2. 1
SECTION A
ANSWER BOTH QUESTIONS IN THIS SECTION
1. (a) Taxable income for Lilongwe Limited
Profit before tax
Add back:
Depreciation
Depreciation production
Bad debts
Provision for bonuses
Exchange loss
Provision for gratuities
Staff relief fund
Maintenance – buildings
Maintenance – machinery
Traffic fines
Fringe benefits tax
Formation expenses
Less: Capital Allowances
Taxable income
K’000
44,000
15,000
645
880
250
920
1,850
1,300
650
250
1,950
1,250
K’000
97,400
68,945
166,345
(18,700)
______
147,645
(b) Taxable income for Lilongwe Limited
Taxable income 245,000
Rate 30%
245,000,000 x 30%
= K73,500,000
(c) (i) Tax on the dividend declared by the subsidiary company:
Net dividend received
Gross dividend
Gross dividend
K
= 2,700,000
= 2,700 x 100
90
= 3,000,000
Tax therefore = 3,000,000 – 2,700,000 = K300,000
3. 2
(ii) Tax on the dividend paid by Lilongwe Ltd:
Gross dividend declared
Less: Net dividend received from
Subsidiary company
Balance
Tax thereon @ 10%
K
= 7,200,000
= 2,700,000
4,500,000
= 450,000
(iii) Tax on dividends is not recoverable:
The tax paid is final
Dividends cannot be included in the return as they are
not taxable in the hands of the recipient.
(d) (i) The register contains complete copies of notices of assessment and these
are filed in the office of the Commissioner.
(ii) Every taxpayer shall be entitled to copies certified by or on behalf of the
Commissioner of his own notice of assessment. The Auditor
General or his appointee may also have access to the register.
(iii) The information of the taxpayer is confidential and not open to the public
(e) Because the rate of corporation tax for a company incorporated in Malawi is
different from the rate of tax for a company incorporated outside Malawi.
4. 3
2. (a) Capital Allowances for Jatropha Limited
TWDV 1/1/2013
Additions
Disposals
Investment Allowance
Initial Allowance
Annual Allowance
Factory &
Buildings
K’000
15,250
6,500
-___
21,750
(6,500)
-
(762.5)
14,487.5
Plant &
Machinery
K’000
14,000
8,800
(5,250)
17,550
(3,520)
-
(1,755)
12,275
Motor
vehicles
Commercial
K’000
78,000
45,000
(1,750)
121,250
(9,000)
(24,250)
88,000
Motor
vehicles
Saloons
K’000
12,500
18,000
_____
30,500
-
(6,100)
24,400
Furniture
& Fittings
K’000
12,430
-
(3,500)
8,930
-
(893)
8,037
Computers
K’000
9,250
-
______
9,250
-
(3,700)1
5,550
Notes
Computation of amount of addition with storeroom
K
TWDV of factory building 15,250
Addition 6,500
21,750
Cost of storeroom 1,500
% of total value 1500_ x 100 = 7% = less than 20%
21,750
Therefore the full addition is claimable as an industrial building.
(b) Foreign exchange gain/loss
Cost of goods £375,000
Formula given ar1 – ar2
1st
payment gain or loss June 2013
($75,000 x 450) – ($75,000 x 500)
= K33,750,000 – K37,500,000
Loss = (K3,750,000)
2nd
payment gain or loss October 2013
($150,000 x 450) – (150,000 x 550)
= K67,500,000 – K82,500,000
Loss = (K15,000,000)
5. 4
3rd
payment gain or loss December 2013
($150,000 x 450) – ($150,000 x 400)
= K67,500,000 – K60,000,000
Gain = K7,500,000
SECTION B
ANSWER THREE QUESTIONS ONLY FROM THIS SECTION
3. (a) A person is registrable as taxable for purposes of Value Added Tax (VAT) Act
where:
(i) such person makes taxable supply of goods or services.
(ii) the business turnover is or exceeds K10 million.
Any business which satisfies criterion (i) above and whose business turnover is
below K10 million mark stipulated in (ii) above may apply for voluntary
registration.
