Paper F6 (ZWE)

Fundamentals Level – Skills Module

Taxation
(Zimbabwe)
Thursday 7 December 2017

Time allowed: 3 hours 15 minutes

This question paper is divided into two sections:

Section A – A
 LL 15 questions are compulsory and MUST be attempted

Section B – ALL
 SIX questions are compulsory and MUST be attempted

Tax rates and allowances are on pages 2–4.

Do NOT open this question paper until instructed by the supervisor.

Do NOT record any of your answers on the question paper.

This question paper must not be removed from the examination hall.

The Association of
Chartered Certified
Accountants
SUPPLEMENTARY INSTRUCTIONS

1. Calculations and workings need only be made to the nearest US$1, unless directed otherwise.
2. All apportionments should be made to the nearest month.
3. All workings should be shown in Section B.

TAX RATES AND ALLOWANCES

The following tax rates and allowances are to be used when answering the questions.

Tax rates – Individuals employment income

Year ended 31 December 2016
Taxable Rate Amount Cumulative income
income band of tax within band tax liability
US$ % US$ US$
Up to 3 600 0 3 600 0
   3 601 to 18 000 20 14 400 2 880
  18 001 to 36 000 25 18 000 7 380
  36 001 to 60 000 30 24 000 14 580
  60 001 to 120 000 35 60 000 35 580
120 001 to 180 000 40 60 000 59 580
180 001 to 240 000 45 60 000 86 580
240 001 and over 50

NB. The AIDS levy of 3% is chargeable on income tax payable, after deducting credits.

Allowable deductions year ended 31 December 2016

Pension fund contribution ceilings
US$
(a) In relation to employers: in respect of each member 5 400
(b) In relation to employees: by each member of a pension fund 5 400
(c) In relation to each contributor to a retirement annuity fund or funds 2 700
(d) National Social Security contributions (on a maximum monthly
gross salary of US$700) 3·5% of gross salary
Aggregate maximum deductible contributions to all the above per employee per year US$5 400

Credits year ended 31 December 2016

US$
Disabled / blind person 900*
Elderly person (55 years and over) 900*
Medical aid society contributions 50%
Medical expenses 50%
*The amount is reduced proportionately if the period of assessment is less than a full tax year.

Deemed benefits year ended 31 December 2016

Motor vehicles
Engine capacity: US$
Up to 1500cc 3 600
1501 to 2000cc 4 800
2001 to 3000cc 7 200
3001cc and above 9 600

2
 Loans
The deemed benefit per annum is calculated at a rate of LIBOR + 5% of the loan amount advanced.

Value added tax (VAT)

Standard rate 15%

Capital allowances
%
Special initial allowance (SIA) 25
Accelerated wear and tear 25

Wear and tear:

Industrial buildings 5
Farm buildings 5
Commercial buildings 2·5

Motor vehicles 20
Movable assets in general 10

Tax rates – Other than employment income

Year ended 31 December 2016
Companies %
Income tax: Basic rate 25
AIDS levy 3
Individuals %
Income tax: Income from trade or investment 25
AIDS levy 3

3 [P.T.O.
 Capital gains tax
Immovable property and unlisted marketable securities
acquired after 1 February 2009 20% of gain
Immovable property and unlisted marketable securities
acquired prior to 1 February 2009 5% of gross proceeds
Disposal of listed marketable securities 1% of gross proceeds
On principal private residence where the seller is over 55 years 0%
Inflation allowance 2·5%
Capital gains withholding tax on sale proceeds %
Immovable property 15
Marketable securities (listed) 1
Marketable securities (unlisted) 5
Note: Other than the withholding tax on listed marketable securities, the withholding

tax is not final on the seller. Actual liability is assessed in terms of the Capital Gains
Tax Act.
Withholding taxes %
On dividends distributed by a Zimbabwean resident company to resident shareholders
other than companies and to non-resident shareholders:
By a company listed on the Zimbabwe Stock Exchange 10
By any other company 15
Informal traders 10
Foreign dividends 20
Non-executive director’s fees 20
Contracts (ITF 263) 10
Non-residents’ tax %
On interest nil
On certain fees and remittances 15
On royalties 15
Residents’ tax on interest %
From building societies 15
From other financial institutions (including discounted securities) 15

Elderly taxpayers (55 years and over)

Exemptions from income tax year ended 31 December 2016
US$
Rental income 3 000
Interest on deposits with a financial institution 3 000
Interest on discounted instruments 3 000
Income from the sale or disposal of marketable securities 1 800
Pension No limit
Income from the sale or disposal of a principal private residence is exempt.
Benefit derived from the acquisition of a passenger motor vehicle from an employer is exempt.

