Answers

Applied Skills, TX – ZWE June 2020 Answers

Taxation – Zimbabwe (TX – ZWE) and Marking Scheme

Section A

1 B

2 C
Qualifying cost SIA at 25%
Z$ Z$
Farm 0 0
Tractor 100,000 25,000
Passenger vehicle – deemed cost 80,000 20,000
Commercial vehicle 135,000 33,750
Fiscal devices (50% x 50,000) 25,000 6,250
Irrigation equipment 170,000 42,500
––––––––
127,500
––––––––

3 A
Input VAT
Z$
Delivery van (15/115 x 120,000) 15,652
Water tank (15/115 x 40,000) 5,217
–––––––
20,869
–––––––

4 D
(40% x 20,000 x Z$50 x 5%) = Z$20,000

5 B
Output VAT on the passenger motor vehicle deemed benefit:
(15/115 x 76,400 x 2/12) = Z$1,661

6 D
Recoupment of allowances calculated as follows:
Z$
Factory building, nil income tax value 200,000
Plant and equipment (25% x 160,000 x 2) 80,000
––––––––
280,000
––––––––

7 A

8 B
Z$
Rent received (as less than Z$24,000) 20,000
Pension 12,000
–––––––
32,000
–––––––

9 C

3
 Marks
10 D
Z$
Pension fund contributions (12% x 15,000 x 5) 9,000
Retirement annuity fund (RAF) contributions 12,000
NSSA contributions (3·5% x 700 x 5) 123
–––––––
21,123
–––––––

11 A
(10% x 287,500) = Z$28,750 and 10 April 2019

12 B
Z$
Second QPD (10% x 20,000 x 3/12) 500
Third QPD (10% x 24,000 x 2/12) 400
––––
900
––––

13 C

14 C
(5% x 800,000) = Z$40,000

15 A
Z$
Recurrent expenditure (15% x 400,000 x 9/12) 45,000
Commercial vehicle (15% x 350,000 x 6/12) 26,250
–––––––
71,250
–––––––
–––
2 marks each 30
–––

4
Section B Marks

1 Solarquip (Private) Limited (SPL)

(a) Correct tax deadlines and possible non-compliance penalties

Non-compliance issue Due date Possible penalty
(1) Late submission of the 2019 reconciliation 31 January 2020 Civil penalty
of monthly PAYE returns
(2) Late PAYE remittance for the month of 10 January 2020 100% penalty on the
December 2019 overdue tax and 10%
interest p.a.
(3) Failure to deduct PAYE from a director’s taxable 10 July 2019 and 100% penalty on the
benefit which is tantamount to tax evasion 10 January 2020 overdue tax and 10%
interest p.a.
(4) Late submission of the provisional tax returns 25 March 2019 Civil penalty
25 June 2019
25 September 2019
20 December 2019
½ mark each for the correct due date and penalty 4
–––

(b) Exposure to penalties on the non-payment of the employees’ tax

Z$
June 2019:
PAYE of Z$82,000 due on 10 July 2019 ½
100% penalty 82,000 ½
Interest (10% x 82,000 x 174/365) 3,909 1
–––––––
85,909

–––––––
–––––––
December 2019:
PAYE of Z$70,000 due on 10 January 2020. ½
No penalty as the amount is not due as at 31 December 2019. ½
–––
3
–––

(c) Adjusted provisional tax for the year ended 31 December 2019
Z$
Loss (73,000
)
Add back:
Accelerated wear and tear allowance added back (cost has been written off
completely in 2015–2018) 160,000 ½
––––––––
Adjusted taxable income 87,000

––––––––
––––––––
Adjusted provisional tax at 25·75% 22,403 ½

––––––––
––––––––
Remittance in line with the QPDs:
10% on 25 March 2019 2,240 ½
25% on 25 June 2019 5,601 ½
30% on 25 September 2019 6,721 ½
35% on 20 December 2019 7,841 ½
–––––––– –––
22,403 3

––––––––
–––––––– –––
10
–––

2 Perfect Products (Private) Limited

(a) Conditions for a successful pre-registration input tax claim

The goods or services must have been acquired from a registered value added tax (VAT) operator. ½
The proof of acquisition in the form of a valid tax invoice must be available. 1
The pre-registration input tax claim on purchases must further be supported by inventory records. ½
–––
2
–––

