Fundamentals Level Skills Module, Paper F6 (BWA)

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2 Fundamentals Level Skills Module, aper F6 (BWA) Taxation (Botswana) Section B December 07 Answers and Marking Scheme Fairgrounds Sports Store (ty) Ltd (a) Sales output Sales per accounts department,76,86 Less: exports (67,308) Less: goods delivered but not invoiced (73,88) Less: sale of saloon car (35,000),586,67 (b) VAT payable Outputs Sales (from (a)),586,67 urchase returns 36,89 Interest received 0 Discount received 8,53,63,3 Inputs Local purchases 07,385 Imported purchases 0 Credit notes issued 0 Salaries and wages 0 Technical fees paid to a non-resident 0 Interest on late tax payment 0 Commercial rent 65,000 Credit agreement instalment 0 Repairs to saloon car 3,878 urchase of equipment for staff gym 0 Credit agreement machine 34,75 30,438 Excess of outputs over inputs,30,775 VAT thereon at % 57,93 Less: VAT paid on imported purchases (56,757) Net VAT payable 00, Tutorial notes. The VAT paid on the imported purchases is treated as a deduction from the total VAT payable.. The treatment of the credit note must mirror the original invoice which was zero rated since it was an export. 3. Input VAT on the cash price of the machine can be reclaimed in full but the monthly instalment has no VAT impact. 4. The equipment in the staff gym is considered to be entertainment and is therefore a prohibited input. 3

3 Tapela Supplies (ty) Ltd (a) WHT on November 06 certificate Gross certificate inclusive of VAT 603,365 Less: % VAT (64,646) Net amount 538,79 3% WHT on 538,79 6,6 (b) Tax to be withheld from non-residents Insurance premiums 0 Fees for technical advice (68,903 x 5%) 0,335 urchase of goods 0 Advertising in foreign journals 0 Interest paid (57,06 x 5%) 8,559 Repayment of loan 0 Shipping costs 0 Brokerage (8,64 x 0%) 8,64 Guarantee fee (5,388 x 5%) 3,808 30,966 6 When withholding tax is payable Tax should be withheld from payments made to non-residents and paid over to the revenue authorities no later than the 5th of the month following payment. The liability to withhold tax is only triggered on physical payment and not on accrual. 0 4

4 3 Charles Renson (a) Net disposal gain or loss () rimetime roperty Holdings Ltd Listed on the Botswana Stock Exchange (BSE) and held for more than one year exempt 0 () Standard Chartered Bank Listed on the BSE and held for less than one year Sale price 47,867 Cost price (53,906) 73,96 Less: 5% moveable property allowance (43,490) 30,47 (3) lot 783 Mogoditshane Sale price 6,500,000 Original cost January 004 (,750,000) Indexation (,750,000 x (75 7/7 3)),750,000 (,499,93) Extensions November 00 (,45,000) Indexation (,45,000 x (75 7/304 )),45,000 (488,949) 336,0 466,59 (4) rinting machine exempt 0 Less: capital loss brought forward (67,49) Net disposal gain 99,099 7 (b) Farming property A person who sells farming property can claim as a deduction against the resulting gain any assessed farming losses incurred: in the current tax year and the five preceding tax years. The assessed loss must not include any farming capital expenditure. Tutorial note: This is the only exception where a trading loss can be set-off against a capital gain. Carry forward of capital loss A capital loss can be carried forward for one year only. 0 5

5 4 Molebatsi Kolobe (a) Taxable income for the year ended 30 June 07 Income from employment Basic salary 450,000 Entertainment expenses reimbursed 0 Salesman of the year award 5,000 Commission on sales 4,863 Reimbursement of travelling expenses 0 Subsistence allowance 0 Leave pay encashed 4,750 Company provided housing ((500,000 x 0%) 9,000) 3,000 5 Utility bills 3,344 Chargeable income from employment 604,957 Less: employee pension contributions (450,000 x 3%) (3,500) 59,457 Other income Sale of private car 0 Lucky prize draw winnings 0 Taxable income 59,457 8 (b) Notwithstanding that the competitor company is offering to engage Molebatsi under a contract for services, the tax authorities are likely to argue that he continues to be an employee given: he will be granted annual leave which is normally only provided to employees; he will continue to receive benefits such as company provided housing which are normally only provided to employees. 0 5 Water Construction (ty) Ltd (a) Taxable income Working Balancing charge Original cost 563,80 Less: rolled over (85,75) Less: capital allowances (37,96) 05,69 Sales proceeds 0,000 Balancing charge 4,38 Working Net disposal gain on shares Original cost 8,000 Sales proceeds 75,000 57,000 Less: 5% moveable property allowance (39,50) Net disposal gains 7,750 6

6 Note Net profit per accounts,06,46 Add: cost of new contract,000,000 Add: depreciation 37,80 Add: loss on sale of shares 43,000 Add: wages and salaries 0 Add: provision for loss on contracts ,000 Add: balancing charge (working ) 4,38,90,8 Less: fair value adjustment 50,000 Less: profit on sale of equipment 45,388 Less: retentions receivable 78,05 Less: provision for loss on contracts 06 60,000 Less: capital allowances 48,86 (,765,56),7,07 Net disposal gain (working ) 7,750 Taxable income,88,8 Tutorial notes. The purchase cost of a contract is of a capital nature and is therefore not deductible.. A contract retention only accrues when it is received and it is only at that time that it comes into charge. Whilst there are retentions receivable, they can be deducted from income for tax purposes. (b) Minimum SAT payment Tax payable (,88,8 x %) 83,54 Less: withholding tax on construction contracts 560,9 Less: withholding tax on interest received 3,063 (573,54) Tax overpaid (89,73) Tax through the withholding tax mechanism has been overpaid and accordingly there is no necessity to pay any SAT. Tax treatment of retentions In Botswana gross income comes into charge when it has accrued i.e. when the taxpayer has a legal right to claim payment of that income. A contract retention is a deduction from a contract payment in order to cater for work not performed by the contractor. Under the terms of the contract, the contractor cannot claim payment of the retention until all work is completed. Accordingly, the retention income only accrues at the time it is paid to the contractor. Until that time the contractor can deduct the retention from gross income for tax purposes. 5 7

7 6 Linda Malatsi (a) Chargeable income or loss from Kudu Agencies Net loss per accounts (96,836) Add: administrative expenses 0 Add: salaries and wages 0 Add: drawings Linda Malatisi 360,000 Add: purchase of shares in Beryls Bank 38,000 Add: purchase of saloon car 8,000 Add: loan to son 00,000 Add: interest paid on working capital loan 0 Add: VAT penalties 6,78 696,78 Less: capital allowances on saloon car (8,000 x 5%) (45,500) Chargeable income from business 554,39 5 (b) Taxable income Chargeable income from business (from (a)) 554,39 Chargeable income from dividends 0 Chargeable income from interest bank 0 Chargeable income from interest son (6, ) 7,500 Chargeable income from disposal gains 0 Chargeable income from retirement annuity (47, ,340) 30,340 Car benefit (0,000 x 75%) 7,500 Taxable income 870,73 6 Tutorial note: The sale of the loan account is not subject to tax. Tax payable Taxable income (from (b)) 870,73 First 44,000 3,050 Next 76,73 at 5% 8,683 94,733 Less: withholding tax on dividends 0 Less: withholding tax on bank interest 0 Less: withholding tax on interest from son 750 Less: withholding tax on retirement annuity 54,340 (55,090) Net tax payable 39,643 3 (d) Date by which tax return must be submitted 30 September