4
 This is a blank page.
Section B begins on page 10.

9 [P.T.O.
Section B – ALL SIX questions are compulsory and MUST be attempted

Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet.

1 Mpho is a commercial farmer with a passion for horse rearing. On 20 March 2016, he acquired a farm adjacent to his
existing farm for US$100 000 to cater for his increasing herd of horses. Mpho commenced work on his newly acquired
farm by constructing 50 stables at a total cost of US$120 000. Mpho also incurred the following additional expenses
in connection with his new farm:
US$
Land clearing 50 000
Dam construction 90 000
Staff houses (five units) 140 000
––––––––
280 000

––––––––
––––––––
The farm was brought into use on 3 May 2016 when 50 horses occupied the newly constructed stables. Mpho also
hired permanent workers who took up residence in the newly constructed staff houses from the same date.
Additional information
(1) Mpho had the following horses as at 31 December 2015:
Stallions 5
Colts 30
Mares 70
Fillies 20
Foals 40
––––
165

––––
––––
On 1 June 2016, Mpho sold 30 colts and 20 fillies for US$30 000 in total. On the same date he also upgraded
the 40 foals to 15 colts and 25 fillies respectively. On 15 June 2016, Mpho purchased three stallions at a total
cost of US$6 000.
During the year ended 31 December 2016 a total of 60 foals were born on the farm.
Mpho has consistently applied the following fixed standard values for the valuation of his horses:
US$
Stallions 2 200
Colts 400
Mares 1 500
Fillies 850
Foals 200
(2) Mpho’s farming records for the year ended 31 December 2016 show the following:
US$
Crop sales 600 000
Other farm purchases 150 000
Farm overheads 250 000
The Zimbabwe Revenue Authority (ZIMRA) considers 80% of the farm overheads to be directly related to the
farming business for the year ended 31 December 2016.

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 (3) An extract from Mpho’s non-current asset register as at 31 December 2015 is shown below:
Cost Income tax value
(US$) (US$)
Commercial vehicles 200 000 50 000
Staff houses (four units) 100 000 0
Stables 50 000 0
Farm fixtures 150 000 75 000
Mpho’s policy is to claim the maximum available capital allowances in any given year.

Required:
Calculate Mpho’s farming taxable income for the year ended 31 December 2016.

(10 marks)

11 [P.T.O.
2 Quality Leather (Private) Limited (QL) manufactures bags and related leather products for both the local and export
market. QL registered with the Zimbabwe Revenue Authority (ZIMRA) for corporation tax on commencement of business
operations on 20 January 2016. QL has a permanent staff complement of ten employees and the average monthly
payroll expenditure is US$6 000.
Other information:
The accountant of QL projected the export sales volume at 35% of the total sales volume. The projected net profit for
the year ended 31 December 2016 is US$45 000, calculated as follows:
US$
Turnover 280 000
Cost of sales (90 000 )
––––––––
Gross profit 190 000
Less:
Depreciation (22 000 )
Projected expenses (all allowable) (123 000 )
––––––––
Net profit 45 000

––––––––
––––––––
Non-current assets as at 31 December 2016 are as follows:
Cost
(US$)
Furniture and equipment 80 000
Commercial vehicles 50 000
One passenger motor vehicle 20 000

Required:
(a) Explain, with reasons, the other taxes which Quality Leather (Private) Limited is obliged to register for with the
Zimbabwe Revenue Authority (ZIMRA). State the time limits which apply to the filing of each of the relevant
tax returns. (4 marks)

