Paper F6 (ZWE)

Fundamentals Level – Skills Module

Taxation
(Zimbabwe)
Monday 1 June 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 $000, 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 October 2008 to 31 December 2008
Taxable Amount Rate Cumulative income
income band within band of tax tax liability
$ $ % $
Up to 600 000 600 000 0 0
600 001 to 11 200 000 600 000 25 150 000
1 200 001 to 12 400 000 1 200 000 30 510 000
2 400 001 to 14 800 000 2 400 000 35 1 350 000
14 800 001 to 18 400 000 3 600 000 40 2 790 000
18 400 001 to 12 000 000 3 600 000 45 4 410 000
12 000 001 and over 47·5

Note: The AIDS levy of 3% of income tax payable, less credits, remains in place.

Allowable deductions
Pension fund contribution ceilings
2008
$
(a) In relation to employers: in respect of each member 480 000
(b) In relation to each member of a pension fund 480 000
(c) In relation to each contributor to a retirement annuity fund or funds 480 000

Credits
2008
$
Disabled/blind person 37 500*
Elderly person (55 years and over) 37 500*
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.

Motor vehicles
deemed annual benefit
2008
Engine capacity $
Up to 1500cc 135 000
1501 to 2000cc 150 000
2001 to 3000cc 210 000
3001cc and above 270 000

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 Loans
The deemed benefit per annum is calculated at a rate of 16% of the loan amount
advanced.

Capital gains inflation rates

CSO All items Consumer Price Index (CPI)
Year CPI
2002 233·2
2003 1 084·5
2004 4 880·3
2005 16 486·4
2006 184 101·1
2007 12 562 581·7
2008 974 925 192·9

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
Moveable assets in general 10

3 [P.T.O.
 Tax rates
Year ended 31 December 2008
%
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 the seller is over 55 years 0
On other immovable property 20

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

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

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ALL FIVE questions are compulsory and MUST be attempted

1 Shirley Sheppard, a renowned South African labour expert based in Durban, South Africa, was approached by the
National Power Utility Company of Zimbabwe (NPUC) to investigate ways in which staff turnover could be reduced.
Shirley Sheppard signed an initial three-month contract renewable for another three months based on the outcome of
her report. She commenced duties at the NPUC on 1 October 2008 with the following contractual entitlements:
Period 1 October to 31 December 2008
$000 USD
Monthly salary transferred to her Durban bank account 6 500
Monthly salary adjusted for inflation month on month –100% 150 000
Monthly grocery allowance adjusted –100% month on month 50 000
Holiday allowance (one off settlement) 500
Monthly entertainment allowance adjusted – 100% month on month 30 000
Local travel allowance adjusted –100% month on month 35 000
Profit sharing (one off settlement) 1 260 000
Year end bonus 2 700 000
Other entitlements and allowances
1. Fully furnished house in the leafy suburb of The Grange, in Harare, provided with a gardener and a maid at the
company’s expense. The market rental of similar properties is $250 million per month with a 50% monthly
escalation.
2. Use of a fully expensed company vehicle, an Isuzu, with an engine capacity of 2800cc.
3. Medical aid contribution of $185 million for the three month period, each party contributing 50% of the cost.
4. 3% of the monthly salary as NSSA contributions by both parties.
5. Monthly food hampers worth USD 150.
6. Free unlimited meals during working hours obtainable from the company canteen. The monthly cost to the
employer for running the canteen is $10 million per employee.
Additional information
25% of the monthly entertainment allowance is spent on NPUC related business.
Shirley Sheppard has no other income for the tax year.
Assume the following exchange rates USD:ZWD
Period 1 October to 31 December 2008 – 1:200
Period 1 January to 31 March 2009 – 1:500

Required:
(a) (i) Briefly explain the tax obligations of the National Power Utility Company in terms of the contract with
Shirley Sheppard; (3 marks)
(ii) State, giving reasons, whether Shirley Sheppard’s emoluments are taxable, assuming the following;
(1) Contract was renewed after 31 December 2008
(2) Contract was not renewed after 31 December 2008 (4 marks)
(iii) Summarise Shirley Sheppard’s tax obligations at the end of her contract. (3 marks)

(b) Calculate Shirley Sheppard’s taxable income and tax payable for the year ended 31 December 2008 on the
assumption that her contract was renewed for a further three months. (15 marks)

(25 marks)

