Paper F6 (ZWE)

Fundamentals Level – Skills Module

Taxation
(Zimbabwe)
Monday 7 December 2009

Time allowed
Reading and planning: 15 minutes
Writing: 3 hours

ALL FIVE questions are compulsory and MUST be attempted.

Tax rates and allowances are on pages 2–4.

Do NOT open this paper until instructed by the supervisor.

During reading and planning time only the question paper may
be annotated. You must NOT write in your answer booklet until
instructed by the supervisor.
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.

TAX RATES AND ALLOWANCES

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

Rates – Individuals
Effective 1 February 2009 to 31 December 2009
Taxable Rate Amount Cumulative income
income band of tax within band tax liability
US$ % US$ US$
Up to 1 650 0 1 650 0
1 651 to 5 500 20 3 850 770
5 501 to 11 000 25 5 500 2 145
11 001 to 16 500 30 5 500 3 795
16 501 to 33 000 35 16 500 9 570
33 001 and over 37·5
NB. The AIDS levy of 3% of income tax payable, less credits remains in place.

Allowable deductions effective 1 February 2009

Pension fund contribution ceilings
2009
US$
(a) In relation to employers: in respect of each member 3 300
(b) In relation to employees: by each member of a pension fund 3 300
(c) In relation to each contributor to a
retirement annuity fund or funds 3 300

Credits effective 1 February 2009

2009
US$
Disabled/blind person 825*
Elderly person (55 years and over) 825*
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 effective 1 February 2009

Motor vehicles
2009
Total deemed benefit for 11 months
US$
Up to 1500cc 550
1501 to 2000cc 660
2001 to 3000cc 880
3001 and above 1 100

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 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) 50
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

3 [P.T.O.
 Tax rates
Years ended 31 December 2009 %

Companies
Income Tax
Basic rate 30
AIDS levy 3

Individuals
Income Tax
Informal traders 10
Income from trade or investment 30
Foreign dividends 20
AIDS levy 3

Capital gains tax

On marketable securities 20
On principal private residence where seller is over 55 years 0
On other immovable property 20
Inflation allowance 2·5

Capital gains withholding tax on sale proceeds

Immovable property 15
Marketable securities (Listed) 5
Marketable securities (Unlisted) 10
Note: 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 15
By any other company 20

Non-residents’ tax
On interest 10
On certain fees and remittances 20
On royalties 20

Residents’ tax on interest

From building societies 20
From other financial institutions (including discounted securities) 20

Elderly taxpayers (55 years and over)

The exemptions from income tax are as follows:
Effective 1 February 2009
US$
Rental income 2 750
Interest on deposits with a financial institution 2 750
Interest on discounted instruments 2 750
Pension No limit
Income from the sale or disposal of marketable securities or a principal private residence is also exempted.

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 This is a blank page.
Question 1 begins on page 6.

5 [P.T.O.
ALL FIVE questions are compulsory and MUST be attempted

1 Peter Potter, aged 40, is the infants’ in-charge head teacher at a local Government school. He commenced private
lessons in swimming and tennis coaching at his Greendale property on 1 March 2009 in a bid to augment his
earnings.
Peter Potter’s earnings and entitlements from the Government school for the year ended 31 December 2009
US$
PTA Salary 8 000
Civil service allowance 1 100
Pension contributions 600
Medical aid contributions (100% from employer) 900
Representation allowance 750
Accommodation allowance 500
PTA grocery allowance 330
PTA mobile phone allowance 110
PTA fuel allowance 220
Other entitlements and information
Unlimited use of the PTA vehicle, a Mazda B2500 double cab, engine capacity 2500cc.
Peter Potter incurred a total of US$800 in prescribed medical expenses shortfalls and replaced his 11-year-old disabled
son’s wheelchair at a subsidised cost of US$210.
Peter Potter’s earnings and deductions from the private lessons in swimming and tennis coaching for the year ended
31 December 2009.
US$
Swimming fees 6 500
Tennis coaching fees 7 800
Assistants’ wages (2 000)
Electricity (400)
Water and rates charges (550)
Students’ books (1 000)
Tennis rackets and balls (1 400)
Rent expense (900)
Communication expenses (250)
Rental income (second tennis court) 1 300
Borehole repairs and maintenance (420)
Additional information
Peter Potter constructed and/or acquired the following assets which he brought into use on 1 March 2009:
US$
Tennis court 5 000
Computer equipment 1 200
Furniture and fittings 1 800

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Required:
(a) (i) Calculate Peter Potter’s taxable income and tax payable from employment for the year ended 31 December
2009. Clearly state any exemptions or deductions; (11 marks)
(ii) State by when PAYE for the month of December 2009 should be remitted to ZIMRA and indicate who is
liable to pay the tax. (2 marks)

(b) (i) Calculate Peter Potter’s taxable income and tax payable from his business venture; (8 marks)
(ii) State FOUR ZIMRA requirements that Peter Potter should comply with in connection with his business
operation. (4 marks)
Note: you should assume that the current tax rates and allowances were applicable for the whole of the year ended
31 December 2009.

