QUESTION ONE Raphael Mwanza and Gabriel Mwanza, aged 40, are twin brothers The following information

is available in respect of the tax year 2007/08 for both Raphael and Gabriel: Raphael Mwanza (1) Raphael is employed by Zambisa Construction plc as a manager. He is paid a gross annual salary of K240, 000,000, paid monthly at the end of each month. Throughout 2007/08 Raphael was provided with a 2000 cc petrol powered motor car which the company bought for K34, 600,000. The company paid for the motor cars maintenance including the cost of fuel for the whole year. Zambisa Construction plc has provided Raphael with living accommodation since 2005. The property was purchased in 2004 for K185, 000, 000. The company pays for the maintenance costs which amounted to K7, 800,000 for the tax year 2007/08. Raphael received the following allowances during the tax year 2007/08: K School childrens allowance 12,000,000 Telephone allowance 11,900,000 Fuel allowance 14,000,000 During 2007/08 Raphael received bank interest of K710, 800 (gross). Raphael paid NAPSA contributions of 5% of his basic salary for the tax year 2007/08. Gabriel Mwanza Gabriel is self-employed running a construction firm as a sole trader. His profit and loss account for the year ended 31 March 2008 is as follows: K000 Gross profit Depreciation Motor expenses (note 2) Property expenses (note 3) Other expenses (all allowable) Net profit
1

(2)

(3)

(4)

(5) (6)

K000 320, 105

12,425 5,400 9,600 52,680 80,105 240,000

(2)

During the year ended 31 March 2008 Gabriel drove a total of 12 000 kilometres, of which 3,000 were for private journeys. Gabriels motor car originally cost K34, 600,000, and at 1 April 2007 had a tax written down value of K27, 680,000. He does not own any other assets that qualify for capital allowances.

(3)

Gabriel purchased his business office in 2002 for K185, 000,000. He lives in a flat that is situated above the office, and one-third of the total property expenses of K9, 600,000 relate to his flat.

(4) (5)

Gabriel paid K2, 400,000 a life assurance policy with a Zambian insurance company. During 2007/08 Gabriel received dividends of K710, 800 (gross).

REQUIRED (a) Calculate for the tax year 2007/08, the income tax payable by: (i) (ii) Raphael Mwanza, and Gabriel Mwanza (7 marks) (8 marks)

(b) Explain, stating the relevant due dates, how the income tax for the tax year 2007/08 will have been paid by: (i) (ii) Raphael Mwanza, and Gabriel Mwanza (2 marks) (3 marks)
(TOTAL: 20 MARKS)

QUESTION TWO Kapata limited is in business providing property services to landlords. The company also lets out property which it owns itself, and during the year ended 31 March 2008 it let out four properties: Property A This is a freehold house that was acquired on 5 January 2007 and immediately spent K13, 200,000 on repairing the roof to make the property habitable. The property was let out from 1 April 2007 to 31 December 2007 at a gross monthly rent of K1, 500,000, payable monthly in advance .On 31 December 2007 the tenant left owing two months rent which Kapata Ltd was unable to recover. The property was not re-let before 31 March 2008. Property B This is a freehold house that is let out unfurnished. The property was let out throughout the year ended 31 March 2008 at a net monthly rent of K1, 700,000, payable three months in advance. During July 2007 Kapata Ltd spent K780 000 on replacement furniture. The company also spent K675, 000 on replacing floor tiles during September 2007. Property C This is a leasehold office building that is let out unfurnished. The property was acquired on 1 September 2007 when Kapata Ltd paid a premium of K50, 000,000 for the grant of a twentyyear lease. The property was immediately sub-let to a tenant, with Kapata Ltd receiving a premium of K20, 000,000 for the grant of a five-year lease. The company also received the net annual rent of K20, 400,000 which was payable in advance covering the year ending 31 August 2008. Property D This is a freehold house that is let out unfurnished. The property was purchased on 1 October 2007 for K180, 000,000 and was empty until 31 December 2007.During this period Kapata Ltd spent K3, 900,000 on decorating the property. The property was let out from 1 January 2008 to 31 March 2008 at a gross monthly rent of K1, 800,000 payable monthly in advance. During the period ended 31 March 2008 Kapata Ltd paid interest of K5, 200,000 in respect of the loan that was taken out to purchase this property. Insurance Kapata Ltd insured all of its rental properties at a total cost of K15, 040,000 for the year ended 31 December 2007, and K15, 280,000 for the year ended 31 December 2008. The insurance is payable annually in advance.

