This document contains instructions for the Public Accountants Examination Council of Malawi 2012 Examinations Accounting Technician Programme Paper TC 10(B): Taxation. It outlines that the paper contains 7 questions split into two sections, with Section A containing two questions to be answered and Section B containing three questions to choose from. It provides information on time allowed, use of calculators, and tables provided. It instructs candidates not to open the paper until instructed by the invigilator.

1. EXAMINATION NO.___________________
THE PUBLIC ACCOUNTANTS EXAMINATION
COUNCIL OF MALAWI
2012 EXAMINATIONS
ACCOUNTING TECHNICIAN PROGRAMME
PAPER TC 10(B): TAXATION
WEDNESDAY 5 DECEMBER 2012 TIME ALLOWED: 3 HOURS
9.00 AM - 12.00 NOON
INSTRUCTIONS:
1. You are allowed 15 minutes reading time before the examination begins during
which you should read the question paper and, if you wish, make annotations on the
question paper. However, you are not allowed, under any circumstances, to
open the answer book and start writing or use your calculator during this reading
time.
2. Number of questions on paper – 7.
3. The paper is divided into TWO Sections, A and B. BOTH questions to be
answered in Section A and ANY THREE from Section B.
4. Each question carries 20 marks.
5. Use of non-programmable calculators is allowed.
6. You are provided with the following:
(i) A set of tables containing rates of tax on taxable income (Table 1).
(ii) Rates of capital allowances (Table 2).
(iii) Penalty rates for underpaid provisional tax (Table 3).
7. Begin each answer on a fresh page.
8. DO NOT OPEN THIS PAPER UNTIL YOU ARE INSTRUCTED BY
THE INVIGILATOR.
This question paper contains 8 pages
This question paper must not be removed from the examination hall.

2. 1
SECTION A
ANSWER BOTH QUESTIONS IN THIS SECTION
1. (a) Mention and briefly describe each of the three main principles of a rational
tax system. 6 Marks
(b) State two merits and two demerits of a progressive tax system. 4 Marks
(c) Madengu Limited is a manufacturer and the tax written down values of its
business assets as at 1 July 2011, together with the agreed rates for annual
allowances, are given below.
Item
Factory building
Plant and machinery
Motor vehicles
Furniture and fittings
Tax written down value
K’000
9,000
6,200
4,100
1,200
Rate of annual allowance
5%
10%
20%
10%
During the financial year to 30 June 2012 the following transactions were
recorded:
Fencing
Plant and Machinery
Motor vehicles
Furniture and fittings
A fence to protect the factory building was
erected at a cost of K1,650,000.
Some machinery, whose tax written down value
as at 1 July 2011 was K920,000, was sold at
K450,000.
Other machinery which had to be replaced
was sold at K2,500,000 resulting in a
capital loss of K320,000. New replacement
machinery was acquired at a cost of K2,400,000.
Two motor vehicles were acquired as follows:
one saloon at a cost of K4,200,000 and a double
cabin pick-up at K9,000,000.
Additional furniture was acquired at a cost of
K960,000.
Required:
Calculate the capital allowances available to Madengu Limited for the
financial year to 30 June 2012. 10 Marks
(TOTAL: 20 MARKS)
Continued/……

3. 2
2. (a) (i) Define the term ‘withholding tax’. 1 Mark
(ii) State four benefits of withholding tax to tax authorities and two
benefits to the taxpayer. 3 Marks
(iii) Apart from salary, mention five other types of receipts which are
subject to withholding tax. 2½ Marks
(b) An individual taxpayer produced the following information for the year to
30 June 2012 and requires assistance from you to enable him submit a return
of income to the Malawi Revenue Authority.
Profit and loss account for the year to 30/6/2012
Turnover
Add: Sundry income
Less: Depreciation
Salaries
Legal costs
Motor vehicle expenses
General expenses
Fringe benefits tax
Repairs and maintenance
Accountancy services
Bad and doubtful debts
Rent payable
Travel costs
Professional fees
Profit before tax
Note
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
K’000
460
2,500
80
220
150
315
450
90
400
180
210
120
K’000
6,450
150
6,600
5,175
1,425
Notes
(1) The taxpayer is a general supplier.
(2) Sundry income : K150,000 was
made up of the following:
Proceeds from sale of gift
Rental income (net of WHT)
Bank interest (gross)
K
35,000
85,000
30,000
150,000

