MIDLANDS STATE UNIVERSITY

FACULTY OF COMMERCE

DEPARTMENT OF BUSINESS MANAGEMENT

MANAGEMENT APPRECIATION OF TAXATION BM208

SESSIONAL EXAMINATIONS

OCTOBER/ NOVEMBER 2013

DURATION: 3 HOURS

INSTRUCTIONS
1. Answer all questions
2. Begin an answer to a new question on a new page.
3. In order to earn marks, show all your workings.
4. Where tax tables are required use 2012 tables
Requirements:
1. A non programmable scientific calculator
2. An unmarked Income Tax Act
3. An unmarked Capital Gains Tax Act
4. An unmarked VAT Act
5. An unmarked Finance Act
6. The relevant Tax tables are provided to this paper

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Question One

Sibo is employed by Arab Emirates, an international Air- liner company. Her information regarding
financial activities for 2012 is as follows:

In 2012, Sibo's salary from Arab Emirates was $95,000. From this salary, the company deducted PAYE
of $26,000 and pension of $7,710. She was paid an allowance of $1,000 for general employment
expenses, which she used to purchase a laptop computer for $900 to be used in her employment duties.
On her 40th birthday, Arab Emirates gave her a gift valued at $400

Throughout 2012, Sibo had the use of a company car (Nissan Hard-body 3000cc). Sibo drove the car for a
total of 20,000km, of which 12,000km was for personal use. On November 30 2012, she purchased the
car for $7,000 and its market value was $26,000 on that date.

On 1 January 2012, Sibo borrowed $20,000 at a rate of 2% from Arab Emirates and used $10,000 to
acquire furniture for her home and $10,000 to pay school fees for her children. Libor is 0.45%

With effect from 1 October 2005, she was provided with a rent free residential accommodation, with a
fair annual rent of $10,200. The cost of furniture provided was $15,000. A sum of $250 per year is
deducted as rent from her salary towards this facility.

On 1 December 2012 Diamond Benefit Fund announced a refund of benefits to its members. Sibo
received $12,000 from the fund and paid $2,300 to purchase a retirement annuity.

She is divorced and supports her 2 children aged 14 and 19. The 19 year old is disabled. She contributed
$7,000 to a retirement annuity fund and $1,000 to a registered medical aid society.

Required:

Calculate Sibo's minimum tax liability. Showing calculation and justification for the treatment of certain
items may help you earn marks (30 marks)

Question Two

a) Mr F operates a fruit canning business. In 2011, he constructed a factory for $60,000 and
brought into use on 1 January 2012. Calculate the amount of allowance he can claim in
2012, 2013, 2014 and 2015 if he elects SIA. (8 marks)

b) Briefly explain:-
i) what presumptive tax mean (3 marks)
ii) why it was introduced (3 marks)
iii) give three types of tax payers who are subjected to presumptive tax (3 marks)

c) Your friend, Tanaka, heard on the 20:00hrs ZTV news on 7 September 2013 that the
Gweru City council has identified a site in Mtapa. The site is suitable for the development
of a long distance bus terminus, shopping mall and service industrial stands. The facility
is to be developed on a Build Operate Own and Transfer (BOOT) concept," the news
reporter said. Tanaka, your friend, having recently won a lottery and is considering
investment option is curious to know:-

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 i) How a BOOT arrangement works (3 marks)

ii) Benefits of the BOOT arrangement to:

a) The BOOT operator (4 marks)

b) The Gweru City council (4 marks)

Educate Tanaka.

d) Briefly explain with an example, what the term fortuitous income mean. Is it taxable or
not. Give the justification. (4 marks)

Question Three
a) Distinguish between expenditure of a capital nature and that of a revenue nature.
(5 marks)
b) In each of the following cases, state, with justification whether it is expenditure of a capital
nature or of a revenue nature:-
i) Cost of valuation of assets for fire insurance purposes. (3 marks)
ii) The acquisition of fixed assets including travelling to obtain them. (3 marks)
iii) Improvements and alterations to fixed assets. (3 marks)
iv) Connection fees for water, telephone, electricity but not installation costs.
(3 marks)

v) Expenses incurred in the removal of stock. (3 marks)

Question Four

VAT regulations require all registered operators to use cash registers for the purpose of
accounting for VAT. Your client approaches you as a tax advisor requesting your advice on the
requirements. You are required to list and describe the requirements so that he can decide on the
appropriate machine. (20 marks)

End of paper

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2012 Tax tables

Annual Table

From 0 to 3,000 multiply by 0% deduct 0

From 3,001 to 12,000 multiply by 20% deduct 600

From 12,001 to 24,000 multiply by 25% deduct 1,200

From 24,001 to 60,000 multiply by 30% deduct 2,400

From 60,001 to 90,000 multiply by 35% deduct 5,400

From 90,001 to 120,000 multiply by 40% deduct 9,900

From 120,000 and above multiply by 45% deduct 15,900

Tax Credits

Mentally or Physically Disabled Persons' Credit 75 per month

Elderly Person's Credit 75 per moth

Blind Person's Credit 75 per month

Credit for the Cost of Purchasing Invalid Appliances 50% of the appliance used by the taxpayer, his/her spouse or
any of his/her children including legally adopted children

