Paper F6 (ZWE)

Fundamentals Level – Skills Module

Taxation
(Zimbabwe)
Monday 7 June 2010

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
Year ended 31 December 2009
Taxable Rate Amount Cumulative income
income band of tax within band tax liability
US$ % US$ US$
Up to 1 800 0 1 800 0
1 801 to 6 000 20 4 200 840
6 001 to 12 000 25 6 000 2 340
12 001 to 18 000 30 6 000 4 140
18 001 to 36 000 35 18 000 10 440
36 001 and over 37·5

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

Allowable deductions year ended 31 December 2009

Pension fund contribution ceilings
2009
US$
(a) In relation to employers: in respect of each member 3 600
(b) In relation to each member of a pension fund 3 600
(c) In relation to each contributor to a retirement annuity fund or funds 3 600
(d) National Social Security: 4% of gross salary
Aggregate maximum contributions to all above per employee per year: 3 600

Credits year ended 31 December 2009

2009
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 2009

Motor vehicles
2009
US$
Up to 1500cc 600
1501 to 2000cc 720
2001 to 3000cc 960
3001cc and above 1 200

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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

Tax rates
Year ended 31 December 2009
%
Companies
Income Tax
Basic rate 30
AIDS levy 3

Individuals
Income Tax
Income from trade or investment 30
AIDS levy 3

3 [P.T.O.
 Capital gains tax
%
On marketable securities 20
Disposal of listed marketable securities acquired after 1 February 2009 1% of gross proceeds
Disposal of specified assets acquired prior to 1 February 2009
– sold prior to 1 February 2009 20% of gain
– sold after 1 February 2009 5% of gross proceeds
On principal private residence where the seller is over 55 years 0
On other immovable property acquired on or after 1 February 2009 20% of gain
Inflation allowance 2·5

Capital gains withholding tax on sale proceeds

%
Immovable property 15
Marketable securities (Listed) before 1 February 2009 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
Informal traders 10
Foreign dividends 20

Non-residents’ tax
%
On interest nil
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:

Year ended 31 December 2009

US$
Rental income 3 000
Interest on deposits with a financial institution 3 000
Interest on discounted instruments 3 000
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 Nigel Nadat, aged 57, is the operations manager at Nadat and Sons P/L. The company specialises in the provision
of sophisticated mining equipment to various mining conglomerates around the country.
Nadat and Sons P/L has been facing operational challenges due to the prevailing economic environment. After
discussion and agreement at the company’s works council meeting, a decision was made at the company’s
extraordinary general meeting to place all employees on unpaid leave for a period of seven months ended 31 July
2009 and thereafter to pay employees 50% of their entitlements for the period to December 2009.
Nigel Nadat’s earnings and entitlements from employment for the year ended 31 December 2009
US$
Salary 15 000
Telephone allowance 1 000
Fuel coupons 500
Education allowance 1 700
Grocery allowance 1 200
Entertainment allowance (DSTV subscriptions) 700
Pension contributions made by Nigel (1 125)
NSSA contributions made by Nigel (600)
Allowance in lieu of bonus 400
Medical aid contributions made by Nigel (800)
Other entitlements and additional information
Nigel Nadat resides in a fully furnished company house in Belvedere Harare. The market rental of similar properties
is US$ 500 per month. He is also entitled to a fully expensed company vehicle, a Toyota Vigo, engine capacity
3 300cc.
Nigel Nadat also received the following other income during the year:
US$
Compensation from wife’s employer for work related accident which led to her death 18 000
NSSA death benefit 10 000
Matured retirement annuity fund receipt 800
Gross dividends from Old Mutual 3 000
Rental income 5 000
Interest on Bankers Acceptances (BAs) 6 000
Interest from ZB bank 500
Nigel Nadat has been studying the Income Tax Act and is of the opinion that he has no liability to Zimbabwean income
tax on his earnings since his actual period of employment for the year ended December 2009 is less than 183 days.
He gave the human resources manager an express instruction not to deduct any PAYE from his entitlements.

Required:
(a) State giving reasons whether or not Nigel Nadat’s views as to his Zimbabwean tax status are correct and
explain the possible tax consequences if his instruction to the human resources manager of Nadat and Sons
P/L is acted upon. (5 marks)

(b) Assuming Nigel is fully liable to Zimbabwean tax:

(i) Calculate his taxable income and tax payable in respect of his employment for the year ended
31 December 2009; (10 marks)
(ii) Explain the treatment of his other income, calculate the tax payable and state when any tax payable
should be remitted to ZIMRA. (10 marks)

(25 marks)

