CHARTERED ACCOUNTANTS EXAMINATIONS

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TECHNICIAN LEVEL
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T5: TAXATION
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THURSDAY 17 DECEMBER 2015

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

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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 (5) Optional questions. Attempt any FOUR (4) questions.

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. Cell Phones are NOT allowed in the Examination Room.

6. 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.

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

8. Present legible and tidy work.

9. A Taxation Table is provided on pages 2, 3 and 4 of this paper

TAXATION TABLE FOR CHARGE YEAR 2015

1. Individual Income Tax Rates

(a) Income band Taxable amount Rate

K1 to K36,000 first K36,000 0%
K36,001 to 45,600 next K9,600 25%
K45,601 to K70,800 next K25,200 30%
Over K70,800 35%

(b) Income from farming for individuals

K1 to K36,000 first K36,000 0%
Over K36,000 10%

(c) Gratuity(Qualifying)
K1 to K36,000 first K36,000 0%
Over K36,000 25%

(d) Terminal benefits

K1 to K35,000 first K35,000 0%
Over K35,000 10%

2. Company Income Tax rates

On income from manufacturing and other 35%
On income from farming 10%

3. Capital Allowances

(a) Implements, plant and machinery and commercial vehicles:

Wear and Tear Allowance – Plant used normally 25%

Used in Manufacturing, 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)

Wear and Tear Allowance 10%

Initial Allowance 10%

 (d) Commercial Buildings
Wear and Tear Allowance 2%

(e) Farming Allowances

Development Allowance 10%

Farm Works Allowance 100%
Farm Improvement allowance 100%

4. Presumptive Taxes
(a)Turnover Tax 3%

(b) Presumptive tax for transporters

Seating capacity Tax per annum Tax per day

K K
Less than 12 passengers and taxis 1,200 3.20
From 12 to 17 passengers 2,400 6.60
From 18 to 21 passengers 4,800 13.20
From 22 to 35 passengers 7,200 20.00
From 36 to 49 passengers 9,600 26.00
From 50 to 63 passengers 12,000 32.80
From 64 passengers and over 14,400 39.40

5. Property Transfer Tax

Rate of Tax on Realised Value of property other than mining rights 10%
Rate of Tax on Realised Value on a transfer or sale of a mining right 10%

6. Value Added Tax

Registration threshold K800,000

Standard Value Added Tax Rate (on VAT exclusive turnover) 16%
7. Customs and Excise

Duty rates on:

(i) Motor cars and other motor vehicles (including station wagons)
principally designed for the transport of less than ten persons,
including the driver:

Customs Duty: 25%

Excise Duty:
Cylinder capacity of 1500 cc and less 20%
Cylinder Capacity of more than 1500 cc 30%

(ii) Pick-ups and trucks/lorries with gross weight not exceeding 20 tones:
Customs Duty 15%
Excise Duty 10%

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

Customs Duty: 15%
Excise Duty:

Seating Capacity of 16 persons and less 25%

Seating Capacity of 16 persons and more 0%

(iv) Trucks/lorries with gross weight exceeding 20 tonnes

Customs Duty: 15%
Excise Duty: 0%

The minimum amount of Customs Duty on Motor Vehicles in categories from (i)
up to (iii) above is K2,000
SECTION A

Attempt All Ten (10) multiple choice sub-questions Questions in this section

1.1 Which one of the following words does not relate to tax :

A. Custom duty
B. Tariff
C. Levy
D. Quota (2 marks)

1.2 E. Chibwe is a Zambian citizen but not a Zambian resident. He visited Zambia in
February 2015 to conduct three musical shows. He was paid K800,000 (gross) by the
promoter. The withholding tax (WHT) paid on the K800,000 was:

A. K160,000 and not final for WHT

B. K120,000 and not final for WHT
C. K160,000 final for WHT
D. K120,000 final for WHT (2 marks)

1.3 Diko is a sole trader who employed Gabriel as his Financial Accountant. The business
bought a Toyota Camry and Toyota Corolla in the tax year 2014 to be used by the
two respectively. The Toyota Camry was K69,600 and the Toyota Corolla was
K34,800 (both figures being VAT inclusive). The two cars were both used 40%
private and 60% business by Diko and Gabriel.