5 [P.T.O.
2 Advanced Construction Company P/L (ACC) was incorporated on 20 April 2007. On 1 May 2007 ACC signed an
agreement to lease five acres of land from Chitungwiza Municipality for a period of 20 years. The terms and conditions
of the lease agreement are as follows:
(i) Lessee to develop and construct market stalls and infrastructure for flea markets, valued at not less than
$500 billion, on the leased land.
(ii) Lessee to pay an upfront premium of $187 billion on signing the lease agreement, as well as annual rentals of
$2 billion, subject to any increments to be advised in writing.
The construction of the market stalls and infrastructure for flea markets was completed on 15 December 2007 at an
actual cost of $500 billion and ACC commenced business operations of letting out the market stalls to tenants with
effect from 1 January 2008.
The extract from ACC’s income statement for the year ended 31 December 2008 reflects a net profit of $2 023 trillion
after taking the following into account:
Credits Notes $000
Turnover (1) 5 508 000 000
Interest received from the bank 9 000 000
Debits
Cost of sales (1 820 000 000)
Distribution expenses (2) (930 000 000)
Administration expenses (3) (479 000 000)
Other operating expenses (4) (103 000 000)
––––––––––––––
Profit from operations 2 185 000 000
Finance costs (5) (162 000 000)
––––––––––––––
Net profit for the period 2 023 000 000
––––––––––––––
––––––––––––––
Notes
(1) Extract from the sales ledger (VAT exclusive)
$000
Monthly sales: January 2008 305 000 000
February 2008 543 000 000
March 2008 1 000 000 000
––––––––––––––
1 848 000 000
(2) Distribution expenses:
$000
Motor vehicle repairs and maintenance 430 000 000
Fuel expenses 472 000 000
Traffic fines 28 000 000
–––––––––––––
930 000 000
(3) Administration expenses:
$000
Salaries and wages 200 000 000
NSSA (25 employees) 12 000 000
Food hampers 102 000 000
Depreciation 51 000 000
Office repairs and maintenance 49 000 000
Stationery and communication expenses 35 000 000
ZIMRA penalty for non-registration 30 000 000
––––––––––––
479 000 000

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(4) Other operating expenses:
$000
NSSA late payment penalty 23 000 000
Planning and surveying costs 50 000 000
Canteen expenses 20 000 000
Penalty for unlicensed operations 5 000 000
Operating licence 5 000 000
–––––––––––––
103 000 000
(5) Finance costs:
$000
Mortgage bond interest 150 000 000
(Mortgage bond fully utilised to construct market stalls and flea market infrastructure)
Bank overdraft interest 12 000 000
–––––––––––––
162 000 000
ACC owns the following fixed assets, which were all brought into use on the commencement of business operations:
Cost $000
Office block 175 000 000
Office furniture and equipment 52 000 000
Commercial vehicles 81 000 000
Additional information
The accountant had not taken into account the effect of the lease agreement in coming up with the financial
statements for the year ended 31 December 2008.
ACC only registered with ZIMRA on 1 April 2008 after being penalised for failure to comply with the statutory
registration requirements. The registration was made retrospectively to 1 January 2008.
It is ACC’s policy to claim the maximum capital allowances possible.

Required:
(a) (i) Calculate the output tax for Advanced Construction Company P/L and the date the tax should have been
remitted to ZIMRA for the three months January to March 2008;
Note: you should assume for this part that Advanced Construction Company P/L was involuntarily
registered for value added tax (VAT) purposes under category C. (6 marks)
(ii) State and calculate the possible consequences to Advanced Construction Company P/L of ZIMRA’s
involuntary value added tax registration; (2 marks)
(iii) List the mandatory information that Advanced Construction Company P/L should show on the tax
invoice. (4 marks)

(b) Calculate the corporate tax that should have been remitted by Advanced Construction Company P/L on the
following dates:
(1) 25 March 2008
(2) 25 June 2008
(3) 25 September 2008
(4) 20 December 2008 (18 marks)

(30 marks)

7 [P.T.O.
3 The Indigenous Fruit Company Limited (IFCL) has been operating in the mountainous town of Mutare for the past
17 years and specialised in the canning and dehydration of an assortment of fruit for both the local market as well
as the export market. For the past five years IFCL has been facing operational challenges mainly due to the dwindling
raw material supply, but also due to a reduction in the market demand for their products.
A decision was made at the extraordinary general meeting of IFCL on 30 June 2008, to streamline the operations of
the company, dispose of some of the fixed assets and relocate the business operations to Harare. A professional
property valuation company was engaged on 15 July 2008 to revalue all the fixed assets and came up with the
following schedule:
Date Cost Income Market
acquired/ price tax value value
constructed $000 $000 $000
Factory building 2003 300 000 nil 720 000 000
Office block 2004 280 000 252 000 800 000 000
Showroom 2004 240 000 216 000 350 000 000
Plant and equipment 2005 500 000 nil 960 000 000
Furniture and fittings 2004 130 000 nil 220 000 000
Office equipment 2006 360 000 90 000 550 000 000
2 Commercial vehicles 2006 100 000 25 000 250 000 000
3 Passenger vehicles 2005 80 000 nil 195 000 000
Showroom extension 2006 400 000 380 000 670 000 000
A local business tycoon approached IFCL and offered to swap the office block for an undeveloped stand with
commercial title in Harare. The market value of the undeveloped stand is $800 billion. The offer was accepted by
IFCL and both parties signed an agreement of sale on 31 July 2008, the date on which all the other assets were
disposed of.
Other information
IFCL’s policy on fixed assets has always been to claim the maximum capital allowances available.
The following expenses were incurred in connection with the disposal of the assets:
$000
Legal expenses 10 000 000
Property valuation expenses 13 000 000