Section 11(i) – VAT Act
(b) The Commissioner General will not register any person under the voluntary
registration provisions of the VAT Act if:
(i) the Commissioner General is satisfied that the person applying for
voluntary registration has no fixed place of business or
(ii) the Commissioner General has reasonable ground to believe that:
the person will not keep proper accounting records relating to any
business activity carried out by that person or
the person will not submit regular and reliable returns required under
the VAT Act; or
the person is not a fit and proper person to be registered.
6. 5
(c) Calculation of VAT paid on business related
(i) Expenditure
Expenditure
Security
Legal
Stationery
Office furniture
Office rentals
Electricity
Salaries
Water
Postal services
Gross Amount
K
291,250
186,400
87,375
436,875
495,125
80,385
6,250,000
125,000
252,200
Total
N/A
N/A
N/A
VAT
K
41,250
26,400
12,375
61,875
70,125
11,385
-
-
-
______
223,410
(ii) VAT on sales
Sale Type
Local sales
Export sales
Net
K
9,600,000
4,300,000
13,900,000
VAT
K
1,584,000
-___
1,584,000
Total
K
11,184,000
4,300,000
15,484,000
(iii) Calculation of net VAT payable to MRA
K
Value of output VAT on sales 1,584,000
Less input VAT on expenditure 223,410
Net VAT payable to MRA 1,360,590
7. 6
(d) The conditions for taxpayers who are not motor dealer
The taxable person must:
- be in the business of hiring of motor vehicles; or
- be in the business of selling motor vehicle spare parts; or
- use the motor vehicle or motor vehicle spare parts wholly, exclusively
and necessarily in his or her business.
Section 30(5) of the VAT Act
4. (a) (i) According to section 94A of the Taxation Act:
every employer other than government
who provides fringe benefits to any of his employees
shall be liable to pay fringe benefits tax
on the total taxable value of such fringe benefit
at the rate specified from time to time.
(ii) The fringe benefits tax can be reduced by:
not providing fringe benefits
letting employees contribute towards the benefits provided
paying school fees direct to institutions
allocating housing accommodation belonging to employer
8. 7
(b) Chisitu Limited Computation of Fringe Benefits Tax
1. Housing accommodation – property owned by employer
Annual rental values
10% of annual salary
Taxable value is the
greater of (a) and (b) above
50% thereon – property is
owned by employer
General
Manager
K’000
5,400
28,000 x 10%
= 2,800
5,400
2,700
Chief
Accountant
K’000
3,600
18,000 x 10%
1,800
3,600
1,800
Production
Manager
K’000
3,600
15,000 x 10%
1,500
3,600
1,800
H
R
M
1
2. Motor vehicles
Cost of vehicles
15% thereon
Annual taxable value
45,000
45,000 x 15%
6,750
6,750
25,000
25,000 x 15%
3,750
3,750
25,000
25,000 x 15%
3,750
3,750
2
2
3. School fees
Paid direct to institutions
50% thereon
Taxable value
2,700
1,350
1,350
1,500
750
750
-
-
-
4. Garden boys No benefit as amount is taxed in hands of
employee ½
5. Watchman No benefit as housing is property is owned
by employer ½
6. Cook full cost 360 - 180
180 -
7. DSTV subscription 420 - 420
- 420
Total annual taxable values 11,580 6300 6,150
5,130 5,970
Total for all employees 35,130
Annual total taxable values : 35,130
For one quarter = 35,130 ÷ 4 = 8,782.5
FBT thereon at 30% ½ = 2,634.75
= 2,634,750
9. 8
5. (a) (i) Direct taxes are assessed on income or property (wealth).
Indirect taxes are taxes that are levied on goods and services.
(ii) Examples of direct taxes are - income tax
- property tax
Examples of indirect taxes are - value added tax
- customs duty
- excise tax
(b) (i) Advice to taxpayer – withholding tax on rentals has not been correctly
operated.