(25 marks)

7 [P.T.O.
2 Assorted Fruit and Vegetable P/L (AFV) was incorporated on 30 September 2008 and commenced the business of
commercial production of fruit and vegetables on 17 January 2009 after acquisition of a farm in the Bindura area. AFV
acquired and installed a dehydration plant on the farm in order to package and sell dehydrated fruit and vegetables
both to the local and export market.
AFV incurred the following expenses between 1 October 2008 and 16 January 2009:
US$
Fruit and vegetable seedlings 3 000
Land preparation costs 5 000
Recruitment expenses 1 500
Salaries and wages 10 000
–––––––
19 500
–––––––
–––––––
The following assets were acquired and/or constructed and brought into use during the year ended 31 December
2009:
US$
Farm 30 000
Dehydration plant 800 000
Generator 120 000
Industrial building 70 000
Essential plant and machinery 67 000
Borehole 5 000
Tractor 8 000
Delivery truck 15 000
Staff bus 25 000
Staff housing (10 units) 265 000
Staff clinic 30 000
Primary school 50 000
Office block 40 000
Fuel tanks 6 000
Passenger motor vehicle 1 12 000
Passenger motor vehicle 2 8 000
Passenger motor vehicle 3 15 000
––––––––––
1 566 000
––––––––––
––––––––––
The following is the income statement of AFV in connection with the Bindura operations for the year ended
31 December 2009.
Notes US$
Gross profit 1 780 000
Other income (1) 11 800
Production expenses (2) (57 650)
Distribution expenses (3) (12 450)
Administration expenses (4) (196 400)
Staff expenses (5) (990 700)
Finance costs (6) (189 012)
–––––––––
Net profit 345 588
–––––––––
–––––––––

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Notes
(1) Other income
US$
Hire of tractor 7 000
Hire of delivery truck 2 500
Commercial bank interest 300
Clinic fees (neighbouring farm employees) 1 800
Interest on tax reserve certificate 200
–––––––––
11 800
–––––––––
–––––––––
(2) Production expenses
US$
Production chemicals 4 500
Production consumables 15 000
Protective clothing 8 300
Quality assurance costs 6 500
Operating license 1 500
Repairs and maintenance 1 750
Generator fuel costs 9 100
Purchase of a water pump and tank 10 000
Water purification chemicals 600
Waste disposal costs 400
–––––––––
57 650
–––––––––
–––––––––
(3) Distribution expenses
US$
Motor vehicle repairs and maintenance 5 600
Fuel costs 3 000
Traffic fines 150
Insurance 1 000
Purchase of motor vehicle radios 950
Radio license fine 100
Transport costs 1 650
–––––––––
12 450
–––––––––
–––––––––
(4) Administration expenses
US$
Communication expenses 2 250
Repairs and maintenance 8 900
Electricity 1 500
Depreciation 156 600
Marketing expenses 1 850
Packaging and branding costs 5 000
Trademark registration 2 000
Tax reserve certificate 1 000
Donation to a local orphanage 500
Printing and stationery 3 000
Clinic supplies 7 000
Production manager’s expenses incurred in SA 6 800
(Two Food and Allied Industries Conventions held in June and August 2009)
–––––––––
196 400
–––––––––
–––––––––

9 [P.T.O.
(5) Staff expenses
US$
Canteen costs 8 500
Salaries and wages 495 000
Pension contributions (100 employees) 385 000
Medical aid contributions 55 000
Travel and subsistence costs 9 000
Staff training 12 000
PAYE penalty 6 200
Food hampers 15 000
Protective clothing 5 000
––––––––
990 700
––––––––
––––––––
(6) Finance costs
US$
Interest on long-term loan (used for capital expenditure) 168 012
Interest on a short-term loan (used for recurrent expenditure) 21 000
––––––––
189 012
––––––––
––––––––

Required:
(a) Calculate the minimum taxable income and respective corporate tax payable by Assorted Fruit and Vegetable
P/L for the year ended 31 December 2009. (25 marks)

(b) What strategies (excluding those which are illegal) could have been followed by Assorted Fruit and Vegetable
P/L in planning its new venture in order to minimise its tax burden. (5 marks)

(30 marks)

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3 Ellen Nxele, a widow aged 45, decided to dispose of her principal private residence situated in Mabelreign, Harare and
a holiday resort lodge situated in Nyanga and permanently relocate to South Africa, her country of origin.
Ellen Nxele’s immovable assets were disposed of through a local real estate company on 1 February 2009 as
follows:
Principal private residence:
The Mabelreign property was acquired in 2004 at a cost of US$45 000. The improvements to the property were
effected two years later as below:
Date Cost
US$
Security wall 2005 5 000
Swimming pool 2006 5 000
Outbuildings 2006 15 000
The property was sold for a total price of US$100 000. The real estate company retained 10% of the selling price as
sales commission for the service rendered.
Nyanga holiday resort lodge:
The holiday resort lodge was acquired in 2003 at a cost of US$30 000. The extension to the lodge was effected in
2004 at a total cost of US$25 000. The property was sold for $85 000 and 10% of the selling price was deducted by
the real estate company as the commission. The cottage had been classified as a commercial building for tax purposes
and wear and tear allowances have been claimed yearly since acquisition of the building.
Ancillary expenses
US$
Legal charges 500
Transfer fees 200
Property advertisements 50
––––
750
––––
––––