5
 Marks
(b) Valued added tax (VAT) payable/refundable for June 2019 VAT period
Z$ Z$
Output tax:
Credit sales (15/115 x 90,000) 11,739 ½
Cash sales (15/115 x 170,000) 22,174
Zero rated sales cash and credit 0 ½
Sales returns (15/115 x 20,000) (2,609 ) ½
–––––––
31,304
Less input tax:
Purchases (15/115 x 210,000) (27,391 ) ½
Shop fixtures and fittings (15/115 x 90,000) (11,739 ) ½
Office equipment (15/115 x 80,000) (10,435 ) ½
Staff expenses 0 ½
Delivery truck (15/115 x 130,000) (16,957 ) ½
Passenger motor vehicle 0 ½
Office rent (15/115 x 20,000) (2,609 ) ½
Rail transport costs 0 ½
Stationery (15/115 x 10,000) (1,304 ) ½
Salaries and wages 0 ½
Traffic fine 0 ½
Insurance 0 ½
Bank charges 0 (70,435 ) ½
––––––– ––––––– –––
VAT refundable 39,131 8

–––––––
––––––– –––
10
–––

3 Stan

Taxable income and tax payable for the year ended 31 December 2019
Z$
Revenue 320,000 ½
Lease premium 100,000 ½
Rent (10,000 x 6) 60,000 ½
Lease improvement: 400,000/(120 – 3) x 3 10,256 1
––––––––
490,256
Less:
Salaries and wages (53,000 ) ½
Repairs and maintenance (44,000 ) ½
Electricity and water charges (13,000 ) ½
Pest control costs (15,000 ) ½
General admin expenses (65% x 67,000) (43,550 ) ½
Interest paid (15% x 300,000 x 10/12), disallowable 0 1
Demolition expenses (30,000 ) ½
Legal fees, disallowable 0 ½
Municipality inspection fees, disallowable 0 ½
Capital allowances:
Warehouse (2·5% x 170,000) (4,250 ) ½
Fixtures and fittings (25% x 110,000) (27,500 ) ½
Diesel powered generator (25% x 25,000) (6,250 ) ½
Second warehouse (2·5% x 400,000) (10,000 ) ½
––––––––
Taxable income 243,706
––––––––
––––––––
Tax payable at 25·75% 62,754 ½
––––––––
–––––––– –––
10
–––
Tutorial note: Re the fraction of 400,000/(120 – 3) x 3: the maximum allowable lease period is 10 years, 120
months, exclude the agreed construction period of three months. The lease improvement is for a period of three
months from 1 October to 31 December 2019.

6
 Marks
4 Estella

(a) Estella’s residential property qualifies as a principal private residence because it meets the prescribed definition
of a dwelling since it was used mainly for the purpose of residential accommodation. 1
The residential property remained Estella’s main residence despite the fact that she was prevented from
residing at the property due to her employment relocation. 1
–––
2
–––

(b) Capital gains tax payable for the year ended 31 December 2019
Z$
Residential property:
Gross sale proceeds 280,000
Capital gains at 5% 14,000 1

––––––––
––––––––
Commercial property:
Sale proceeds 520,000 ½
Less:
Cost (300,000
) ½
Improvement costs:
Concrete paving (50,000
) ½
Security wall (100,000
) ½
Selling expenses:
Advertising (6,000 ) ½
Legal fees (15,000 ) ½
Estate agent commission (26,000 ) ½
Inflation allowance on:
Property cost (2·5% x 300,000) (7,500 ) 1
Improvements:
Concrete paving (2·5% x 50,000) (1,250 ) ½
Security wall (2·5% x 100,000) (2,500 ) ½
––––––––
11,750
Roll over relief available, as another immovable property was acquired
(310,000/520,000 x 11,750) (7,005 ) 1
––––––––
Capital gain 4,745

––––––––
––––––––
Capital gains tax at 20% 949 ½

––––––––
–––––––– –––
8
–––
10
–––

5 Leah

(a) Classification of the consultancy work

The nature of the engagement is one of self-employment. 1
The signed contract provides that Leah should work independently from her home which degree of autonomy
is not present in an employment engagement. 1
–––
2
–––
Note: Marks are given for any other valid reason stated, e.g. buying her own equipment, employing an
assistant, no supervision on report preparation.