Required:
(a) (i) Calculate the amount to be included in the gross income of the Indigenous Fruit Company Limited for
the year ended 31 December 2008 as a result of the disposal of the immovable assets; (2 marks)
(ii) Calculate the capital gains withholding tax due from the Indigenous Fruit Company Limited and state by
when the tax should be remitted to ZIMRA; (3 marks)
(iii) Explain briefly the tax implication of the swap of the office block. (1 mark)

(b) Calculate the capital gain and tax payable by the Indigenous Fruit Company Limited for the year ended
31 December 2008. (9 marks)

(15 marks)

8
4 Jonathan Simon is a specialised cattle rancher in Masvingo province. On 23 November 2007, he took over the
Pamuhacha farm previously owned by his parents in the Beatrice area. He purchased and introduced the following
livestock at the Pamuhacha farm on 16 January 2008:
$000
4 bulls 20 000 000
50 cows 100 000 000
20 Heifers 20 000 000
30 Tollies 15 000 000
10 Steers 7 500 000
Livestock movements at Pamuhacha farm for the year ended 31 December 2008:
20 calves were born on the farm during the year
10 calves were reclassified to tollies
2 bulls were stolen by cattle rustlers
8 tollies were reclassified to steers
15 heifers were reclassified to cows
3 steers were slaughtered for rations
28 cows were sold for $960 billion during the course of the year
A highly contagious disease broke out at the neighbouring farm and killed half of the cattle herd there. Jonathan Simon
was forced to then sell all his remaining cows for $890 billion and relocated the rest of his herd to Masvingo.
Jonathan Simon incurred the following expenses during the year ended 31 December 2008 in connection with
running Pamuhacha farm:
$000
General livestock expenses 250 000 000
Sinking boreholes and wells 35 000 000
Livestock relocation expenses 23 000 000
Dip tanks 18 000 000
Construction of staff housing (3 units) 30 000 000
Tractor 41 000 000
Additional information
Jonathan Simon’s policy on valuation of livestock as approved by ZIMRA is as follows:
Bulls are valued at cost while other livestock are based on the following fixed standard values:
$000
Cows 10 000
Tollies 4 000
Heifers 4 000
Steers 5 000
Calves 2 000

Required:
Calculate Jonathan Simon’s minimum taxable income from his livestock farming business at Pamuhacha farm
clearly showing the treatment of taxable income from sales due to the disease outbreak.

(15 marks)

9 [P.T.O.
5 Phillip, Derrick and Stan Robertson are brothers and registered public accountants and operate their partnership
business as Robertson Accountants (RA). The brothers share profits in the ratio 3:2:1 in their seniority order, which
is Phillip, Derrick and Stan.
RA’s accounting year-end is 31 December.
The income statement of RA for the year ended 31 December 2008 reflects a profit of $920 billion after taking the
following into account:
Revenue
$000
Fees received 2 800 000 000
Rental income 53 000 000
Company dividends 142 000 000
Deductions
$000
3 HP Laptops 1 318 000 000
Printing and stationery 76 000 000
Salaries and wages: Phillip 30 000 000
Derrick 25 000 000
Stan 20 000 000
Staff 50 000 000
Depreciation 29 000 000
Insurance premium: Plant and equipment 12 000 000
Partnership joint life policy 8 000 000
Partners’ life policies:
Phillip 5 000 000
Derrick 5 000 000
Stan 5 000 000
Repairs and maintenance 47 000 000
Partnership drawings: Phillip 150 000 000
Derrick 130 000 000
Stan 120 000 000
Interest on Capital accounts: Phillip 18 000 000
Derrick 15 000 000
Stan 12 000 000
Extract from RA’s fixed asset register:
Date acquired Cost
$000
Office building 2003 800 000
Office equipment 2004 195 000
Office fittings 2006 300 000
RA’s fixed assets policy is to claim all the maximum capital allowances at their disposal.

Required:
(a) State the treatment of the partners’ share of profit when one of the partners withdraws from the partnership
(3 marks)

(b) Calculate the partners’ taxable income and tax payable for the year ended 31 December 2008. (12 marks)

(15 marks)

End of Question Paper

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