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2 Professional Women Wear P/L (PWW) has been trading in quality women garments for the past three years. The
company is situated in the Graniteside industrial site in Harare. The past three years have been particularly difficult
for PWW as it tried to make inroads into the highly competitive fashion industry.
The following are the results of the tax assessments of PWW for the last three years:
Year US$
2006 (11 000)
2007 (7 000)
2008 (3 000)
The shareholders of PWW are very optimistic about the viability of the business and have embarked on a massive
expansion drive as well as local and regional aggressive marketing campaigns.
The budgeted trading and income statement of PWW for the year ended 31 December 2009 reflected a net profit of
US$ 117 000 after accounting for the following:
Notes US$ US$
Turnover 1 047 000
Cost of sales (1) (360 000)
––––––––––
Gross profit 687 000
Other operating income (2) 100 000
Direct selling expenses (3) 73 000
Distribution expenses (4) 180 000
Administration expenses (5) 217 000
Staff expenses (6) 161 000
Finance costs (7) 39 000 (670 000)
––––––––––
Net profit 117 000
––––––––––
––––––––––
Notes to the budgeted trading and income statement
(1) Cost of sales
Purchases returns of US$ 15 000 have not been accounted for.
Included in cost of sales is a late VAT return submission penalty of US$5 000.
(2) Other operating income
US$
Sale of defective clothing 40 000
Sale of off-cuts 13 000
Sale of shares 12 000
Sale of office equipment (original cost US$17 000) 20 000
Bank interest 5 000
Company dividends 10 000
––––––––
100 000
––––––––
––––––––
(3) Direct selling expenses
US$
Entertainment expenses (80% directly 10 000
attributable to PWW business)
Advertising costs 48 000
Mozambique trade convention held on 25 June 2009 15 000
––––––––
73 000
––––––––
––––––––

7 [P.T.O.
(4) Distribution expenses
US$
Motor vehicle repairs and maintenance 60 000
Motor vehicle insurance and licensing 11 000
Fuel costs 50 000
Toll fees 3 000
Procurement of an additional commercial vehicle 56 000
––––––––
180 000
––––––––
––––––––
(5) Administration expenses
US$
Electricity and water 16 000
Communication expenses 22 000
Printing and stationery 10 000
Repairs and maintenance 45 000
Initial painting of the new factory building extension 41 000
Depreciation 61 000
Provision for bad debts (10% of total debtors) 8 000
Approved industrial research paid to a Harare college 14 000
––––––––
217 000
––––––––
––––––––
(6) Staff costs
US$
Salaries and wages 90 000
NSSA contributions 10 000
Canteen costs 33 000
Medical aid contributions 15 000
Staff recruitment costs 7 000
Staff training 6 000
––––––––
161 000
––––––––
––––––––
(7) Finance costs for the year were solely incurred in connection with the loan utilised for the construction and
acquisition of the fixed assets as detailed in the fixed asset register below.
The following is the summary of the fixed asset register of PWW for the year ended 31 December 2009:
Date acquired Cost Income Tax value
/constructed US$ US$
Factory building 2006 350 000 nil
Administration building 2006 280 000 252 000
Factory building extension 2009 240 000 120 000
Security wall 2006 50 000 nil
Factory plant 2006 200 000 nil
Office equipment 2006 150 000 nil
Furniture and fittings 2006 80 000 nil
Commercial vehicles 2007 90 000 22 500
Passenger vehicles (6) 2009 60 000 30 000
Show room 2009 120 000 117 000
–––––––––– –––––––––
Total 1 620 000 541 500
––––––––––
–––––––––– –––––––––
–––––––––

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Required
(a) State the treatment of the assessed losses incurred by Professional Women Wear P/L for each of the years
ended 31 December 2006 to 2008 clearly explaining any restrictions on deductibility. (5 marks)

(b) Calculate the provisional taxable income and the corporate tax payable by Professional Women Wear P/L for
the year ended 31 December 2009 and indicate the due dates for the remittance of the tax. (25 marks)

(30 marks)

9 [P.T.O.
3 Ian and Ruth Smit, both in their late forties, are married in community of property and have been living at their
residence in the Borrowdale area for the past ten years. Before moving to their Borrowdale house, the Smits had
disposed of their house in the Waterfalls area and applied the proceeds towards acquisition of their new Borrowdale
residence.
The 1999 Capital Gains Tax assessment on the disposal of the Smit’s Waterfalls residence reflected a loss of
US$1 500.
Ian Smit was offered a lectureship post at the University of Cape Town in South Africa on 10 February 2009. The
Smits disposed of their Borrowdale residence, marketable securities and other personal effects on 25 January 2009
at market values and relocated to South Africa to begin their new life. The direct selling expenses paid to the estate
agent and the stockbrokers amounted to 10% of the market values.
The following is the list of the fixed assets that were disposed of by the Smits:
Date acquired Cost Market value on sale
US$ US$
Borrowdale residence 1999 120 000 250 000
Houseboat 2004 15 000 17 000
Ford Ranger 4X4 2002 10 000 15 000
Household furniture 1999 13 000 6 000
Listed shares 2007 35 000 50 000
Unlisted shares 2006 14 000 17 000
Additional information
The Smits incurred the following additional expenses on the Borrowdale residence in order to bring the property to
their desired standard:
Date cost
US$
Swimming pool 2001 2 000
Lock-up garage 2000 5 000
Security wall 2000 7 000
The Smits donated their unlisted shares to a local orphanage, the Borrowdale Children’s Home.
Other expenses
US$
Transfer fees 500
Legal charges 500
––––––
1 000
––––––
––––––

