Paper F6 (BWA)

Fundamentals Level – Skills Module

Taxation
(Botswana)
Monday 3 December 2007

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FIVE questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 2–4.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
This question paper must not be removed from the examination hall.

The Association of Chartered Certified Accountants

The Botswana Institute of Accountants

 SUPPLEMENTARY INSTRUCTIONS:
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1. Calculations and workings need only be made to the nearest P.

2. All apportionments should be made to the nearest month.
3. All workings should be shown.
TAX RATES AND ALLOWANCES:
The following rates of tax and allowances are to be used when answering the questions

Rates of tax
2006/2007 tax year
Resident companies On taxable income
Standard rate 15%
Additional company tax 10%
Manufacturing company rate 5%
Additional company tax 10%

Resident individuals
P0 – P 30,000 P0 + 0%
P 30,000 – P 60,000 P0 + 5%
P 60,000 – P 90,000 P 1,500 + 12·5%
P 90,000 – P 120,000 P 5,250 + 18·75%
P 120,000 + P 10,875 + 25%
Non-resident individuals, trusts and estates
P0 – P 60,000 P0 + 5%
P 60,000 – P 90,000 P 3,000 + 12·5%
P 90,000 – P 120,000 P 6,750 + 18·75%
P 120,000 + P 12,375 + 25%

Capital gains – individuals

P0 – P 12,500 P0 + 0%
P 12,500 – P 43,750 P0 + 5%
P 43,750 – P 62,500 P 1,562 + 10%
P 62,500 – P 81,250 P 3,437 + 15%
P 81,250 – P 100,000 P 6,250 + 20%
P 100,000 + P 10,000 + 25%

Capital gains – companies

Net aggregate gains are taxable at the company rates of tax.

Basis of valuation of benefits

Individuals’ vehicle benefit
Employee’s Fuel cost
Vehicle cost benefit adjustment
P1 – P 50,000 P 2,500 P 1,000
P 50,001 – P 100,000 P 5,000 P 2,000
P 100,001 – P 150,000 P 7,500 P 3,000
P 150,001 – P 200,000 P 10,000 P 4,000
Benefit on the excess of P200,000 will be 15% thereof with a maximum fuel
benefit of P5,000.
Where the cost of fuel is paid for by the employee the fuel cost adjustment is
deducted from the benefit, but where the cost is borne by the employer the full
benefit is taxable
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 Medical contributions
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The employer’s contributions to a medical benefit fund on behalf of his employee

up to an amount equal to 100% of the required contributions shall not be taxable
in the hands of the employee.

Individuals’ housing benefit

If rated:
10% of the property’s rateable value prorated by occupation and reduced by any
charge borne by the employee.
If not rated:
The lower of (a) or (b) prorated by occupation and reduced by any charge borne
by the employee:
(a) Gross floor area x P250 per sq metre x 8%
(b) 25% of the taxable employment income before housing benefit.

Individuals’ furniture benefit

10% of the furniture cost in excess of P15,000 prorated by usage.

Capital allowances
The annual allowance on plant and machinery is between 10% and 25% of the
cost incurred. The following are the rates fixed by the Commissioner General of
Taxes as fair and reasonable having regard to the expected lives of the assets
listed.
Capital allowances
Furniture and fittings 10%
Office equipment and machinery 15%
Plant and machinery including farming 15%
Motor vehicles, boats and aircraft 25%
Heavy plant and machinery 25%
Computer hardware 25%
Industrial and commercial buildings
Industrial building – initial allowance 25%
Industrial building – annual allowance 2·5%
Commercial building – annual allowance 2·5%

3 [P.T.O.
 Capital gains tax: indexation allowance
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Paragraph 8 of the Tenth Schedule to the Income Tax Act, 1995