Find the capital allowances claimed on the two cars in the change year 2015.

A. K18,096
B. K18,000
C. K12,528
D. K15,312 (2 marks)

1.4 When calculating the taxable business income, how is rental income treated?

A. Added to the profit before tax figure shown in the profit and loss account,
because it is a disallowed expenditure for income tax purposes.
B. Deducted from the profit before tax figure shown in the profit and loss
account, because it is an allowable expenditure for income tax purposes.
C. Added to the profit before tax figure shown in the profit and loss account,
because it is not assessed as trading income.
D. Deducted from the profit before tax figure shown in the profit and loss
account, because it is not assessed as trading income. (2 marks)
1.5 When valuing a farmers stock, growing crop is valued as:

A. The value at cost or net realizable value, whichever is lower.

B. The “cost” of growing crop up to any stage can be calculated from the
accounting records but realized value cannot be calculated until the crop is
harvested.
C. Can be arrived at by averaging the incomes of two tax years.
D. The value of livestock is the market value or the cost to the farmer of the
livestock. (2 marks)

1.6 DDL Limited is a Zambian registered Zambian company but is not registered for VAT.
The company has incurred the following expenditures on implements, plants and
machinery.

Motor car (inclusive of VAT) K150,000

Manufacturing equipment (inc.VAT) K120,000

Computer (actual cost incurred) K3,000

The computer was acquired from a trader who is not registered for VAT. You are
required to calculate the amount of capital allowances to be claimed for the period.
Assume that the motor car has private use of 25% by the sales manager.

A. K71, 871
B. K90, 750
C. K82, 474
D. K60, 750 (2 marks)

1.7 Which of the following list represents allowable deductions for determining taxable
profits?

A. Appropriation of profits, specific provisions for bad debts, employee wages.

B. Trade debts, General provision for bad debts, depreciation
C. Entertainment of customers, Renewals, Traffic fines
D. Trade Association Subscription, Business research, Specific provision for bad
debts. (2 marks)

1.8 The due date for submission of self-assessment income tax returns for the tax year
2015 is:

A. 30 September 2015
B. 30 June 2015
C. 30 September 2016
D. 30 June 2016 (2 marks)
1.9 PWD plc is a multinational company engaged in farming. In the tax year 2015 the
company was listed on the Lusaka Stock Exchange and it also issued over 33% of its
shares to the indigenous Zambians. What rate will be used to tax the profits made
by this company at the end of the tax year.

A. 35%
B. 10%
C. 3%
D. 28% (2 marks)

1.10 Jabulani is self-employed. In the tax year 2015 he received the following investment
incomes:

Royalties (net) 17,000

Building society interest (Gross) 2,600

Bank deposit interest ( gross) 1,000

Dividends from Zambian companies (Gross) 4,000

Rent (Gross) 15,000

Treasury bills ( Gross) 9,000

Debenture interest (Gross) 3,700

Calculate the total withholding tax deductible from his computed income tax for 2015

A. K7,000
B. K4,890
C. K3,975
D. K3,000 (2 marks)
SECTION B
Attempt any FOUR (4) questions out of FIVE (5) questions

QUESTION TWO

(a) Zig Zag Limited is not registered for VAT as at 1st January 2015. Sales are subject to
seasonal fluctuations and the forecast for the next three months was K60,000 per
month. From 1st April 2015 sales will increase to K65,000 per month up to August
2015. Thereafter sales will increase by 20% per month to February 2016. Assume
there are no changes in the VAT threshold in the tax year 2016 and the figures are
VAT exclusive.