(b) Calculate the provisional corporation tax payable by Quality Leather (Private) Limited and the payments due
in respect of each quarterly payment date (QPD) for the year ended 31 December 2016.
Note: You should assume that Quality Leather (Private) Ltd takes advantage of all available tax dispensations.
(6 marks)

(10 marks)

12
3 Peter disposed of the following marketable securities and a factory building during the year ended 31 December 2016:
Date acquired/constructed Cost Market value
(US$) (US$)
Marketable securities:
15 000 quoted shares 2012 15 000 30 000
10 000 unquoted shares 2011 5 000 10 000
2 000 unquoted bonus shares 2014 0 2 000
Factory building:
Land 2010 100 000 150 000
Factory building 2011 120 000 180 000
Factory wall 2013 30 000 50 000
Peter donated the 15 000 quoted shares to his two sons on 5 May 2016. He then sold the unquoted shares together
with the bonus shares at their market value on 15 May 2016.
The sale proceeds of the land, factory building and factory wall were paid in accordance with the agreement of sale
signed on 10 June 2016.

Required:
Calculate the capital gains tax (CGT) payable by Peter for the year ended 31 December 2016. Your answer should
include brief explanations of your treatment of the donated shares and the sale of the bonus shares.

(10 marks)

13 [P.T.O.
4 QN Limited (QN) is a category C value added tax (VAT) registered operator. The following information refers to QN’s
trading operations for the month of May 2016. All figures are stated inclusive of VAT, where applicable.
(1) Turnover
US$
Supply of standard rated goods 30 000
Supply of zero rated goods 10 000
Defective goods returned (8 000 )
–––––––
32 000

–––––––
–––––––
10% of the defective goods returned are zero rated.
(2) Purchases (all standard rated)
US$
Domestic goods to make taxable supplies 18 000
Goods returned for poor quality (4 000 )
–––––––
14 000

–––––––
–––––––
Domestic goods valued at US$6 000 were procured from non-VAT registered traders.
(3) Non-current assets purchased
US$
Passenger motor vehicle, engine capacity, 3 300cc 20 000
Furniture and fittings 12 000
Computer equipment 3 000
–––––––
35 000

–––––––
–––––––
The passenger motor vehicle was allocated to the Human Resources manager.
(4) Other expenses
US$
Salaries and wages 10 000
Medical aid contributions 2 000
Office building rent 6 000
Depreciation 3 500
Stationery 1 800
Repairs and maintenance 2 500
Interest on overdraft 1 500
–––––––
27 300

–––––––
–––––––
The office building rent was paid to the owner, Mr Moyo, who is not registered for VAT.

Required:
(a) Calculate the non-deductible input value added tax (VAT) for QN Limited for the month of May 2016.
(2 marks)

(b) Calculate the VAT payable by or refundable to QN Limited for the month of May 2016.
Note: You should indicate by the use of a zero (0) any amounts on which VAT is not chargeable or not
reclaimable. (8 marks)

(10 marks)

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 This is a blank page.
Question 5 begins on page 16.

15 [P.T.O.
5 XLM Limited’s summarised statement of profit or loss for the year ended 31 December 2016 is as follows:
Note US$ US$
Gross profit 170 000
Other income 1 80 000
––––––––
250 000
Operating expenses
Depreciation 13 000
Staff expenses 2 73 000
Impairment loss 3 14 000
Marketing expenses 4 22 000
Other expenses 5 110 000 (232 000 )
–––––––– ––––––––
18 000
Finance costs
Interest payable 6 (5 000 )
––––––––
Profit before taxation 13 000

––––––––
––––––––
Note 1 – Other income
US$
Bank interest received 4 000
Rent received 58 000
Lease premium 8 000
Profit on sale of a commercial vehicle 10 000
–––––––
80 000

–––––––
–––––––
The lease premium actually received was a one-off payment of US$40 000 in connection with a five-year lease
agreement signed on 2 January 2016.
The commercial vehicle was sold on 20 March 2016 for US$60 000. The vehicle was originally purchased in 2013
at a cost of US$50 000. The income tax value as at 31 December 2015 was US$12 500.
Note 2 – Staff expenses
US$
Salaries and wages 50 000
Late National Social Security Authority (NSSA) contributions penalty 3 000
Payment to former employee 20 000
–––––––
73 000