4. 3
(3)
(4)
(5)
(6)
(7)
(8)
(9)
Legal costs : K80,000 were in respect of the following:
Debt collection
New lease agreement
Fine for sale of expired goods
General expenses : K150,000
Include:
Donations to local churches
Office refreshments
School fees for own children
Repairs and maintenance : K450,000
Decoration of office reception area
Computer maintenance
Repairing air conditioner at taxpayer’s residence
Bad and doubtful debts : K400,000 were arrived at as follows:
Bad debts written off
General provision
Specific provision
Less: recoveries of debts previously written off
and allowed for tax purposes.
Rent payable : K180,000
Includes K75,000 in respect of the taxpayer’s residence.
No portion of his residence was used for business purposes
during the year.
Travel costs : K210,000
Include K90,000 to enable taxpayer’s wife travel to South
Africa for family shopping
Professional fees : K120,000
Revaluation of plant and machinery
Subscription to the Malawi Chamber of Commerce
Taxpayer’s child June ACCA subscription
35,000
15,000
30,000
80,000
70,000
50,000
30,000
150,000
150,000
150,000
150,000
450,000
250,000
150,000
200,000
600,000
200,000
400,000
45,000
55,000
20,000
120,000
(10) Capital allowances agreed with the Malawi Revenue Authority for the
year was K1,900,000.00.
Required:
Compute the taxpayer’s taxable income for the year ended 30 June 2012.
13½ Marks
(TOTAL: 20 MARKS)
Continued/……

5. 4
SECTION B
ANSWER THREE QUESTIONS ONLY FROM THIS SECTION
3. (a) Define the term ‘wife’s earned income’ as stipulated by the Taxation Act.
4 Marks
(b) State the situations under which the Commissioner may estimate the taxable
income or assessed loss of any taxpayer. 3 Marks
(c) Mr Zondaninge, a taxpayer, failed to produce a return of income in the year to
30 June 2011. As such, the tax authorities gave him an estimated assessment
and was asked to pay K755,200. Since no information had been provided, no
credit for advance taxes paid was given.
The taxpayer is asking for your assistance in contesting this assessment and
has furnished you with the following information:
(1) A PAYE certificate showing K2,300,000 as total salary and K641,400
as PAYE deducted for the year under review.
(2) A statement that during the year under review, the taxpayer received
rentals amounting to K780,000. City rates of K14,000 and repairs of
K26,000 were the only expenditures incurred against the rental
income.
(3) Withholding tax amounting to K46,000 was recovered from the rental
income in (2) above.
(4) Evidence of payment of K59,000 and K75,000 as professional
subscriptions and donations to approved organisations was produced.
These have been allowed for tax purposes in the past.
Required:
(i) Advise the taxpayer whether or not withholding tax on rentals has
been correctly operated by the taxpayer’s tenant. If not, state the
consequences that are likely to follow on both the operator and the
taxpayer. 5 Marks
(ii) State the disadvantages resulting from an under deduction of PAYE
tax by an employer. 1 Mark
(iii) On the basis that withholding tax and PAYE schemes that were
correctly operated, calculate and advise the taxpayer, the net amount of
tax payable by him. Indicate by what amount the tax on the estimated
assessment will be reduced or how much additional tax will need to be
paid. 7 Marks
(TOTAL: 20 MARKS)
Continued/……

6. 5
4. (a) State four circumstances under which an individual taxpayer may be
exempted from paying provisional tax. 4 Marks
(b) An original notice of assessment for the tax year to June 2011 which was
issued to a corporate taxpayer had the following details:
K’000
Tax charged at 30% of taxable income 3,600
Add 30% penalty on underpaid provisional tax 720
4,320
An appeal was lodged against this original assessment and resulted in an
amended assessment being issued. Excluding penalties, the basic tax
discharged amounted to K620,000.
Required:
Calculate:
(i) the amount of taxable income in the original assessment. 2 Marks
(ii) the amount of provisional tax paid by the taxpayer for the year under
review. 3½ Marks
(iii) the amount of penalty for the underpaid provisional tax in the
amended notice of assessment, using the table provided. 6 Marks
(c) A Malawian businessman imported trade goods whose value was $10,000 in
January 2011. On the day of the initial transaction, the rate of exchange was
$1 to K165. Payment for the goods was made in June 2011 and on the day of
settlement, the rate of exchange was $1 to K158.
Required:
Using the formula provided in the Taxation Act, calculate the exchange gain
or loss realized on the day of the payment for the goods. 4½ Marks
(TOTAL: 20 MARKS)
Continued/……