Medical Expenses Credit 50% of the medical expense paid for

Use of motor vehicle Benefit

Where an employee enjoys the use of a company vehicle or is allocated a company vehicle, the value of the benefit
is determined according to the engine capacity of the vehicle. The deemed motor vehicle benefits for 2012 tax year
are as follows:

Engine capacity of motor vehicle Deemed value per year

Up to 1500cc $1 800

Over 1500cc -2000cc $2 400

Over 2000cc -3000cc $3 600

Over 3000cc $4 800

2012 Tax Rates for various trade and investment activities

Details Tax Rate

Income of individual from trade and investments 25%

Income of company or trust "25%

Income of pension fund from trade or investment 15%

Income of licensed investor during first five years of operation 0°/0

Income of licensed investor after first five years of operation 25%

- -
Income of a holder of special mining lease 15%

Income of a company or trust derived from mining operations 25%

Income for a person engaged in approved BOOT or BOT arrangement: First 5 years 0%

Income f person engaged in approved BOOT or BOT arrangement: Second 5 years 15%

Income of industrial park developer before 5th year of operations 0%

Income of industrial park developer after 5th year of operations 25V0

Income of operator of a tourist facility in approved tourist development zone before %

the fifth year of operation

Income of operator of a tourist facility in approved tourist development zone after the 25%
fifth year of operation

Income from manufacturing of a company which exports 50% or more of its output 20%

Aids Levy: Rate is based on tax chargeable 3%

Dividends from company incorporated outside Zimbabwe 20%

Allowable deductions

Details Maximum amount allowed

Donations to National Scholarship Fund, National Bursary There is no limit

Fund and charitable trusts

Contribution for equipment, construction, extension, The amount is limited to US$100 000 per
maintenance of hospitals and procurement of drugs and annum per taxpayer.
equipment.

Contributions to a research institution The amount is limited to US$100 000 per

annum per taxpayer.

Contribution for equipment, construction/ extension, and The amount is limited to US$100 000 per
maintenance of schools and procurement of books annum per taxpayer.

Donations to the Public Private Partnership Fund The amount is limited to a maximum of
US$50,000 without any consideration

Donations to the Destitute Homeless Persons The amount is limited to a maximum of

Rehabilitation Fund US$50,000.

Expenditure on attending Convention or Trade Mission Amount incurred for attending not more than ,
one convention or trade mission in any one year,
of assessment limited to US$2 500

Contribution to the maintenance of buildings, roads, The amount allowable is limited to US$50 000
bridges, sanitation works, water works, public parks, or any per annum.
other utility amenity or item of infrastructure approved by
the Min responsible for local government
Capital allowances

Capital allowance Limit

Passenger Motor Vehicle

The limit was pegged at US$10 000

Any Staff Housing The limit was pegged at US$25 000

School, hospital, nursing home or clinic Cost to the employer. No limit

Staff housing for employees at a school, hospital, nursing Cost to the employer. No limit
home or clinic which qualifies as farm improvements and
alteration and additions thereto.

SIA for Small to Medium Enterprises Reduced to150% SIA on cost of plant and
machinery for the 2010 tax year. 100%
allowed in first year of use and claim and
balance over two years at 25% as
,accelerated wear and tear.

Buildings, Improvements, Machinery and Equipment used 25% SIA from 1/1/2010 or any subsequent
for Commercial, Industrial and farming year of assessment

Allowable deductions

Details Maximum amount allowed

Donations to National Scholarship Fund, National Bursary There is no limit.

Fund and charitable trusts

Contribution for equipment, construction, extension, The amount is limited to US$100 000 per
maintenance of hospitals and procurement of drugs and annum per taxpayer.
equipment.

Contributions to a research institution The amount is limited to US$100 000 per

annum per taxpayer.

Contribution for equipment, construction/ extension, and The amount is limited to US$100 000 per
maintenance of schools and procurement of books annum per taxpayer.

Donations to the Public Private Partnership Fund The amount is limited to a maximum of
'US$50,000 without any consideration

Donations to the Destitute Homeless Persons The amount is limited to a maximum of

Rehabilitation Fund US$50,000.

Expenditure on attending Convention or Trade Mission Amount incurred for attending not more than
one convention or trade mission in any one
year of assessment limited to US$2 500

Contribution to the maintenance of buildings, roads, The amount allowable is limited to US$50 000
bridges, sanitation works, water works, public parks, or any per annum.
other utility amenity or item of infrastructure approved by
the Min responsible for local government