GAGE UNIVERSITY College

Department of Accounting
Develop Understanding of Taxation FINAL EXAM
Name: ________________________________ID No
No. __________________________

Part I: multiple Choice Questions (1 points Marks)

1. Characteristics of a good tax system includes among others
A. Economic efficiency B. Fairness C. Simplicity for administration D. All
2. If the annual taxable income of XYZ business corporation was Br. 3,250,000, the income tax paid by the
corporation as per the Ethiopia income tax law would be _______
A. 325,000 B. 487,500 C. 975,000 D.1,129,550 E. none
3. If an employee earns monthly salary Br. 5000 , overtime earning Br. 1,500 and transportation allowance
Br. 1500, what would be employment income tax paid by the individual as per Ethiopian income tax law
A. 1087.50 B. 1297.50 C. 1612.50 D. 1822.50 E. None
4. Which one of the following other income sources that is subject to exemption?
A. Capital gains B. rental of property C. Income from dividends D. None
5. On January 10, 2003, ABC manufacturing company purchased raw materials from various VAT registered
suppliers. The cost of raw materials excluding VAT was Br. 30,000. After the company adds process costs
and mark ups of Br. 25,000 the goods are sold to the wholesaler at Br. 55,000. What is the amount of VAT
to be collected and remitted to the tax authority?
A. 8250 B. 450 C. 4175 D. 3750 E. None
6. If Bedilu wins the 1st draw of Ethiopian national lottery that benefits Br. 4,000,000 how much income tax
Bedilu charged?
A. 1,392,050 B. 1,200,000 C. 600,000 D. 400,000 E. None
7. The annual taxable income of z- sole proprietorship for the year 2014 was Br. 250,000. What is the income
tax paid by the business?
A. 2500 B. 25,000 C. 75,000 D. 79,550 E. None
8. All of the following are objectives of taxation except??

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 A. Raising revenue B. Increasing gaps between poor and rich
B. Ensuring economic stability D. Preventing harmful consumption
9. The Employment income taxation system that Ethiopia uses currently is:
A. Regressive B. Digressive C. Proportional D. Progressive
10. The main objective of imposing Excise tax is:
A. To Keep progressivity of taxing system C. To raise revenue E.ALL
B. To discourage consumption of harmful product D. A & B F. none

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11. Which of the following is NOT true about taxation?
A. Tax is levied on income only but not on property and commodities.
B. It is a contribution made by taxpayers without expectation of direct
C. Tax imposes a personal obligation on taxpayers.
D. No one is forced to pay tax unless the person is subject to tax.
12. All are commodity or expenditure taxes EXCEPT
A. Income tax B. Excise tax C. Turnover tax D. None of the above
13. Which of the following types of taxes are indirect taxes levied on goods and services?
A. Commodity taxes B. Property taxes C. Income taxes D. None of the above
14. The maximum tax rate applied to employment income tax in Ethiopia is
A. 35% B. 30% C. 40% D. 25% E. Can’t be determined
15. According to schedule ‘A’ tax rate, employees whose taxable income up to _______birr per month is below the
threshold for paying employment income tax.
A. Br 600 B. Br 10900 C. Br 60 D. Br 7200 E. None of the above
16. For the tax year ended Sene 30, a share company has reported before tax earnings of Br.150, 000. The Income
tax liability is
A. 45,000 B. 17, 947 C. 40, 050 D. 14, 947
17. If Annual Turnover of a business exceeds Br.500, 000, then the business should
A. be VAT registered C. Not be registered for both VAT and TOT
B. be TOT registered D. be registered for either VAT or TOT

Part-II MATCHING
Column “A” Column “B”
1. Excise Tax A. Provision of Educational services
2. Responsibility to collect Tariff B. National Lottery Administration
3. Royalty Income Tax C. Value added tax [VAT]
4. Tax withholding agent for D. A duty levied on Articles of Memorandum
5. Income from games of chance E. Turnover tax
6. Also called schedule ‘B’ income tax F. Levied on Hazardous items
7. Exempt supply for VAT purpose G. levied on patented items
8. Stump duty H. Ethiopian Revenue and customs Authority
9. Fully Deductible Expense I. Cost of Goods Sold
10. A tax collected by a person not registered for VAT J. Business income tax
K. Rental income taxes

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PART III Work out
1. Ato. X an employee in a company is drawing Birr.2500 pm as salary plus House Rent Allowance at 10% of
his salary during the year 2006-07. He was getting the medical allowance of Birr.400 per month (pm),
commission 250 Birr per month. He is also provided free of charge a sweeper whose wages are Birr 150 pm
and a gardener whose wages are 250 birr pm.
Required: Compute his taxable salary for the month and tax payable for the same Period.
2.Lilly Boutique fails to declare its tax liability within the tax period. The company engages in the reselling of
Jeanses which have an average Prepare journal selling price of 380.00. It is estimated that the company daily
sells on average 300 Jeanne’s and 20% of the total annual sales is allowable deductible expenses. The applicable
tax rate is 30%.
Required: 1. Estimate the annual gross sales
2. Calculate the Income tax liability
4. The following data relate to a registered value added taxpayer of an importer who acquired goods from a
foreign supplier in the month of Hamle 1, 2007 EC. The monthly sales of amount to Birr 200,000 VAT inclusive
and taxable purchase of Birr 100,000.00 (exclusive of tax). Assume that a VAT rate is 15%
Required:
A. Calculate the input and output VAT
B. Determine whether the importer is liable to pay VAT or a right to have VAT refundable
C. How much does the taxpayer pay or refund as VAT?
5. Suppose ABC Company is VAT Register Company. During the year 2011 the company earned birr 3.5
million from sales VAT inclusive. The company purchased materials and imported at a cost of birr 500,000
before VAT .during the year, the company paid birr 35,000 for excise tax and custom duty of 15%. The company
employs five employees who provide services in the company, and withhold the employment income tax are birr
12000 per month. In addition the company incurred other operating expense of birr 1 million. The company also
charged profit tax of 30%.
Required: Task 4.1 calculates direct tax and Indirect tax liability for the year.
Task 4.2 identify and discuss the role of ERCA

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