Other information For the year ended 31 March 2008 Kapata Ltd has taxable business profit of K84, 000,000 from its other operations. The company also received a dividend of K9, 350,000 in respect of its investments in another Zambian company.The amount shown is the actual cash amount received. REQUIRED: (a) Briefly explain the basis of assessment for property income. You are not expected to list the allowable deductions. (2 marks) (b) Calculate Kapata Ltds taxable property income for the year ended 31 March 2008. (13 marks) (c) Calculate Kapata Ltds Company Income Tax payable for the year ended 31 March 2008. (5 marks) (TOTAL: 20 MARKS) QUESTION THREE (a) Beenzu commenced trading on 1 October 2007. His forecast sales are as follows: K000 2007 October November December January February March 9,800 14,800 21,600 13,900 14,900 16,200

2008

Beenzus sales are all standard rated, and the above figures are exclusive of VAT. You sould assume that todays date is 1 November 2007. REQUIRED Explain when Beezu will be required by statute to register for VAT and what action he must then take. (6 marks) (b) Nchimunya is registered for VAT , and her sales are all standard rated. The following information relates to Nchimunyas VAT return for the month ended 30 September 2007. (1) Standard rated sales amounted to K150, 000, 000. Nchimunya offers her customers a 5% discount for prompt payment, and this discount is taken by half of the customers.
4

(2) Standard rated purchases and expenses amounted to K35 700,000. This figure includes K480, 000 for entertaining customers. (3) On 15 September 2007, Nchimunya wrote off bad debts of K2, 000,000 and K840, 000 in respect of invoices which were due for payment on 10 February and 5 May 2005 respectively. (4) On 30 September 2007 Nchimunya purchased a Motor Car at a cost of K21, 450,000 for the use of a sales person and machinery at a cost of K21, 150,000. Both these figures are inclusive of VAT. The motor car is used for both business and private mileage. Unless stated otherwise, all of the above figures are exclusive of VAT. REQUIRED Calculate the amount of VAT payable by Nchimunya for the month of September 2007 and state the due date. (10 marks) (c) Mweemba has been registered for VAT since 1996, and his sales are all standard rated. Mweemba has recently seen a downturn in his business activities and sales for the years ended 31 March 2008 and 2009 are forecast to be K160, 000,000 and 157,500,000 respectively. Both of these figures are exclusive of VAT. REQUIRED Explain why Mweemba will be permitted to voluntarily deregister for VAT and from what date deregistration will be effective. (4 marks) (TOTAL: 20 MARKS)

QUESTION FOUR (a) Explain how the tax point is generally determined for a supply of goods for value Added Tax purposes. (3 marks) (b) Explain the importance of a tax point for the purposes of value Added tax (2 marks) (c) Bowa Limited is a Zambian company that distributes cotton and other raw materials to clothing companies. The company is registered for the Value Added Tax and for the month of December 2006, the company produced the following management accounts: K000 Sales Cost of sales: Opening stock Opening stock Purchases Less closing stock Cost of sales Gross profit Less Expenses: Depreciations Bad debts written off Overheads General expenses Total expenses Net profit K000 99,950

500 62,800 63,300 (650) (62,650) 37,300 1,250 6,500 10,600 12,300 (30,650) 6,650

The following additional information is also relevant: (1) Exempt supplies taken as a proportion of total sales amount to 10%. Included in the reminder are zero rated supplies of K12, 500,000. (2) 20% of the standard rated sales were made to customers who are not registered for Value Added Tax purposes. (3) Purchases include exempt supplies whose value is K15,000,000. The reminder of the purchases are standard rated for Value Added Tax purposes. (4) 50% of the standard rated purchases were from non-value Added Tax registered suppliers.
6

(5) The bad debts were written off on the 31 December 2006. The figure consists of two invoices of K3, 250,000 each in respect of which payment was due on 1 June 2004 and on 30 September 2004. (6) The overheads are all standard rated supplies for the purposes of Value Added Tax. (7) The figure for general expenses is inclusive of Value Added Tax (VAT) and is made up of: K000 Entertaining customer who are VAT registered 2,650 Telephone bills 4,000 Diesel 5,650 Unless stated otherwise, all the above figures are VAT exclusive. REQUIRED: (i) Calculate the amount of VAT payable for the month of December 2006. (9 marks) (ii) State the latest date by which VAT for the month of December 2006 should be paid and explain the implications of paying the VAT later than that date. (3 marks) (d) Explain how making exempt supplies differs from making zero rated supplies for the purposes of VAT. (3 marks) (TOTAL: 20 MARKS)