Required:
Determine when Zig Zag Limited will be required to register for VAT based on:
(i) Quarterly threshold (2 marks)
(ii) Annual threshold (ignoring quarterly threshold above) (5 marks)

(b) Mane Limited is a VAT registered company that has provided the following
information in respect of the month ended 28th February 2015:

1. Sales invoices amounting to K38,000 were issued to customers in respect of

standard rated supplies. The company offers its customers a discount of 2% for
prompt payment. Zero rated and exempt sales were K12,000 and K10,000
respectively.

2. The company received an advance payment of K15,000 in respect of a contract

that was due for completion in April 2015. The contract has total VAT exclusive
value of K60,000.

3. Standard rated expenditure included the following:

(i) Purchases K22,000
(ii) Entertaining customers K4,640
(iii) Overheads K11,000
(iv) Petrol (VAT inclusive) K4,600
(v) Diesel (VAT inclusive) K5,800

60% of the purchases were bought from VAT registered traders while 40% were
bought from non-VAT registered suppliers.

50% of the overheads were standard rated while the other 30% was Zero rated and
20% was exempt.

Entertaining customers, petrol and diesel were all standard rated.

All the above figures are VAT exclusive unless said otherwise.
 Required:
(i) Calculate the amount of VAT payable by Mane Limited for the month of
February 2015. (12 marks)

(ii) State the due date for the payment of the VAT. (1 mark)
[Total: 20 Marks]

QUESTION THREE

B.J. Mackay Ltd is a Zambian company carrying on retail business. It prepares accounts
annually to 30 April. The company is not listed on the Lusaka stock exchange.

For the year ended 30 April 2015, you are provided with the following information from the
company’s accounting records:-
K
Gross profit 960,000
Other income:
Rental (net) 6,800
Royalties (net) 20,400

Expenditure:
Stationery 14,500
Depreciation 26,000
Electricity and water 53,600
Motor vehicle expenses 39,600
Bad debts 22,000
Loss on disposal of motor car 5,000
Insurance 12,600
Salaries and wages 317,100
Traveling expenses 33,900
Entertaining 21,500
Rent and Rates 44,200
General expenses 48,800

The following additional information is also available:-

Note 1
The company is registered for VAT purposes. All the figures shown above are VAT exclusive.

Note 2
The bad debt account was broken down as follows:-
- Trade debts written off 16,000
- Loan of former employees written off 3,000
- Increase in specific provision for doubtful debts 12,000
- Decrease in general provision for doubtful debts (7,000)
- Loan to former employees previously written off
now recovered (2,000)
22,000
Note 3
The loss on disposal of the car was arrived at as follows:- K
Financial written down value (original cost K56,250) 11,250
Sale proceeds 6,250
Loss on disposal 5,000

Straight line depreciation was used in the financial accounts. Assume capital allowance rates
have not changed over the years.

Note 4
Salaries and wages include earnings of two directors which amounted to K148,000. These
directors were given free accommodation by the company.

Note 5
Entertaining included K7,000 for suppliers, K8,000 for customers and K6,500 open air
entertainment which was free to the public.

Note 6
General expenses were all allowable for tax purposes.

Note 7
The company owns the following assets:- original costs
K
- Retail shop (built 12 years ago) 190,000
- Three delivery vans (bought 5 years ago) 112,000
- Two saloon cars 2000cc (driven by the
2 directors in Note 4 on personal to holder basis bought
2 years ago) each K34,000 68,000

The original costs are VAT exclusive.

Purchases of plant and machinery during the year ended 30 April 2015 were:
- Equipment (VAT inclusive) 52,200
- Isuzu KB Van (VAT Inclusive) 58,000
- TOYOTA Corolla-pool car (VAT inclusive) 27,840
Assume capital allowances rates have not changed over the years from the tax year.

Required:
(a) Calculate the total capital allowances on the assets for the year ended 30 April 2015
Show the I.T.V brought forward and the I.T.V carried forward. (9 marks)

(b) Starting with the net profit, calculate the taxable business profit for the company for
the year ended 30 April 2015. (11 marks)
[Total: 20 Marks]
QUESTION FOUR

Lushomo Nyambe and Tennis Nyirenda have been in partnership for more than eight years
dealing in supplying heavy duty truck spare parts. The duo has always prepared accounts
to 31st December annually. On 31st July 2015 Lawrence decided to spilt from the partnership
and take up an employment offer as the Chief Executive Officer of one of Zambia’s leading
Telecommunications company, TK Zambia limited.