Withholding tax on rent at 15% = 1520000 x 15% = 228,000
Withholding tax deducted = 136,000
Under withheld withholding tax (underdeduction) 92,000
(ii) Penalty for incorrect accounting for withholding tax
- Failure to deduct withholding tax makes one personally liable to
pay the tax which was not withheld plus 20% additions as it is paid
late.
- Failure to operate a withholding tax scheme makes one guilty of an
offence punishable by a fine of K1,000.
(iii) Income Tax Computation
Rent
Salary
Less:
Rates
Subscription
K’000
1,520
11,500
13,020
184
175 ½
12,661
10. 9
Tax payable
1st
240,000 @ 0%
Next 60,000 @ 15%
Balance 12,361,000 @ 30%
Tax payable
Less : Withholding tax 136,000
PAYE tax 3,351,000
Tax payable
Tax on estimated assessment
Tax over estimated
K’000
-
9,000
3,708,300
3,717,300
3,717,300
3,487,000
230,300
3,875,500
3,645,200
6. (a) 1 – to encourage investment and private sector growth.
2 – to promote exports and earn foreign exchange thereby improve the balance
of payment position.
3 – to compensate for loss of value of local currency due to devaluations or
inflation.
4 – to discourage consumption of undesirable products.
5 – to ensure that all vehicles are contributing to the road fund and ease
congestion at the road traffic offices.
(b) Conditions for deductibility of expenses under Section 28:
Expenditure and losses must not be capital in nature
The expenditure that has been wholly incurred for the business
Those that have been exclusively incurred for the trade.
Necessary for the business or trade.
All expenditure and losses must have been incurred by the taxpayer for the
purposes of his trade or in production of the income.
(c) A capital gain is the excess of the amount realized on the disposal of a capital
asset over its basis or adjusted basis.
A capital loss is the excess of the basis or adjusted basis of a capital asset over the
amount realized on the disposal of a capital asset.
11. 10
(d) Any three circumstances below:
- transfer between spouses or former spouses.
- to a spouse from an estate of a deceased spouse.
- on disposal of an individual’s principal residence.
- capital gains realized by an individual on the disposal of personal and
domestic assets not used in connection with any trade.
- from deceased parent to a child.
(e) (i) The capital loss of K120,000 would be deductible from assessable income
since we have a realized capital gain which is more than the realized loss
in the same year.
(ii) Only K40,000 would be allowed as a deduction as there will be a
restriction on the amount deductible to the lesser of the realized capital
loss or any capital gain realized by the taxpayer.
(f) There would be no restriction if the assets attracted capital allowances and
therefore the full amount of losses would be allowed in both cases.
7. (a) (i) Double taxation.
(ii) This arises from:
- Differences in bases of taxation in different countries as some
countries use source while others use residence and other criteria when
taxing revenue.
- This can be mitigated by:
entering into double tax agreements with other countries
provisions in the Taxation Act that allow deducting foreign tax.
(b) A taxpayer may appeal to the Commissioner if he is aggrieved by:
- any assessment made upon him by the Commissioner under the Act.
- any decision of the Commissioner in relation to an assessment.
- the determination of a reduction in tax under Sections 123 and 124.
(c) A taxpayer who is aggrieved by the decision of the Commissioner may appeal to a
special arbitrator.
12. 11
The special arbitrator
- shall have the power to summon and enforce prompt attendance of
witnesses to hear and take evidence.
- where required may appoint assessors who will act solely in an advisory
capacity.
- shall ensure that proceedings are not conducted in public and shall exclude
or withdraw any persons whose attendance is considered not necessary.
- may allow the appeal and amend the assessment, decision or
determination in respect of which the appeal is made.
- may disallow the appeal.
- shall set out findings of fact and decisions on points of law in written
judgement.
- findings of fact in a judgment of the special arbitrator shall be final and
conclusive.
(d) Functions of Customs Officers:
- to receive and process monthly returns and excise remittances
- to send reminders to excise traders in arrears of payments
- to visit excise traders and verify the correctness of excise returns
- to advise the Commissioner of any irregularities or omissions by excise
traders.
(e) - transactional value method
- transactional value of similar goods
- deductive method
- fall back method
- computed value method
- identical goods method.
)
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