Table of factors from the National Cost of Living Indices

1982 1983 1984 1985 1986 1987 1988

January 104·1 113·5 119·9 133·9 147·4 157·8
February 104·8 113·5 120·7 135·5 148·5 158·7
March 105·5 115·2 122·0 135·5 148·9 160·8
April 106·6 116·0 124·1 136·8 151·9 163·4
May 108·3 116·9 126·6 138·0 153·6 164·0
June 108·4 118·3 128·6 140·9 154·1 165·5
July 100·0 109·0 119·1 130·1 141·2 154·9 168·0
August 101·2 110·2 120·1 129·8 141·8 156·6 169·3
September 101·2 110·2 119·8 131·1 142·7 156·7 171·0
October 102·1 110·7 120·7 131·5 143·4 157·1 172·6
November 103·3 111·7 119·7 131·8 144·7 157·5 173·9
December 103·8 112·3 119·5 132·0 146·3 158·1 174·4

1989 1990 1991 1992 1993 1994 1995

January 176·9 196·6 220·5 248·5 291·0 324·2 357·9
February 178·0 199·0 221·4 250·4 293·1 326·8 361·0
March 180·1 200·5 223·5 256·6 295·8 328·3 364·1
April 182·7 204·1 225·8 262·1 301·1 332·7 368·6
May 184·1 205·1 227·3 265·5 303·3 337·3 370·5
June 186·2 206·0 229·0 269·4 306·0 340·3 374·9
July 187·3 207·2 232·0 273·3 308·7 343·2 377·8
August 188·7 209·2 234·2 275·0 311·4 345·3 381·6
September 190·2 210·7 237·2 277·6 315·0 347·0 384·3
October 191·1 212·6 239·5 280·1 317·6 348·4 386·0
November 191·5 216·0 242·4 283·0 320·1 351·4 387·9
December 194·2 217·6 245·1 285·4 321·5 353·1 391·3

1996 1997 1998 1999 2000 2001 2002

January 395·5 431·6 464·8 495·1 530·8 581·4 613·1
February 398·1 435·5 466·0 499·7 536·8 582·1 613·9
March 402·2 439·7 469·9 504·3 538·8 587·2 622·1
April 405·6 443·6 476·0 507·5 545·5 589·9 629·6
May 408·8 448·7 477·9 509·2 548·9 596·9 631·3
June 413·9 451·2 478·9 513·3 552·0 598·6 634·0
July 417·0 454·2 481·0 514·3 568·6 601·3 654·0
August 419·1 455·1 484·0 517·7 569·8 603·0 662·4
September 421·6 457·6 484·4 521·1 571·4 605·4 666·7
October 423·8 459·7 486·9 523·5 576·0 608·5 670·7
November 426·0 460·9 489·5 524·0 577·5 610·2 677·6
December 428·7 461·9 491·2 525·2 578·7 611·0 679·3

2003 2004 2005 2006

January 683·2 721·3 779·2 877·4
February 689·0 728·6 781·7 884·0
March 692·2 735·8 783·8 891·5
April 701·4 743·6 789·4 901·4
May 705·8 754·0 801·4 909·6
June 715·0 721·3 813·2 914·9
July 714·5 758·9 821·2 920·2
August 698·0 761·3 834·8 925·6
September 707·0 765·7 842·3 931·0
October 715·9 770·7 857·1 936·4
November 717·9 772·4 859·7 941·9
December 718·9 774·9 863·1

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 ALL FIVE questions are compulsory and MUST be attempted
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1 Benjamin Mmolowa is a full time cattle farmer having retired from the civil service some years ago.
Farming
His farming results, before adjusting for stock, for the year ended 30 June 2007 are:
P P
Cattle sales 1,270,000
Cattle purchases 972,000
Farming capital expenditure 164,000
Vehicle expenses 58,000
Drawings 72,000
Purchase of a tractor 82,000
Purchase of a generator 25,000
Sundry farming expenses 50,000 (1,423,000)
–––––––– –––––––––––
Net loss (153,000)
–––––––––––
Other information relating to farming:
1. The opening stock of cattle was 1,050 head and the closing stock was 850 head. The standard tax value for
cattle is P140 per head.
2. Benjamin received P20,000 from the government in respect of drought relief.
3. The farming loss brought forward was P110,000.
4. Asset costs and capital allowances brought forward are:
Furniture Plant Vehicles
P P P
Cost 40,000 75,000 228,000
Capital allowances (18,000) (73,000) (156,000)
5. During the year a vehicle costing P98,000 was sold for P28,000. Capital allowances on this vehicle amounted
to P63,000.
6. During the year, Benjamin used 25 head of cattle costing P24,000 (in total) for his own consumption.
Other income
1. Benjamin received a government pension amounting to P163,000, from which PAYE of P15,000 had been
deducted.
2. Benjamin received bank interest of P28,000, from which tax of P2,000 had been withheld.

