INSTITUTE OF CHARTERED SECRETARIES I C S A
AND ADMINISTRATORS IN ZIMBABWE INTERNATIONAL
EXAMINATION QUESTION PAPER
DATE: MAY 2013 TIME: 3 HOURS
PART: B
SUBJECT: TAXATION
INSTRUCTIONS TO CANDIDATES
This paper is based on the legislation applicable to the year of assessment ended 31
December 2011 unless stated otherwise, or where the question is specific to any year.
All FIVE questions must be attempted. Marks will be awarded for all workings.
This is an open book examination. Candidates may bring into the examination room
UNMARKED copies of Income Tax; VAT, Finance and Capital Gains Tax Act. No
adjustments to be made for revaluation.
MARK ALLOCATION
Question 1 - 30 marks
Question 2 - 33 marks
Question 3 - 10 marks
Question 4 - 15 marks
Question 5 - 12 marks
Total - 100 marks
Your examination script is the property of CIS and is not to be removed from the examination
venue.
QUESTION 1
Executive Services (Private) Limited (ESPL) is a company whose main
activity is the provision of Executive Management Services to high profile
entities based in Harare. ESPL operates from commercial premises which
are registered in the name of its wholly owned subsidiary, ES Properties
(Private) Limited (ESPPL).
On 1 January 2011 ESPL had revalued its assets for both tax and
accounting purposes.
Income Tax Value
as at 1 January
2011
US$
Goodwill 200 000
IT hardware -
Furniture and fittings -
Payroll software -
Commercial vehicles 360 000
The company also had a portfolio of listed securities valued at: 120 000
Share investment in subsidiary company - ESPPL 500 000
The company, as well as its subsidiary, is not registered for value added
tax (VAT) purposes. ESPL’s net profit before tax per its financial
statements for the financial year ended 31 December 2011 amounted to
US$875 000. The debits and credits to the income statement included
the following:
Credits US$
Turnover 2 450 000
Net bank interest 50 000
Profit on sale of assets 100 000
Debits
Depreciation 250 000
Goodwill ammortisation 20 000
Premises rental paid to subsidiary 120 000
Utility payments 60 000
Restraint of trade (note)(iii) 148 000
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Notes:
During the 2011 financial year ESPL purchased and disposed assets as
follows:
Disposals
(i) Sold IT hardware which had an opening value of US$400 000.
Sold a portion of the listed portfolio of securities which had an
opening valuation of US$50 000 for US$80 000.
Acquisitions US$
(ii) IT Hardware 600 000
New software 200 000
Mercedes Benz for use by the Finance Director 80 000
(iii) ESPL had engaged a part-time software engineer in November
2011. As part of engagement, the software engineer was paid
US$148 000 upfront as restraint of trade under which the
employee agreed not to work for any competitor of the company
for a period of three years. ESPL had not deducted any tax from
the restraint of trade payout.
(iv) ESPL had paid US$100 000 as provisional tax on 20 December
2011 but had made no other payments of corporate tax in
respect of assets on hand as at 1 January 2011.
Additional Information:
The board of ESPL resolved to acquire from ESPPL the commercial
premises which ESPL rented on 1 January 2011.
REQUIRED:
a) (i) Explain the tax implications for ESPL of the payment of the
restraint of trade. Note: you are not required to consider how the
payment would be taxed in the hands of the recipient.
