“Investing in Africa’s future”

COLLEGE OF BUSINESS, PEACE, LEADERSHIP & GOVERNANCE

MAC 303: INTRODUCTION TO BUSINESS TAXATION

END OF FIRST SEMESTER EXAMINATIONS

NOVEMBER/DECEMBER 2020

MR I. RARAMI

24 HOURS

INSTRUCTIONS

Answer ONE question

The marks allocated to each question are shown at the end of the question

Show all your workings where it is required

Credit will be given for presentations that are neat, logical and
grammatically well constructed.

Use of a non-programmable calculator is permissible.

Answer all questions in

1 Answer Books provided
.
QUESTION ONE: [25 MARKS]

a). Mary Bowman once worked for Kondozi flower exporting company
in Odzani near Mutare. Mary with her vast experience is
contemplating starting a flower exporting business. She approached
you for advice regarding the Pay As You Earn (P.A.Y.E) requirements
for her ten (10) member staff.
i). Advise her on important issues she should be aware of. (4 marks)

ii). She also request your advice on what other benefit she can give to
her employees with less tax burn on them or zero. (3 marks)

b). Mr Chibharo Mutero runs a retail grocery chain business in

Mutare. He decides to employ his son, Taxman to do his books for the
business, and handle other financial matters. Mr Mutero approaches
you for advise on the best arrangement that would reduce his tax
liability without any additional tax burden on his son Taxman. What
consideration would you advise Mr Mutero to take in setting Taxman’s
remuneration level. Advise him on the maximum level of remuneration
that will result in a reduction of tax and will not result in Taxman
paying tax. (10 marks)

c) Mr Mutero later considers buying his son a car to use for his leisure
as well as his official duties. He also request your advise on how he
can do it in a way that he and his son pay the least tax. Mr Mutero is
also contemplating giving Taxman a loan to buy the car of his choice,
but subject to a limit of $15 000. Advise Mr Mutero on what to do,
supporting your advice with reasons for and against each option.
(3 marks)

d). Mr Mutero also asked you the major differences between Pay As
You Earn (P.A.Y.E) and Final Deduction System (FDS) and the
methods that he can use to calculate the tax using FDS. (5 marks)

QUESTION TWO: [25 MARKS]

a).Mrs Jean Money, who is 50 years old approaches you with regards
for her 2019 tax return. She outlines the following facts to you.

1. In 2016 she had drafted in Zimbabwe, a manuscript on her late

husband’s life as a doctor. She had taken the manuscript to Sydney,
Australia, where she was able conclude a publishing contract with
Australian publisher. The book was duly published in January 2018.

The book sold well in Australia and New Zealand but had not yet been
sold in Zimbabwe. By June 2018 royalties amounting to $300000 had
accrued to Mrs Money. As she was of the opinion that she is not
taxable in Zimbabwe on this income, she invested $10000 in a holiday

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cottage in Sydney, while $20000 was invested in the Australian Post
Office Bank.

2. By 31 December 2019 further royalties of $20000 and $100000 net

rent had accrued to her in Australia. She also received $20000
interest from the Australian Post Office Bank. Jean Money paid
Australian tax of 20 000 on her royalties in the 2019 tax year.

3. She also leases her Harare residence to a South African

International company which has agreed to pay her R5000 per month.

Explain the tax liability of the incomes mentioned above, supporting

your answer with legal precedent where possible. (8 marks)

b). Mutare Manufacturers Ltd has two warehouses situated in

different locations. One is in the same premises as his factory and it is
used for the storage of raw materials which are used in the factory.
The other is ten kilometres away and is used to store goods which
have been bought from another trader. The junior accountant thinks
the warehouses are industrial buildings and Special Initial Allowance
must be claimed.

i). Discuss whether the accountant is correct quoting the relevant

section of the Act. (5 marks)

ii). When is the special initial allowance granted on movables and

immovable used for trade? (3 marks)

c). You are the senior accountant and you are reviewing the work of
your junior accountant. State whether it is true or false and in one
sentence give your reason.

i). No benefit accrues to a tax payer where the employee purchases

groceries from the employer at cost.

ii). Where an employer advances an interest free loan to his employee

using money that the employer has borrowed from a financial
institution, no benefit arises to the employee.

iii). Where a company purchases a passenger motor vehicle for use by

the financial manager and the manager uses the car to the extent of
95% for private purposes, the company cannot be granted special
initial allowance.

iv). Where a provisional notice of assessment is raised in terms of the

Income Tax Act, the commissioner can amend it even after the expiry
of 6 years from the end of the relevant year of assessment.

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v). The commissioner does not entertain any objection which is not
delivered at his office or posted to him in sufficient time to reach him
on or before the last day appointed for lodging objection. (i.e within 30
days after the date of issue of the notice of assessment).

vi). Provision for bad debt for the previous year is added back to the
profit, while the provision for bad debts for the current year are
deducted.

vii). Income from a partnership business is taxed in the hands of the

individual partner at 25% and income earned as a salary from the
same partnership is taxed using the individual tax tables.

viii). A commercial building constructed at a growth point shall qualify

for wear and tear only in spite of an election to claim SIA by the tax
payer.

ix). All donations to charitable organisations are not allowed as

deductions in terms of section 15(2) (9 marks)

QUESTION THREE (25 MARKS)

a).Biltong Maura Company Limited has approached you to assist their

company to comply with the Value Added Tax regime in Zimbabwe.
They have asked you specifically to assist in the area of VAT Returns
and Payment of the related tax.

Required:
Advise the company on the related requirements and what is expected
of them as a VAT trader with respect to VAT returns and date of
payment of the tax. (12 marks)

(b) A person with turnover below the registrable level could apply
voluntarily to the Commissioner- General to be registered as a taxable
person.

Required:
Outline the circumstances where the Commissioner General could
refuse the request to register. (7 marks)

c). Mutero Chibharo Enterprise Limited is a dealer in rice. It buys its

rice from the Rice Masters a wholesaler and sells to retailers. It has
not over the years deducted a withholding tax on payments to its
suppliers and its management is contemplating doing so to avoid any
possible sanctions from Zimbabwe Revenue Authority. It has received
a letter from the Zimbabwe Revenue Authority to conduct a tax audit

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on its activities. Ahead of the tax audit, the management has invited
you as a Tax Consultant to come and conduct tax health check on its
operations and put things right.

Required:
Advise the Company on the withholding tax situation on payment to
its suppliers. (6 marks)

End of Paper