Fundamentals Level Skills Module, Paper F6 (LSO) Income tax payable Employment income

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2 Fundamentals Level Skills odule, Paper F6 (LSO) Taxation (Lesotho) r Williams June 00 Answers and arking Scheme arks (c) Income tax payable Employment income Basic salary 40,000 Car allowances 43,00 Housing allowance 4,000 Cellphone allowance (not taxable) 0 Entertainment allowance,600 Holiday travel allowance 6,00 Reimbursement: utilities and watchman (not taxable) 0 533,000 Less expenses: Employer superannuation fund contributions (,00*) (6,400) Self provided superannuation fund contributions (3,500*) (4,000) 464,600 Terminal benefits: Gratuity 535,500 Severance pay (94,500,500) 93,000 68,500,093,00 Property income Foreign source dividends (exempt) 0 Foreign source gain (exempt) 0 Lesotho source interest,500 Chargeable income,05,600 Tax payable (40,368*%) 8,88 (,065,3*35%) 37,83 38,7 Less personal tax credit (5,000) Net tax payable 376,7 3 Income tax withheld and payable on the lumpsum payments Employer superannuation fund 60,000 Self provided superannuation fund 96,600 56,600 (56,600/0 75*5%) 5,00 Fringe benefits tax payable Car fringe benefit (390,000*5%) 58,500 Utilities fringe benefit: Cellphone (,000*),000 Electricity and water (3,00 800)* 8,800 Night watchman (exempt) 0 Taxable values 99,300 Taxable amounts (99,300/0 65%) 5,769 Fringe benefits tax (5,769 * 35%) 53,469 6

3 (d) arks r Williams could have avoided the income tax paid on the lumpsum payments if, within 90 days of receipt, the payments were: rolled over into another superannuation fund; or used to purchase an annuity. 4 5 PPH Advance corporation tax (ACT) Dividends paid on November 009 5,000 ACT (5,000*5/75) 8,333 Payable on or before 8 November 009 Utilisation of ACT ACT can be: (i) Set off against instalments of tax (ii) Set off against corporation tax liability net of instalments paid (iii) Set off against value added tax (VAT) liability (iv) Carried forward and set off against instalments of tax due, such as, corporation tax liability or VAT liability in subsequent year(s) of assessment 4 (c) Corporation tax payable for the year ended 3 December 009 Business income Turnover (950,00*00/4) 833,509 Less operating expenses (see workings) (466,550) 366,959 Property income Interest: Local (3,500 x 00/90) 36, Foreign (46,600 +,650) 58,50 Dividends: Local exempt Foreign (, ,00) 5,500 Gain on disposal of shares (,750 (8 5*,500)) 9,000 Chargeable income 485,80 Tax payable at 5%,455 Less: Foreign tax credit (see workings) (5,55) Local withholding tax (3,6) ACT (8,333) Net tax payable 93,986 Payable on or before 3 arch 00 Workings:. Operating expenses Total incurred 530,50 Less: disallowed Advertising (35,500*80%) (8,400) Franchise 40,000 (40,000/5) (3,000) Approved training (3,00*) (3,00) 466,550

4 arks. Foreign tax credit Foreign income Amount Foreign Lesotho Credit Tax paid Tax Available Interest 58,50,650 4,563,650 Dividends 5,500 4,00 3,875 3,875 5,55 8 (d) Withholding tax payable Cost of trade mark (40,000*0%) 4,000 anagement fees (5,700*0%),570 6,570 (e) (i) A branch in Lesotho of a non-resident company is subject to tax at the standard rate of tax on repatriated income in addition to income tax on the chargeable income of the branch. (ii) Chargeable income 30,600 Less: Income tax on chargeable income at 5% (80,50) 40,450 Reinvested profits in Lesotho (40,450*80%) (9,360) 48,090 Tax payable on repatriated profits at 5%, Sisters Boutique value added tax (VAT) A person is obliged to register for VAT if his annual turnover of taxable supplies (including any zero rated supplies) exceeds 500,000 or there is reasonable ground to expect that it will exceed 500,000 during the period of the next months. Sisters Boutique will be in a position to claim any input VAT paid on taxable supplies when dealing with other vendors. (c) (i) Input VAT Purchases (5,00 * 4 / 4 ),867 Rent (,600 * 4 / 4 ) 97 Transport (exempt) Water (exempt) Electricity (60 * 5/05) 8 Telephone (30 * 5/05) Accounting fees (excluded) Sundry expenses (40 * 4 / 4 ) 5 Furniture and equipment (7,500 * 4 / 4 ) 9 3,056 8 (ii) Output VAT Sales Local (, * 4 / 4 ),843 Exports (zero-rated),843 3 (iii) VAT refundable (3,056,843) 3 5 3

5 4 Lithebe Contractors Long term contracts arks Chargeable income Years: 007/08 350,000 * 47 8% 67, /09 350,000 * 43 5% 5,50 009/0 350,000 * 8 70% 30,450 Workings: Chargeable income (estimated profit)*(percentage of contract completed) Estimated profit (Total contract price Total costs) (,500,000,50,000) 350,000 Percentage of contract completed = Years 007/08 008/09 009/0 Contract costs incurred Total contract costs 550,000,50, ,000,50,000 00,000,50, % 43 5% 8 70% 9 Utilisation of long-term contract loss Contract loss may be carried forward to subsequent year(s) of assessment and be offset against relevant income arising in subsequent year(s). Alternatively, contract losses may be carried back to a preceding year of assessment and be offset against relevant income. The loss can only be carried back provided the following conditions prevail: When the Commissioner is convinced that the taxpayer is unable to carry the loss forward and offset it against relevant income in subsequent year(s) When the Commissioner is satisfied that the taxpayer cannot obtain the benefit of the loss for tax purposes in other jurisdictions rs Nkune Taxation of estates of deceased persons Income received in a year of assessment of the death of a taxpayer and prior to the date of death is treated as chargeable trust income and taxed to the executor or administrator of deceased taxpayer for that year of assessment. 3 Such income is taxed at marginal rates if the deceased taxpayer was a resident, and the personal tax credit applies. It is taxed at 5% if he/she was a non resident. Income received after the date of death of a deceased taxpayer, and arising from an income-producing activity of the taxpayer before the taxpayer s death is also treated as chargeable trust income and taxed to the executor or administrator of the deceased taxpayer. 3 Such income is taxed at marginal rates for the first year of assessment after the death of the taxpayer, and the personal tax credit applies. Thereafter, it is taxed at 35%, and no personal tax credit is allowed. 0 4

6 arks Tax payable on rs Nkune s estates Years 007/08 008/09 009/0 Income 0,000 99,500 8,60 Tax payable: at marginal at marginal at 35% rates rates 36,75 9,577 8,97 3 Less personal tax credit (5,000) (5,000) 3,75 4,577 8,