On 1st August 2015 Jane Zulu joined Lushomo to continue the partnership business and
even increased the variety of spares parts supplied.

The information relating to the partnership business is being provided below:

The partnership business managed to record a turnover on average in excess of K800,000.

For the year ended 31st December 2015, the gross profit was K168,000.

The old and new partnership agreements require that all profits and losses are to be shared
equally.

The following information which has not yet being incorporated in arriving at the gross profit
figure of K168,000 has been provided for your attention.

Note 1: business premises

Mr. Lushomo Nyambe one of the partners lives in a flat on top of the business building. It
has been agreed with the Commissioner General that 45% of the expenditure on electricity
and water relates to the private accommodation.

Note 2: Motor car running expenses

During the year to 31st December 2015, the partners drove a total of 25, 000 kilometers.
During the first half of the year, three quarters of the kilometers were done in total. One
third of the kilometers of the first half were private. For the other period, the private use
equaled the business use. This mileage relates to the partnership’s only motor car.

Note 3: Staff welfare (Salaries and wages)

Included in the figure for wages and salaries of K85,000 is the annual salary of K12,000 paid
to Mr. Lushomo’s son. The son works in the business shop on a full time basis. Other full
time employees who work with Mr. Lushomo’s son are each paid a per annum salary of
K8,000.

Note 4: Sundry expenses

Included in the figure for sundry expenses of K5,000 is a fine of K1,250 for failing to fit
security bars in the shop, contrary to the law, theft of cash by an employee amounting to
K250, a donation to a political party of K900 and a subscription to a trade association of
K1,050. The balance is made up of a subscription paid for Lushomo to ZICA as his annual
subscription. Lushomo is a qualified Chartered Accountant and is responsible for the
partnership accounts.
Note 5: goods taken for personal use

Lushomo takes out goods from the business for personal usage, however revenue is
recognized up to the cost of the goods. He has estimated that the weekly drawing have an
average cost of K54. His profit is 35% on the value as determined using IAS 2 which has
been properly accounted for in the cost of sales in arriving at the gross profit figure of
K168,000. It is estimated that there are 48 weeks in a year.

Note 6: Asset information

The business owns one motor car which is used by the partners for both private and
business use, the business use has been given in note 2, on 1st January 2015 the motor car
had an income tax value of K10,000. The car was acquired for K25,000. Depreciation has
been calculated to be K5,450.

Note 7: Further details relating to Notes 1 to 4:

 Electricity (note 1) K 2,980

 Water (note 1) K 1,540
 Motor car expenses (note 2) K 4,580
 Wages and salaries (note 3) K85,000
 Sundry expense (note 4) K 5,000

Other information

TK Zambia limited offered Tennis Nyirenda an all-inclusive basic pay of K150,000 per
annum. Lawrence will be required to contribute 5% of his gross pay as NAPSA contribution,
the employer, TK Zambia Limited will match this contribution. Lawrence’s employment
contract started on 1st August 2015.

Required:

(a) (i) Calculate the tax adjusted business profit for the tax year 2015. Your starting

profit should be the given gross profit figure of K168, 000. (10 marks)

(ii) Calculate the profits assessable on each partner for the tax year 2015.

(2 marks)

(iii) Calculate tax payable by each partner in 2015. (6 marks)

(b) Define the term ‘office’ as given under the tax laws and regulations. (2 marks)
[Total: 20 Marks]
QUESTION FIVE

ACK Zambia Limited bought a 4500 cylinder capacity saloon motor car from the United
States of America whose details are as follows:

$
Cost 55,000
Insurance 3,000
Freight 5,000
Total cost 63,000

Further information is as follows:

Additional expenses to port of entry $500

Transport from Chirundu to Lusaka $2,000

The exchange rate at the time of importation was K7.10 to a US$.