7. 6
5. (a) (i) How are the taxable values for housing accommodation under the
Taxation Act (Fringe Benefits Tax) (information and payment)
determined? 6 Marks
(ii) Mention the penalty for failure to register or for delaying in the
payment of fringe benefits tax, according to the regulation. 1 Mark
(iii) When is the fringe benefits tax due for payment to the Malawi
Revenue Authority? 1 Mark
(iv) Mr Chikho who was working as marketing manager for Mange
Limited in the year to 30 June 2011 received a salary of K8,500,000
per annum payable monthly. He worked for a full year. Mange
Limited also provided the following benefits:
(1) A motor vehicle with unrestricted use which was acquired at a cost
of K7,900,000.
(2) A fully furnished house rented at a cost of K70,000 per month.
(3) School fees for his two children amounting to K350,000 per term
for both children payable to Mr Chikho together with his salary.
(4) Water and electricity paid to the providers at a total cost of
K25,000 monthly.
(5) A gardener, cook and watchman at K12,000, K15,000, K10,000
per month respectively.
Required:
Calculate the total annual fringe benefits tax payable. 8 Marks
(b) You have been approached by a group of local community leaders who are
planning to form a club through which they want to channel community
initiatives. As they are not aware of the taxation consequences of running a
club, they have asked for a briefing on the types of clubs and their direct
taxation treatment.
Required:
Mention two types of clubs and their taxation treatment under the information
and benefit of the community leaders regulations. 4 Marks
(TOTAL : 20 MARKS)
Continued/……

8. 7
6. (a) Define the following terms:
(i) Customs duty;
(ii) Tax period in relation to value added tax;
(iii) Input value added tax;
(iv) Output value added tax. 4 Marks
(b) In relation to value added tax:
(i) When is the time of supply (taxpoint) of goods and services for value
added tax? 4 Marks
(ii) What business records should a registered taxpayer keep? 2 Marks
(c) Amos Joshua, a business person registered for VAT, imported a consignment
of dutiable goods whose value for customs purposes was £2500. The
following information is also provided:
Rate for duty applicable 35%
Rate for VAT applicable 16.5%
Exchange rate £1 = K270
Required:
Calculate:
(i) the total value of duty and VAT payable by Amos Joshua on the
imported consignment of goods. 4 Marks
(ii) the selling price of the consignment if the business puts on a 50%
mark up. 3 Marks
(d) How does liability to non-resident tax arise and at what rate is the tax
charged? 3 Marks
(TOTAL: 20 MARKS)
Continued/……

9. 8
7. (a) Section 6 of the Taxation Act stipulates the rule of secrecy and penalties for
failure to observe secrecy.
Required:
(i) State the penalties for failure to observe secrecy. 3 Marks
(ii) Highlight any three main exceptions to this rule. 2½ Marks
(b) Petro and Ludia are partners in an unincoporated general supplier business
operating in Malawi. Their partnership accounts for the year to 30 June 2011
showed the following:
(1) Profits were shared equally between the two partners and these
amounted to K1,450,000.
(2) The share of profits in (1) above was calculated after Petro and Ludia
had drawn salaries of K450,000 and K320,000 respectively during the
year under review.
(3) The share of profit in (1) above was also net of interest on capital of
K65,000 for Petro and K45,000 for Ludia and also a total depreciation
of K125,000.
(4) Ludia received a rental income of K260,000 from his other house in
Chilobwe in the year under review.
(5) All other expenses were allowable for tax purposes.
Required:
Calculate:
(i) Ludia’s taxable income and the income tax thereon. 8½ Marks
(ii) the tax that would have been payable had the business been operated
by a sole trader. 3 Marks
(c) State three situations where a foreign exchange gain or loss arises. 4 Marks
(TOTAL: 20 MARKS)
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