Required:
(a) Calculate the capital gain/loss and tax payable by Ellen Nxele in connection with the disposal of her two
properties. (13 marks)

(b) State by when the capital gains tax should be remitted to ZIMRA and outline the possible consequences of
non-compliance. (2 marks)

(15 marks)

11 [P.T.O.
4 Computech Limited owns a number of retail outlets and specialises in the sale of computer accessories and software
as well as computer repairs. The company is registered for value added tax (VAT) purposes under category B.
The following is the information extracted from the sales and purchases ledger for the months of September and
October 2009:
Sales ledger (VAT inclusive)
September October Total
US$ US$ US$
Desktop sales 50 000 75 000 125 000
Laptop sales 45 000 15 000 60 000
Components sales 20 000 18 000 38 000
Software sales 25 000 25 000 50 000
Computer repairs 5 000 12 000 17 000
Computer bags sales 7 500 8 000 15 500
Sales returns (9 500) nil (9 500)
–––––––– –––––––– ––––––––
143 000 153 000 296 000
––––––––
–––––––– ––––––––
–––––––– ––––––––
––––––––
Purchases ledger (VAT inclusive)
September October Total
US$ US$ US$
Desktop purchases 66 000 nil 66 000
Laptop purchases 32 000 nil 32 000
Components purchases 12 000 9 000 21 000
Software purchases nil 20 000 20 000
Computer bags purchases 10 000 nil 10 000
Purchases returns nil (5 000) (5 000)
–––––––– –––––––– ––––––––
120 000 24 000 144 000
––––––––
–––––––– ––––––––
–––––––– ––––––––
––––––––
Overheads (Income statement extract VAT inclusive as appropriate)
September October Total
US$ US$ US$
Repairs and maintenance 9 300 3 800 13 100
Salaries and wages 10 000 12 000 22 000
Stationery 2 500 3 500 6 000
Communication expenses 1 000 1 700 2 700
Motor vehicle expenses 6 500 2 000 8 500
Electricity and water 700 900 1 600
Security costs 2 000 3 000 5 000
Depreciation 4 700 4 700 9 400
Rent 5 000 5 000 10 000
Corporate tax (QPD) 18 000 nil 18 000
–––––––– –––––––– ––––––––
59 700 36 600 96 300
––––––––
–––––––– ––––––––
–––––––– ––––––––
––––––––
Additional information
Computech Limited owns the following passenger motor vehicles used by the management staff:
2 Mercedes Benz ML 350, engine capacity 3500cc
2 Isuzu KB250 trucks, engine capacity 2500cc
3 Toyota Corolla Sedan vehicles, engine capacity 1300cc

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Required:
(a) Calculate the output tax on the deemed motor vehicle benefits for the months of September and October
2009. (2 marks)

(b) Calculate the VAT for September and October 2009 tax period and state by when the tax should be remitted
to ZIMRA. Your answer should clearly indicate the VAT implications of each category of overhead.
(13 marks)

(15 marks)

13 [P.T.O.
5 Jim Michelin, aged 67, is a retired college professor and owns and manages the following properties which he leases
to tenants:
Monthly rent (US$)
Commercial building situated in the CBD 7 500
Two residential properties situated in the Highlands area 3 000
–––––––
10 500
–––––––
–––––––
The above properties were acquired in 2006 and have been solely used for the purpose of income generation through
rent.
Jim Michelin’s expenses for the year ended 31 December 2009:
US$
Staff costs 6 000
Repairs and maintenance 11 200
Security costs 5 000
Owners’ association charges 2 000
Commercial building repainting 15 000
Erection of a concrete wall on one residential property 3 400
Billing costs 1 300
Rates 1 000
–––––––
44 900
–––––––
–––––––
Other information
Jim Michelin is a renowned author and the following is his income from royalties, pension and investments for the
year ended 31 December 2009:
US$
Royalties 20 000
Pension 8 000
Treasury bills 5 000
Financial institution deposit 4 000
Local company dividends (gross) 7 200
–––––––
44 200
–––––––
–––––––
Jim Michelin is not a registered taxpayer and now seeks your advice in order to regularise his situation.

Required:
(a) Calculate Jim Michelin’s taxable income and tax payable for the year ended 31 December 2009.
(11 marks)

(b) State the different taxes in connection with which Jim should register with ZIMRA and explain, with calculations,
what penalty is due in respect of his taxable income for the year ended 31 December 2009, should he fail to
register. (4 marks)
Note: you should assume that the current tax rates and allowances were applicable for the whole of the year ended
31 December 2009.

(15 marks)

End of Question Paper

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