Required:
(a) (i) Explain how the 1999 assessed loss may be used, outlining any limiting factors; (2 marks)
(ii) Calculate the capital gains withholding tax to be paid by Ian and Ruth Smit on the disposal of their
specified assets; (3 marks)
(iii) Outline the tax effect of the donated shares. (1 mark)

(b) Calculate the capital gain and tax payable by Ian and Ruth Smit in connection with the disposal of their
assets for the year ended 31 December 2009. (9 marks)

(15 marks)

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 This is a blank page.
Question 4 begins on page 12.

11 [P.T.O.
4 Miriro Vengeso, a reputable caterer, won the tender to provide meals to students at a vocational college in Masvingo.
She commenced her business operations in January 2009 with the aid of a staff complement of ten.
Miriro Vengeso’s monthly sales ledger is as follows:
US$
January 2009 4 000
February 5 000
March 5 000
April 6 000
May 6 000
June 7 500
July 8 500
August 9 000
September 9 000
October 6 000
November 6 000
December 5 000
–––––––
77 000
–––––––
–––––––
Monthly purchases ledger
US$
January 2009 1 500
February 2 000
March 2 000
April 2 500
May 2 500
June 3 000
July 3 000
August 3 500
September 3 500
October 2 500
November 2 000
December 2 000
–––––––
30 000
–––––––
–––––––
Overheads for the year ended 31 December 2009 (VAT inclusive as appropriate)
US$
Electricity and water 1 800
Rent 6 000
Printing and stationery 700
Salaries and wages 24 000
Repairs and maintenance 2 200
Motor vehicle expenses 5 000
Depreciation 3 500
–––––––
43 200
–––––––
–––––––
Additional information
Miriro Vengeso is not yet registered for VAT since she believes that her operations are small and hence not eligible for
registration. Further, she has also procured all her purchases from unregistered operators and is not aware of the
implication to her.

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Required:
(a) (i) State giving reasons whether or not Miriro Vengeso should have registered for VAT and state the date by
which she should have registered; (4 marks)
(ii) Calculate Miriro Vengeso’s output tax exposure to ZIMRA for the period that she should have been
registered and also quantify where possible ZIMRA’s remedies for non compliance; (3 marks)
(iii) Outline the VAT implication for registered operators in general for procurements sourced from
unregistered operators. (1 mark)

(b) Assuming that Miriro Vengeso has always been a registered operator, calculate her VAT payable for the year
ended 31 December 2009. (5 marks)

(c) State TWO circumstances in which VAT registration can be cancelled. (2 marks)

(15 marks)

13 [P.T.O.
5 DD Engineering P/L (DDE) commenced a new project involving the provision of infrastructure to Ruya, a designated
growth point. The new project was approved by the Commissioner on 15 January 2009 and DDE set to work
thereafter in anticipation of the boom in business due to the 2010 FIFA World Cup to be held in neighbouring
South Africa.
DDE’s mandate is to provide state of the art roads, bridges, water reticulation system and self catering lodges and
chalets at Ruya growth point.
The infrastructure development was completed on 30 September 2009 and trading operations commenced on
1 October 2009. The lodges and chalets occupancy rate for the three months to December 2009 has been on an
upward trend due to the proximity of the growth point to the highway linking Zimbabwe and South Africa.
The following are the fixed assets constructed/acquired and brought into use by DDE during the year ended
31 December 2009:
US$
Cranes and heavy duty machinery 150 000
Tractors 100 000
4X4 passenger vehicles (4) 80 000
Chalets and lodges 450 000
Administration block 60 000
Furniture, fittings and equipment 180 000
––––––––––
1 020 000
––––––––––
––––––––––
DDE’s income statement for the year ended 31 December 2009 is as follows:
US$
Gross profit 560 000
Less expenses:
Pre-trading expenses (salaries and wages) (45 000)
Hire of equipment (28 000)
Salaries and wages (30 000)
Depreciation (114 000)
Other administration expenses (allowable) (20 000)
–––––––––
Net profit 323 000
–––––––––
–––––––––
Note
DDE’s policy on fixed assets is to elect to claim the special initial allowance where possible.

Required:
(a) (i) Explain the tax reliefs that are available to DD Engineering P/L as a result of the nature and place of its
business operations; (5 marks)
(ii) Compute the growth point investment allowance claimable by DD Engineering for the year ended
31 December 2009. Your answer should note which assets do not qualify for the allowance.
(4 marks)

(b) Calculate the taxable income or loss and any tax payable as appropriate for DDE Engineering P/L for the year
ended 31 December 2009. (6 marks)

(15 marks)

End of Question Paper

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