[3 marks]
(ii) Outline the value added tax registration position with respect to
ESPL as well as its subsidiary, ES Properties (Private) Limited, for
the year ended 31 December 2011. Support your answer with
brief calculations as appropriate. [5 marks]
(iii) State the tax advantages, if any of the decision by ESPL, to acquire
from ES Properties (Private) Limited the commercial premises
from which they operate. [2 marks]
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b) (i) Calculate the capital gains tax payable arising from the disposal of
assets by ESPL during the year ended 31 December 2011. [3 marks]
(ii) Calculate the income tax liability of ESPL for the year ended 31
December 2011; [12 marks]
(iii) Based on the available information, calculate the outstanding
provisional tax that should have been paid by ESPL during the year
ended 31 December 2011, clearly indicating the respective due
dates. [5 marks]
[Total: 30 marks]
QUESTION 2
a) Give your understanding of the following terms in the context of the
Capital Gains Tax,
(i) “ Gross capital amount ”
(ii) Capital amount
(iii) Capital gain
(iv) Specified Asset
(v) Marketable Security
[13 marks]
b) Properties (Pvt) Ltd owns an industrial property in Bulawayo. The
company acquired the industrial building on 1 April 2009 for
US$50 000. On 15 May 2011, the Company entered into a Deed of Sale
Agreement whose terms and conditions are:
1. Total Selling Price US$97 760,
2. Deposit US$61 000 was paid upon signing of the agreement,
3. The Purchaser shall pay the remaining balance of US$36 760 in 24
equal monthly instalments of USD $1 531.66 commencing on 1 June
2011 and ending on 1 June 2013. CBR (Pvt) Ltd (CBRPL) shall pay the
seller their portion of the purchase price on satisfaction of agreed
terms and conditions,
4. 1% of selling price is payable as a Commission to CBRPL,
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5. $15 250 was paid as selling expenses and
6. All the parties to the agreement are VAT registered.
7. The building was used for business and Properties (Pvt) Ltd claimed
the maximum allowances possible.
REQUIRED:
(i) Determine VAT chargeable for each of the parties involved in the [2 marks]
transaction.
(ii) Provide advice that can minimize VAT liability in the transaction.
Support your answer by relevant legislation. [2 marks]
(iii) Determine the Gross Capital amount. [4 marks]
(iv) Determine the Capital Amount. [2 marks]
(v) Capital Gains Tax payable in the year ended 31 December 2011. [10 marks]
[Total: 33 marks]
QUESTION 3
You are employed as tax advisor at Solutions which is a Global Chartered
Accounting Firm. Solutions has a practice operating from India. The Indian
Practice of the firm has been approached by Tinka Motors Limited, a
global automobile company and they in turn require your advice on the
Zimbabwean tax implications in respect of expatriates that will be working
in Zimbabwe. You agree to provide the advice to Solutions India for a total
fee of $15 000.00.
However as per local Zimbabwe laws Solutions Zimbabwe is able to claim
the credit for direct taxes withheld in India and claim against Solutions
Zimbabwe's domestic tax liability.
In terms of the Indian tax laws, it is necessary to obtain the India tax
registration (Permanent Account Number i.e. PAN). Where the PAN is not
obtained the taxes are withheld at higher rate (i.e. at 30% instead of 10%).
In the event that Solutions Zimbabwe has not obtained the PAN, the
excess withholding tax could be refunded by the tax authorities on
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Taxation : May 2013 Page 5 of 7
application of PAN and filing return.
The finance team has confirmed that Solutions Zimbabwe does not have
PAN. Solutions Zimbabwe has taxable income of $65 000 accruing from
local operations.
REQUIRED:
a) Give advice on the indirect tax taxes payable and calculate the amount
thereof. Explain your answer. [3 marks]
b) Calculate the corporate tax payable. [7 marks]
[Total: 10 marks]
QUESTION 4
A Multi – National Telecoms Company (MNTC) has seconded some
technicians to Maxnet Zimbabwe Limited. MNTC has requested your
advice on the following aspects. Some of the employees will be entitled to
bonuses, leave pay, share options etc before they come to Zimbabwe.
Direct Tax Laws
1. Personal tax implications (i.e. individual taxation applicable to
employees working in Zimbabwe;
2. Withholding tax implications as an employee and related tax
compliance requirements;
3. Registration requirements by ZIMRA.
Advise MNTC on the above aspects with regards to the Direct Tax Laws
listed in 1 to 3. [15 marks]
QUESTION 5
Provide the threshold or limits for the following transactions:
a) VAT Invoice – minimum amount charged which does not require tax
invoice
b) VAT category c – registration limit
c) VAT refund – minimum amount for which a VAT refund will be made
d) Capital Gains assessment – amount payable or refundable
e) Salary subject to PAYE – zero rate band
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f) Exempt bonus
g) VAT Compulsory registration
h) VAT Category D – registration limit
i) Approved retrenchment package exempt portion
j) Minimum interest free loan subject to employee’s benefit tax
k) Maximum allowable pension deduction per employee
l) Exempt rental income for persons above 55 years old. [12 marks]
“End of Examination Paper”
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