7
 Marks
(b) Taxable income and income tax payable/(refundable) for the period ended 31 July 2019
Z$
Employment 1 January 2019 to 30 June 2019
Salary 95,000 ½
Accommodation allowance 0 ½
Representation allowance 0 ½
Fuel coupons 15,000 ½
Cost of living adjustment 18,000 ½
Travelling and subsistence 0 1
Motor vehicle benefit (9,600 x 6/12) 4,800 1
Motor vehicle purchase benefit (50,000 – 35,000) 15,000 1
––––––––
147,800
Less:
Pension fund contributions, retirement annuity fund and NSSA (13,500 + 20,000 + 147) (5,400 ) 1
Professional subscriptions (8,000 ) ½
Life insurance policy 0 ½
––––––––
Taxable income 134,400

––––––––
––––––––
Tax on sliding scale:
Up to Z$105,000 30,485
On Z$(134,400 – 105,000) at 40% 11,760 ½
––––––––
Gross tax 42,245
Less: Medical aid contributions credit (50% x 16,000) (8,000 ) ½
Medical expenses credit (50% x 8,000 x 50%) (2,000 ) ½
––––––––
32,245
Add: 3% AIDS levy 967 ½
––––––––
33,212
Less: PAYE (35,000 ) ½
––––––––
Tax refundable 1,788

––––––––
––––––––
Consultancy 1 August 2019–31 December 2019
Consultancy fees (37,000 x 5) 185,000 ½
Less:
Assistant’s salary (13,000 x 5) (65,000 ) ½
Stationery (10,000 ) ½
Wear and tear allowance – laptops (40,000 x 10%) (4,000 ) 1
––––––––
Taxable income 106,000

––––––––
––––––––
Tax at 25·75% 27,295 ½

––––––––
–––––––– –––
13
–––
15
–––

8
 Marks
6 Towelling Company (Private) Limited (TCP)

Taxable income and tax payable for the year ended 31 December 2019
Z$ Z$
Net profit 109,000
Adjustments:
Raw materials destroyed: cost 0 ½
Bank interest (15,000 ) ½
Interest on overdue accounts 0 ½
Profit on marketable securities (25,000 ) ½
Depreciation 35,000 ½
Salaries and wages 0 ½
Sickness benefit fund (65,000 – (12,000 x 5)) 5,000 1
Advertising – erection of a billboard 20,000 ½
Advertising – export promotion qualifies for double deduction (30,000 ) ½
Allowances for receivables 25,000 ½
Donations – soccer club (40% x 90,000) 36,000 ½
Donations – Education Ministry 0 ½
Operations manager’s payment 80,000 ½
Legal fees:
Attorney’s fees 12,000 ½
Court expenses 10,000 ½
Finance costs:
New premises 0 ½
Staff canteen (70,000/700,000 x 84,000) 8,400 1
Capital allowances:
Neon sign billboard (25% x 20,000) (5,000 ) 1
Factory building (5% x 300,000) (15,000 ) ½
Warehouse (5% x 150,000) (7,500 ) ½
Office building (2·5% x 180,000) (4,500 ) ½
Plant and equipment (25% x 200,000) (50,000 ) ½
Passenger vehicle (25% x 80,000) (20,000 ) ½
Commercial vehicle (25% x 170,000) (42,500 ) ½
Office fittings and equipment (25% x 140,000) (35,000 ) (179,500 ) ½
–––––––– ––––––––
Taxable income 90,900
––––––––
––––––––
Tax at 17·5% 15,908 ½
3% AIDS levy 477 ½
–––––––– –––
Tax payable 16,385 15

–––––––– –––––––– –––
Tutorial note: The tax rate of 17·5% is a special rate for a manufacturing company whose export volume
ranges from 41% to 50% of the total sales volume for the year. TCP’s export threshold for the year is 42·85%
(90,000/210,000 x 100).

9
Additional marking guide for section B Marks available Marks awarded

1 (a) 4
–––

(b) 3
–––

(c) 3
–––
Total marks 10
–––

2 (a) 2
–––

(b) 8
–––
Total marks 10
–––

3 10
–––

4 (a) 2
–––

(b) 8
–––
Total marks 10
–––

5 (a) 2
–––

(b) 13
–––
Total marks 15
–––

6 15
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10