Required:

(a) Calculate the following values in respect of the imported saloon car:

(i) Value for duty purposes

(ii) Customs duty
(iv) Excise duty
(v) Import value added tax (6 marks)

(b) State the documentation required for motor vehicle clearance. (2 marks)

(c) When computing the assessable Business income often the following words are used
‘allowable expenses’ and ‘disallowed expenses’.

(i) State the difference between the two expenses. (2 marks)

(iii) Explain why depreciation of any kind is disallowed when computing the
taxable business income. (1 mark)

(d) Frackson Zimba bought two second hand 30 seater fuso buses at a purchase cost of
K95, 000. He incurred an additional K13,000 for each to make up the value for duty
purposes. These buses will be available for public passenger’s transportation with
effect from 1st February 2015, i.e. two weeks from the time the vehicles arrive in
Zambia. Mr. Zimba will use the buses on inter town routes.

Each month is assumed to be made up of twenty four (24) working days and that
the two vehicles are expected to be on the road for the whole year from the date of
arrival. The buses will only operate only for 24 days in a month.
 Required:

(i) Calculate the total taxes to be paid on each vehicle upon importation.
(5 marks)
(ii) Calculate the presumptive taxes for each vehicle for the tax year 2015.
(2 marks)

(e) List any four (4) persons that are not liable to Turnover Tax. (2 marks)

[Total: 20 marks]

QUESTION SIX

(a) Jane Campaundi had been employed on a three year non-renewable contract that
expired on 31December 2015. Her annual basic salary for each year she worked had
been as follows:

1 January to 31 December 2013 150,000

1 January to 31 December 2014 185,000

1 January to 31 December 2015 255,000

She was also entitled to the following monthly allowances:

Housing allowance 2,500

Water and electricity allowance 800

Medical allowance 500

Entertainment allowance 400

Her gratuity rate is 30% at the end of the contract. Her PAYE for the year 2015 was
K53,000.

Required:

Calculate the total amount of income tax payable by Jane for the tax year 2015.

(15 marks)

IGNORE NAPSA.
(b) The tax paid on emoluments is mainly the Pay As You Earn (PAYE).

Required:

(i) List the three (3) documents required to run the pay as you earn system.

(3 marks)

(ii) Emoluments in employment are paid on actual receipts basis, explain what is
meant by the actual receipts basis. (2 marks)
[Total: 20 Marks]

END OF PAPER
 T5: TAXATION

SUGGESTED SOLUTIONS

DECEMBER 2015 EXAMINATIONS

SOLUTION ONE

SECTION A
1.1 D
1.2 C
1.3 C
1.4 D
1.5 B
1.6 B
1.7 D

1.9 C

1.10 D

WORKINGS

1.7 Toyota Camry (K69,600 x 20%) x 60% = K8,352

Toyota corolla (K34,800 x 20% ) = K6,960

K15,312
SECTION B
SOLUTION TWO

a) Capital allowance computation

(i) Quarterly threshold registration- K200,000

1 January 2015 to 31 march 2015 (3 x K60,000) K180,000
1 February 2015 to 30 April 2015 (2 X K65,000) K185,000
1 March 2015 to 31 May 2015 (K60,000 + (2 x K65,000) K190,000
1 April 2015 to 30 June 2015 (3 x K65,000) K195,000
1 May 2015 to 31 July 2015 (K2 x K65,000 + K71,500) K201,500

The quarterly threshold is reached the period 1 May 2015 to 31 July 2015. Therefore, ZRA
will grant registration before August 2015 on application from Zig zag Limited
(ii) Annual threshold registration –K800,000
K

January 2015 60,000

February 2015 120,000
March 2015 180,000
April 2015 245,000
May 2015 310,000
June 2015 375,000
July 2015 453,000
August 2015 546,600
September 2015 658,920
October 2015 793,704
November 2015 955,445

The K800,000 threshold is exceeded in November 2015 and therefore ZRA will grant
registration before 31 December 2015.