Required:
In respect of Benjamin Mmolowa for the tax year ended 30 June 2007:
(a) Calculate his chargeable income/loss from farming. (14 marks)

(b) Calculate his taxable income, clearly indicating any losses to be carried forward. (6 marks)

(c) Calculate his tax payable. (3 marks)

(d) State the date by which the tax in (c) above, if any, should be paid. (2 marks)

(25 marks)

5 [P.T.O.
 2 Moshupa Engineering (Proprietary) Ltd is a company engaged in the manufacture of motor parts which has been
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recognised as a manufacturer for tax purposes. The company’s results for the financial year ended 30 June 2007 are
as follows:
Note P P
Sales 16,000,000
Cost of sales (12,000,000)
–––––––––––
Gross profit 4,000,000
Profit on the sale of assets 2,500,000
Rents received 100,000
–––––––––––
6,600,000
Expenditure
Administrative costs 1,000,000
Depreciation 750,000
Repairs and maintenance 150,000
Pension fund contributions 1 100,000
Purchase of contract 2 250,000
Goodwill written off 500,000 (2,750,000)
–––––––––– –––––––––––
Net profit 3,850,000
–––––––––––
Notes:
1. The pension fund contributions were made to an unapproved pension fund.
2. The payment of P250,000 was made to the liquidator of an insolvent company to take-over the balance of a
supply contract for motor parts.
Additional information:
1. The profit on the sale of the assets was calculated as follows:
Factory Plant and
building machinery Total
P P P
Cost 1,200,000 850,000 2,050,000
Depreciation (150,000) (600,000) (750,000)
–––––––––– ––––––––– ––––––––––
Net book value 1,050,000 250,000 1,300,000
Sale proceeds 3,000,000 800,000 3,800,000
–––––––––– ––––––––– ––––––––––
Profit on sale 1,950,000 550,000 2,500,000
–––––––––– ––––––––– ––––––––––
2. Factory buildings
The factory building disposed of was no longer suitable for the purposes of Moshupa Engineering. It was sold in
November 2006.
The capital allowances claimed on this building consisted of an initial allowance of P300,000 and annual
allowances of P50,000.
The cost of the property was made up as follows:
P
Original cost May 2003 700,000
Addition October 2004 300,000
Addition January 2005 200,000
––––––––––
1,200,000
––––––––––
In December 2006 the company purchased, and occupied, another factory building which cost P3,200,000.

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 3. Plant and machinery
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Capital allowances claimed in respect of the plant and machinery that was sold amounted to P550,000. The
plant was not replaced. The cost of the remaining plant was P900,000.
4. Dividends
In February 2007 the company paid a dividend of P2,300,000; the ACT brought forward at that date was
P250,000. In June 2007 a further dividend of P500,000 was paid.
5. Self assessment tax (SAT)
The following SAT payments had been made during the year:
P
30 September 2006 100,000
31 December 2006 50,000
31 March 2007 50,000
30 June 2007 50,000
––––––––
250,000
––––––––

Required:

In respect of Moshupa Engineering Ltd (Proprietary) Ltd for the 2007 tax year:
(a) Calculate the gross disposal gain arising on the sale of the factory building. (5 marks)

(b) Calculate the balancing charge arising on the sale of the factory building and the plant and machinery.
(3 marks)

(c) Calculate the capital allowances available, assuming that the maximum amount of rollover relief will be
claimed. (5 marks)

(d) Calculate the taxable income and the net tax payable. (13 marks)

(e) Comment on the value added tax (VAT) implications of the sale of the factory building, if prior to its sale a
rental to a third party had been secured. (4 marks)

