Integrity House, Corner Sam Nujoma & Bath Road

P.O. Box 1079, Causeway, Harare

TELEPHONE: 263-4-793950/471/252672

FASCIMILE: 263-4-706245

A member of IFAC and ECSAFA E-MAIL: administrator@icaz.org.zw

SUGGESTED SOLUTIONS

PAPER 1

ADVANCED ZIMBABWE TAXATION 2022

POSTGRADUATE DIPLOMA IN ADVANCED ACCOUNTING SCIENCES

CTA Level 2 [CAZ2]

TEST 1: 15 MARCH 2022

 SUGGESTED SOLUTIONS MARKS

(i) (a) The ZW$64,000 paid for legal fees in respect of drafting and
defending a commercial contract is tax deductible in the hands of 2
Build Zimbabwe Limited since it was incurred in the production
of income and the services were not of a capital nature.

(b) The ZW$12,000 paid for appealing against an EMA penalty is

disallowed because it was not incurred in the production of 2
income but rather defending an illegality.

(ii) Fines and penalties are non-deductible because they are against 2
public policy and the income tax law can not cause the
punishment to be diminished by allowing their deductibility.
Therefore, the ZW$68,000 paid to EMA will be disallowed.

(iii) Build Zimbabwe Limited should account for the US$50,000 in the 3
2023 tax year of assessment. This is because as at 31 December
2022, BZL will not be unconditionally entitled to the income since
it will not have performed its obligation and the amount is
refundable if the contract is terminated.

(iv) Mansi Engineering (Pty) Ltd.’s income received from Build

Zimbabwe Limited is taxable in Zimbabwe, which is the true 4
source of the income since services were rendered in Zimbabwe
and Mzansi Engineering has a permanent establishment in
Zimbabwe. Mzansi Engineering may seek double taxation relief
in South Africa in terms of the double taxation treaty that exists
between Zimbabwe and South Africa.

(v) Engineer Jordan Nsingo’s remuneration earned from rendering

services in Zimbabwe is subject to PAYE in Zimbabwe
irrespective of the period he has spent in Zimbabwe because. 2
Zimbabwe is the true source of his remuneration income (s12
(1)(b)). Mzansi may seek relief in South Africa in terms of the
double taxation treaty that exists between Zimbabwe and South
Africa.

(vi) (a) The donation of ZW$2,000,000 to an orphanage home for the

destitute children is deductible in full in terms of s15(2) (r5) of the 2
Income Tax Act [Chapter 23:06]. The deduction is restricted to
ZW$6.5 million.

(b) The ZW$700,000 donation to Victoria Falls General Hospital is 2

allowable in full (limit is ZW$13 million) because the hospital is
operated by a local authority (s15(2) (r1).

(c) The donation for National Assembly Member’s celebrations is a 2

prohibited deduction and therefore is not tax deductible.
(vii) (a) The secondment of Thomas to oversea the project in Mozambique
will result in his remuneration being taxed in that country. 5
Thomas will be out of Zimbabwe for a continuous period of 300
days which falls outside the definition “temporary absence.”
(s12(1)(c). Therefore, his income will not be subject to PAYE in
Zimbabwe during that period.

(b) Tawanda’s remuneration is fully taxable in Zimbabwe since she

will remain ordinarily resident in the country throughout the 4
period in question. Her business trips’ expenses are not deemed
benefits in her hands since all her trips are strictly for business,
unless proven otherwise by the taxing authorities.

(viii) The ZW$30,000 paid by Tawanda to the Institute of Engineers of

Zimbabwe in respect of her professional membership fees is an 2
allowable deduction in the hands of Build Zimbabwe Limited in
terms of s15(2)(s).

(ix) The disposal of the company vehicle to Mrs Khumalo on

retirement does not have any PAYE consequences. Mrs Khumalo
retired at the age of 65 years and therefore, qualifies for an elderly 4
person’s exemption. An elderly person for tax purposes is a
person aged 55 years or above.

(x) A subsidised loan of above ZW$8,000 or US$100 is a deemed

benefit in the hands of the recipient employee. Tim Nhamo is
deemed to have enjoyed a benefit amounting to the difference
between the stipulated rate (LIBOR +15%) and the interest he 4
actually paid on the loan. The value of his benefit, which will be
added to his gross income for PAYE purposes, will be (100,000 x
(1% +15%) – (100,000 x 10%) = ZW$6,000.

TOTAL 40