(b) VAT Payable by Mane Limited – February 2015

Output VAT K K

Standard rated sales (K38,000 X 98%) X16% 5,958

Deposit 2,400
8,358
Less: Input VAT

Purchases (K22,000 x 60%) x16% 2,112

Overheads (K11,000 x 50%) x 16%)x K40,000
K50,000 704
Petrol (K4,600 X 4 ) X 20% 128
29
Diesel (K5,800 X 4 ) 800
29
(3,744)
VAT Payable 4,614

(ii)The due date for payment of the VAT for February 2015 was 21 March 2015
SOLUTION THREE

Marks
Cost/ITV C.A
K K
1. Motor car I.T.V b/f 11,250
Sales proceeds (6,250)
Balancing Allowance (5,000) (5,000)

2. Retail shop ITV b/f

[K190,000 – (K190,000 x 2% x 12 yrs)] 144,400
W & T @ 2% ( 3,800) 3,800
I.T.V. c/f 140,600

3. Delivery van ITV b/f - -

4. Saloon cars [K68,000 – (68,000 x 2x 20%)] 40,800
W & T @ 20% 13,600 13,600
27,200

25
5. Equipment (K52,200 x ) 45,000
29
W & T @ 25% (11,250) 11,250
33,750

25
6. Isuzu KB Van (K58,000 x ) 50,000
29
W & T @ 25% 12,500 12,500
37,500

7. Toyota corolla 27,840

W & T @ 20% (5,568) 5,568
22,272
Total C.A 51,718 ½
 (b) K K

Net profit 348,400

Add:
Personal to holder cars (K15,000 x 2) 30,000
Depreciation 26,000
Loan written off 3,000
Loss on disposal 5,000
Housing benefit (148,000 x3 30%) 44,400
Entertainment 21,500
129,900
478,300
Less:
Decrease in provision 7,000
Loan recovered 2,000
Capital allowances 51,718
Rental income 6,800
Royalties 20,400
(87,918)
Adjusted business profit 390,382

SOLUTION FOUR
(a) Calculation of the tax adjusted trading income for the tax year 2015
K
Gross profit (as required) 168,000
Business premises
- Electricity ( K2,980 x 55%) 1,639
- Water (K1,540 x 55%) 847

Motor car running expenses

((25,000 x ¾ x 2/3) + (25,000 x ¼ x ½)/25,000) x 4,580 (2,863)

Staff welfare – salaries & wages

(85,000 – 12,000 + 8000) (81,000)

Sundry expenses
(5,000 - 1,250 – 900 – 1,550) (1,300)

Goods taken for private use

(35 x 54)/ 100 = 18.9 or 19 x 48 907

Tax adjusted trading income before capital allowances 81,258

Less capital allowances (25,000 x 20% x 62.5%) (3,125)

Tax adjusted trading profits 78,133

(b) Trading profits assessable on each partner

Adjusted trading income for;

- First 7 months 7/12 x 78,133 45,578 ½
- Next 5 months 5/12 x 78,133 32,555 ½

Lushomo Tennis Jane total

K K K K

7 months to 31 july 2015

Residue profits 22,789 22,789 - 45,578

5 months to 31st Dec 2015

Residue profits 16,277 - 16,278 32,555

39,066 22,789 16,278 78,133

(iii) Tennis Nyirenda’s

Personal income tax computation for the tax year 2015

Emoluments from employment

(5/12 x 150, 000) 62,500

Tax adjusted trading income 22,789

Total income 85,289
Less NAPSA (3,060)
82,229
Less tax free income 36,000)½
46,229

Income tax payable/ repayable

9,600 x 25% 2,400
25,200 x 30% 7,560
11,429 x 35% 4,000
13,960
 Lushomo

Personal income Tax Computation for the tax year 2015

K
Emoluments from employment 39,066
Less tax free income (36,000)
Taxable income 3,066

Income tax payable/refundable

(3,066 x 25%) 767

Jane
She will not be required to pay tax because her income from the partnership
is below the tax free income of K36,000.