QUESTION FIVE (a) For the purposes of determining the Value for Duty purposes for customers Duty on imported goods, there are six methods that are used. The basic method used is known at the transaction value method. REQUIRED: (i) Explain what is meant by transaction value for customs duty purposes . (1 mark) (ii) State FOUR (4) conditions that should be met in order for the transaction value method to be used. (4 marks) (iii) Describe THREE (3) other methods that may be used to value imported goods. (3 marks) (b) Mr. Twapia imported a saloon car from Singapore at a cost of $2,500. He paid insurance charges of $200 and transportation costs of $1,100. Both the insurance charges and the transportation costs cover the saloon car up to Livingstone border post. Once cleared, the registration cost for the car in Ndola has been estimated at K220,000 and the comprehensive insurance charge has been estimated at K1,500,00. The car reached Livinstone border post on 22 December 2006 and all the import taxes were paid. The Commissioner General had advised that for the period from 16 November 2006 to 31 December 2007, the exchange rate to be used was K4,560 PER $. However, the kwacha depreciated around 22 December 2005 and on that date, the exchange rate quoted in one of the Bureau De Changes was K4,650 per $. REQUIRED: (i) Calculate the Customs (Value for Duty Purposes) of the saloon car, (2 marks) (ii) Calculate the total amount of import taxes paid at Livingstone border post on the saloon car. (4 marks) (iii) State two of the document that Mr. Twapia presented at the time of importation of the motor car at the Livingstone border post .(2 marks) (c) Njamvwa Transport limited imported a 65 seater coach from Japan in January 2007 at a cost of $10,000. The company paid insurance of $1,000 and freight of $2,100. Other incidental costs paid by the company were $1,500. The coach arrived at Chirundu boarder post on 14 January 2007 and all import taxes were paid by the company on that date. The Commissioner General provided an exchange rate of K4, 580 per $. There was no other foreign exchange rate available at the time. REQUIRED: (i) Calculate the Customs Value (Value for Duty Purposes) of the Coach, (2 marks) (ii) Calculate the import taxes that were paid by Njamvwa Limited at Chirundu boarder (2 marks) (TOTAL: 20 MARKS)
8

QUESTION SIX (a) The basic of assessment for emoluments from employment is the actual receipt basis. REQUIRED: Explain the receipt basis as it applies to the taxation of emolument from employment. (4 marks) (b) Josephat had been employed on a three-year non-renewable contract that expired on 31 December 2007. His annual basic salary for each year he worked had been as follows: K Year from 1 January to December 2005 144,000,000 Year from 1 January to 31 December 2006 Year from 1 January to 31 December 156,000,000 168,000,000

He had also been entitled to a servants allowance of K400, 000 per month as well as housing allowance of K1, 500,000 per month. His conditions of services provided for an end of contract gratuity at the rate of 25% of her cumulative basic pay for the three-year period. REQUIRED Calculate the actual amount of income tax paid by Josephat for the tax year 2007/08. You should ignore NAPSA contributions when answering this part of the question (12 marks) (c) Value Added Tax registered traders must take note of the tax point in respect of the all supplies that they make. REQUIRED: (i) Explain what a tax point is and state how it is normally determined for a supply of goods. (2 marks) (ii) Explain why the tax point is important for Value Added Tax purposes. (2 marks) (TOTAL: 20 MARKS)

QUESTION SEVEN (a) Value Added Tax is chargeable on taxable supplies made by a Value Added Tax registered trader. Required: Explain what is meant by the following in the context of Value Added Tax: (i) Value Added Tax registered trader, (2 marks) (ii) Taxable supplies, clearly explaining the two types of taxable supplies, (2 marks) (iii) Exempt supplies, (1 mark) (b) Value Added Tax is either input tax or output tax in the hands of a Value Added Tax registered trader. Required: Explain what is meant by input tax and output tax. (2 marks) (c) State the treatment of input tax where the supplies on which it was incurred were used to make: (i) Only taxable supplies, (1 mark) (ii) Only exempt supplies, and (1 mark) (iii) A mixture of taxable supplies and exempt supplies. (3 marks) (d) Describe the relief that is available to a Value Added Tax registered trader who writes off a bad debt and explain the circumstances under which this relief is available. (3 marks) Explain: (i) How the tax point is normally determined for Value Added Tax purposes, (1 mark) (ii) The importance of the tax point for the purposes of Value Added Tax (2 mark) (iii) How the tax point may be determined for continuous supplies of services. (1 mark)

10

11