

matching revenues with expenses each month. A company may capitalize the

underwriting fees on a corporate bond issue as a deferred charge,

subsequently amortizing over the life of the bond issue. Deferred charges refer

to payments that the company

has made prior to receiving the corresponding goods and/or services. Deferred

revenue, on the other hand, refers to money that the company has received as

payments before a product has been delivered.

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A prime example of a deferred charge is rent. Consider the case where a

company pays a lump sum to its landlord to cover rent for six months. As each

month approaches, the company will use a portion of the funds from its

deferred charges account and recognize this portion as an expense on its

financial statements. This process ensures that revenues for the month are

matched with the expenses incurred for that month.

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Deferred income tax charge

Excess of actual income tax amount over the amount of tax payable shown on

an income statement, which occurs due to temporary difference in the

recognition of income and expense items, this excess, is recognized as a non-

current asset on the taxpayer's balance sheet, until its amortization in the

following accounting period.

2.5 Bank Fees

Many banks charge nominal fees for various services, such as requesting a

deposit slip or counter check or notarizing a document. Bank fees generally

constitute a major portion of revenue for the bank, particularly for regional and

local branches.

'Bank Fees'

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Bank fees are usually nondeductible, except for annual custodial fees charged

by the bank for IRA accounts. Even checks that are used for tax records are

nondeductible, unless the checks are written from a money market account

with limited check-writing privileges, and violation of this privilege results in

forfeiture of the account's money market status.

2.6 Service Charge

A type of fee charged to cover services related to the primary product or

service being purchased. For example, a concert venue may charge a service

fee in addition to the initial price of a ticket in order to cover the cost of

security or for allowing electronic purchases. Another example would be a fee

for using the ATM of a competing bank.

Service Charge'

Services fees go by a number of different names depending on the industry,

including booking fees (hotels), security fees (travel), maintenance fees

(banking) and customer service fees. These fees are often levied when human

interaction between a consumer and the company is involved, with services

beyond the physical good itself considered extra.

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EXAMPLE

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