–––––––
–––––––
The former employee was paid US$20 000 in accordance with a signed agreement to the effect that the former
employee would not engage in similar business to that of XLM Limited for the next five years.
Note 3 – Impairment loss
XLM Limited wrote off an impairment loss of US$9 000 relating to a trade debt on 25 February 2016. The debtor was
declared insolvent on 15 February 2016. A total of US$5 000 of the accounts receivable balance was considered to
be a reasonable allowance for receivables as at 31 December 2016.
Note 4 – Marketing expenses
US$
Export market research expenses 10 000
Local trade fair exhibition expenses 5 000
Marketing manager’s trade mission expenses 7 000
–––––––
22 000

–––––––
–––––––

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 Note 5 – Other expenses
US$
Donations to Harare Hospital children’s ward 16 000
Donations of food hampers for villagers affected by floods 8 000
General entertainment expenses 11 000
Legal expenses for the conversion of company shares 12 000
Dumping fine 4 000
Construction expenses to redesign the factory loading bay 24 000
General administrative expenses 35 000
––––––––
110 000

––––––––
––––––––
The Zimbabwe Revenue Authority (ZIMRA) considers 25% of the general administrative expenses to be disallowable.
Note 6 – Interest payable
The interest payable is in respect of a bank loan of US$30 000 used for the redesigning of the factory loading bay. The
actual construction work was completed within a two-week period at a total cost of US$24 000. The loading bay was
operational before the year ended 31 December 2016.
Additional information
Property, plant and equipment as at 31 December 2015
Date acquired Cost Income tax value
(US$) (US$)
Factory building 2012 200 000 nil
Furniture and equipment 2012 150 000 nil
Commercial building 2013 300 000 277 500
Commercial vehicle (note 1) 2013 50 000 12 500

Required:
Calculate the taxable income and corporation tax payable by XLM Limited for the year ended 31 December 2016.
Note: You should start your calculation with the profit before taxation of US$13 000 and indicate by the use of a
zero (0) any amounts referred to in the question for which no adjustment is required.

(15 marks)

17 [P.T.O.
6 Joanne River is employed as a part-time bursar at Northend High School. All of her four children are students at
Northend High School. Joanne is also a partner in a three-member partnership business. In addition to sharing the
profits and losses of the partnership equally, the three partners earn the same salary and benefits. The following
information is available in respect of Joanne for the year ended 31 December 2016:
Northend High School employment
US$
Salary 18 000
Bonus 1 800
Transport allowance 4 000
PAYE (3 200 )
Medical aid contributions (1 200 )
Pension fund contributions (3 000 )
National Social Security Authority (NSSA) contributions (294 )
Other employment benefits and entitlements:
(1) As a staff member at the school, Joanne’s four children do not pay tuition fees. Other students pay US$3 000 per
year in tuition fees.
(2) Joanne lives in a house provided by the school and pays a subsidised rent of US$100 per month. In her opinion
the fair monthly rental for the house is US$250.
(3) On 1 March 2016, Joanne got an interest free loan of US$10 000 from the school. She applied the loan as
follows:
US$
Her wheelchair replacement 2 500
Spouse’s hospital fees 3 500
Personal vehicle repairs 2 000
Repairs to her residential property 2 000
–––––––
10 000

–––––––
–––––––
The average LIBOR was constant at 1% for the year ended 31 December 2016.
Partnership:
US$
Share of profit 25 000
Salary 60 000
The partnership profit was arrived at after deducting the following:
US$
Office expenses 45 000
Staff salaries 70 000
Partners’ salaries 180 000
Partnership joint life insurance policy 30 000
Partners’ life insurance policies 24 000
Interest on partners’ capital accounts 21 000

18
 Required:
(a) Briefly explain the difference in tax treatment of Joanne’s salary from employment and her salary from the
partnership business. (2 marks)

(b) Calculate Joanne’s taxable income and tax payable for the year ended 31 December 2016.
Note: You should indicate by the use of zero (0) any amounts which are not required to be included or which
are not deductible in calculating taxable income. (13 marks)

(15 marks)

End of Question Paper

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