(b) Office
This is a position that exists independently of the person presently occupying it. It
must be capable of being declared vacant.

SOLUTION FIVE

(a)
(i) Calculation of total cost
Value for duty purposes
$
Costs 55,000
Insurance 3,000
Freight 5,000
Additional costs 500
63,500
Value for duty purposes in kwacha
$63,500 x K7.1 = K 450,850

VDP 450,850

(ii) Add customs duty (25% x 450,850) 112,713

Excisable value 563,563
(iii) Add excise duty (30% x 563,563) 169,069

Value for import VAT 732,632

(iv) Add import value added tax (16% x 732,632) 117,221

849,853
 (b) Documentation required for motor vehicle clearance

- Invoices or letter of sales indicating the FOB

- Bills of lading for overseas imports and or road/rail consignment note/
manifest (for overland transportation).
- Freight statement (including overland costs from port).
- Insurance certificates.
- Any other documents relevant to the purchase, acquisitions, shipment
or importation of the vehicle e.g. Certificate of registration and police
clearance certificate.

(c)

(i) Difference between allowable and disallowable expenses

Allowable expenditures are those expenditures that are taking into account
when computing the tax adjusted trading profits and disallowed expenditures
are those expenditures that are not taking into account when computing the
tax adjusted trading income.
Depreciation is capital in nature and the general rule of allowable expenditure
states that all expenditures should be revenue in nature to be allowed.

(d)

(i) VDP for each vehicle

K

Cost 95,000

Additional cost (13,000 x 2) 26,000

121,000

Customs duty

15% x 121,000 18,150

Excise duty

(121,000+ 18,150) x 0% -

Import VAT

(139,150 x 16%) 22,264

40,414

Therefore each bus will cost K 20,207 when clearing it.

 (ii) Presumptive taxes
K20 x 24 days x 11 months K5,280
Therefore K 2,640 will be for each vehicle

(b) Persons not liable for turnover tax.

- Persons with annual turnover of over K800, 000.
- Individuals in business of carriage of persons.
- Individuals in a partnership.
- Any person subject to WHT, where the WHT is the final tax.
- Any persons who voluntarily registers for VAT.
- Any persons who are involved in mining operations as provided under
the Miners and Minerals Development ACT.

SOLUTION SIX

W1
Computation of total gratuity at end of contract
K
Total gratuity (150 +185+255)x 30% 177,000
Less qualifying gratuity (150+185+255)x25% 147,500

Non qualifying gratuity 29500

The tax on the qualifying gratuity will be:

QUALIFYING GRATUITY 147,500

LESS tax free income 36,000

Taxable gratuity 111,500

Tax @ 25% 27,875

Net gratuity 83,625

Jane Campaundi

COMPUTATION OF INCOME TAX PAYABLE FOR TAX YEAR 2015

Salary 255,000

Non qualifying gratuity 29,500

Housing Allowance (2500x12) 30,000

Water & electricity Allowance (800x12) 9,600

Medical Allowance (500x12) 6,000

Entertainment Allowance (400x12) 4,800

334,900

Less tax free income 36,000

Taxable income 298,900

Tax charge

Next 9600x25% 2,400

Next 25,200 x30% 7,560

Excess 264,100 x35% 92,435

Total tax liability 102,395

Less tax suffered

Paye 53,000

Income tax payable 49,395

Add tax on qualifying gratuity 27,875

Final total income tax payable 77,270

SOLUTION B

(i) THE BOOKS AVALABLE TO RUN PAYE SYSTEM ARE:

1. Employers guide to PAYE

2. Tax tables

3. Main documents and forms e.g. ITF/P8

(ii) THE ACTUAL RECEIPTS BASIS

This means that emoluments are chargeable to income tax in the tax year when
they are received by the employee.

Emoluments are deemed to have been received on the earlier of the time when
payment is actually made and the time when the employee becomes entitled to the
emolument.

END OF SOLUTIONS