(30 marks)

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 3 The following capital transactions took place in Morula Enterprises (Proprietary) Ltd during the year ended 30 June
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2007.
Immoveable Properties
1. In September 2006 the company sold an industrial property for P4,850,000. The original cost of the property
was made up as follows:
P
February 1988 – cost of land 100,000
May 1994 – cost of buildings 480,000
November 2001 – cost of extensions 370,000
––––––––
950,000
––––––––
2. In May 2007 the company purchased a residential property for P1,450,000, which will be occupied by the
company’s major shareholder.
Shares
1. In July 2006 the company sold its entire shareholding in Furniture Stores (Pty) Ltd for P250,000. The original
cost of these shares in January 1998 was P400,000, but due to the fact that Furniture Stores (Pty) Ltd has been
making losses for some years it was decided to divest of the entire investment.
2. The company purchased shares in Central Properties (Pty) Ltd for P780,000 in December 2006.
3. In March 2007 the company sold 300 of its holding of 1,500 shares in Shamrock Holdings (Pty) Ltd for
P750,000. The cost of the holding was made up as follows:
P
June 1999 – 200 shares 220,000
October 1999 – 600 shares 740,000
February 2004 – 700 shares 1,140,000
Other information
1. The chargeable income of the company for the year ended 30 June 2007, before taking account of the above
transactions, was P3,600,000.
2. Capital allowances claimed on the industrial property at the time of sale amounted to P200,000.
3. The company has a capital loss brought forward from the 2006 tax year amounting to P52,314.

Required:
(a) Calculate the net disposal gains or losses arising on the sale by Morula Enterprises (Proprietary) Ltd of the
immoveable property and shares in the year ended 30 June 2007. (8 marks)

(b) State, giving reasons, whether or not Morula Enterprises (Proprietary) Ltd will be able to claim rollover relief
in respect of the gain on the industrial property. (4 marks)

(c) Calculate the taxable income of Morula Enterprises (Proprietary) Ltd for the tax year ended 30 June 2007.
(3 marks)

(15 marks)

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 4 (a) For the purposes of value added tax (VAT), identify and briefly explain the three different types of output
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supplies. (6 marks)

(b) The following information relates to Waterwell Enterprises (Proprietary) Limited in respect of its trading for the
value added tax (VAT) period ended 28 February 2007:
P
Income
Sales in Botswana 2,436,022
Sales exported from Botswana 288,604
Interest received 72,109
Discount received 33,759
Expenses
Purchases of materials 1,783,286
Purchase of a truck 281,011
Extensions to an existing factory building 203,892
Factory electricity 37,561
Entertainment 17,042
Salaries and wages 462,811
Residential rent 27,435
All the above amounts are exclusive of VAT where applicable.

Required :
Prepare the VAT return for Waterwell Enterprises (Proprietary) Ltd for the period ended 28 February 2007.
(9 marks)

(15 marks)

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 5 Julius Tidimane is an employee of Bogoya Construction (Proprietary) Ltd. However, he also owns a cattle farm, a
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photographic business and rents out a property. At the beginning of the tax year, on 1 July 2005 his tax losses brought
forward were:
P
Farming 242,893
Photographic business 37,862
For the year ended 30 June 2006 Julius returned the following results for tax purposes:
P
Employment income 280,000
Farming chargeable income 72,441
Photographic business chargeable income 20,068
Capital loss on sale of farming land (121,783)
Rental loss (4,165)
Details of Julius’ employment income and business income for the year ended 30 June 2007 are:
P
Employment income 293,200
Dividend income 6,872
Rental income 12,969
Farming loss (124,638)
Photographic business loss (15,812)
Capital gain on the sale of shares 86,778

Required:

(a) Calculate the tax losses to be carried forward by Julius Tidimane at 30 June 2006 and 30 June 2007,
respectively. (9 marks)

(b) Calculate Julius Tidimane’s taxable income for the tax year ended 30 June 2007. (5 marks)

(c) State the length of time that trading and rental losses can be carried forward. (1 mark)

(15 marks)

End of Question Paper

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