Fundamentals Level Skills Module Taxation (Malawi) Specimen questions for June 2015 This is not a full specimen paper, it is a selection of specimen questions to give an indication of the style of the questions. It includes three multiple choice questions and two long questions. The full exam will consist of the following: Section A 15 multiple choice questions for 2 marks each Section B Four 10 mark questions and two 15 mark questions All questions are compulsory. To see an example of the full specimen exam, please refer to the F6 (U) Specimen Paper. Paper F6 (MWI) The Association of Chartered Certified Accountants The Institute of Chartered Accountants in Malawi
SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings need only be made to the nearest. 2. All apportionments should be made to the nearest month. 3. All workings should be shown when answering Section B. TAX RATES AND ALLOWANCES The following rates of tax and allowances are to be used when answering the questions Income tax rates: Individuals Cumulative 72,000 240,000 0 240,001 300,000 15% 9,000 300,001+ 30% Company rate Locally incorporated 30% Externally incorporated 35% Annual allowance rates (Guidelines laid down by the Commissioner of Taxes) 5% Industrial buildings Railway lines Farm improvements 10% General plant and machinery Trailers Farm fencing Furniture and fittings 15% Mobile cranes 17 5% General plant and equipment on double shift 20% Motor cycles Cars Pick-ups Light lorries (for light work) Cement mixers Tractors 25% Light lorries (for heavy work) Tippers Tracked tractors Tree-dozers Scrapers Graders Bulldozers General plant and equipment working 24 hours a day Tractors (for heavy work) Transport services 40% Computers 2
Value added tax Standard rate 16 5% Zero rate 0% Capital gain indices Year CPI Conversion factor 2002 140 8 2 8655 2003 154 3 2 6152 2004 172 0 2 3459 2005 198 5 2 023 2006 226 1 1 7846 2007 244 1 1 6530 2008 265 4 1 5203 2009 287 7 1 4025 2010 309 0 1 3058 2011 332 6 1 2131 2012 403 00 1 1200 2013 415 25 1 060 2014 406 00 1 000 3 [P.T.O.
Section A ALL 15 questions are compulsory and MUST be attempted Note: Only three specimen questions provided. For full specimen exam, see F6 (U) Specimen paper Please use the grid provided on page two of the Candidate Answer Booklet to record your answers to each multiple choice question. Do not write out the answers to the MCQs on the lined pages of the answer booklet. Each question is worth 2 marks. 1 Madengu Limited is a company involved in the manufacturing of toys. For the year ended 31 December 2013, Madengu Limited made a profit before taxation of 13,500,000. During that year Madengu Limited purchased second hand plant amounting to 5,250,000 and a saloon car costing 4,500,000. What is the maximum capital allowances which Madengu Limited could claim on the additions purchased during the year ended 31 December 2013? A B C D 6,150,000 4,425,000 3,525,000 6,675,000 2 Endor Limited is registered for value added tax (VAT). During the month of June 2014 sales of taxable supplies amounted to 550,000 and zero-rated sales amounted to 150,000. Endor Limited received an invoice for office rental for the month amounting to 350,000. All figures are inclusive of VAT. How much VAT will Endor Limited pay to the Malawi Revenue Authority for the month of June 2014? A 57,750 B 28,326 C 53,076 D 49,571 3 Which of the following items will be exempt from capital gains tax when disposed of? (1) A taxpayer s principal residence (2) Listed shares held for less than 12 months (3) Personal and domestic assets used for the purpose of trade (4) Transfers of capital assets between spouses A (1) and (2) B (3) and (4) C (2) and (3) D (1) and (4) 4
Section B ALL SIX questions are compulsory and MUST be attempted Note: Only two specimen questions are provided. For full specimen exam, see F6 (U) Specimen paper Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet. 1 XYZ Limited is a company incorporated in Malawi, and is registered for value added tax (VAT). The company is involved in buying and selling air conditioners. During the month of March 2014, the company entered into the following transactions: (i) (ii) Paid electricity bills amounting to 32,500. Bought stationery from a registered supplier amounting to 106,500. (iii) Sold air conditioners to the University at a value of 365,000. (iv) Paid for the company s phone bill amounting to 18,500. (v) Purchased air conditioners for resale from a registered manufacturer at a cost of 300,000. All transactions are stated exclusive of VAT. The VAT return for the month of March 2014 was only submitted on 20 May 2014, together with the return for February 2014 which had an amount payable of 45,000. Required: (a) Explain the implications of late filing and payment of value added tax (VAT) due. (3 marks) (b) Calculate the net input or output VAT which would be claimable or payable by the company for the month of March 2014, and state how the VAT claimable (if any) would be treated. (4 marks) (c) State the circumstances under which a taxpayer is required to register for VAT. (3 marks) (10 marks) 5 [P.T.O.
2 John Mlenga is a dentist, practising as Mlenga Dental Clinic. This is an unincorporated business. John prepares his financial statements to 30 June each year. The following are his results for the year to 30 June 2014: Net profit before taxation 450,000 In arriving at these results, the following items had been charged to the income statement: (i) Salary for John 850,000 (ii) Rental for John s house 950,000 (iii) Depreciation for: Dental surgery equipment 185,000 Office equipment 15,800 Motor vehicle 32,500 233,300 (iv) Subscription to dentist association 60,000 It has been agreed with the Malawi Revenue Authority (MRA) that the motor vehicle is also used for private purposes. The private use has been agreed at one third of total usage. Motor vehicle running expenses excluding depreciation were 125,000. Capital allowances for the practice have been calculated as: Dental surgery equipment 322,600 Motor vehicle 115,800 438,400 The turnover for the dental practice for the year was 5,650,000. The following information is available regarding John s other earnings, in addition to the business income, for the year ended 30 June 2014: Director s fees (gross) 80,000 Interest received (gross): NBS Bank 28,000 Dividends from local company (net) 7,500 House rentals 360,000 The following are John s outgoings in respect of the above income for the year: Donations Save the Children 120 Mortgage payments (60% capital) 240,000 Repairs to house 15,800 Withholding taxes had been deducted on receipts from dividends, director s fees, interest and rentals. Required: (a) (b) Compute the taxable income for John Mlenga for the year ended 30 June 2014, on the basis that income from the practice is included in taxable income. (12 marks) Calculate the tax payable by John Mlenga for the year ended 30 June 2014, taking into account any tax already paid. (3 marks) (15 marks) 6
Answers
Fundamentals Level Skills Module, Paper F6 (MWI) Taxation (Malawi) Specimen Answers and Marking Scheme Section A 1 C {40% x 5,250,000 + 10% x 5,250,000 + 20% x 4,500,000} = 3,525,000 2 B {(550,000 x 100/116 5 + 150,000 x 0%) 350,000 x 100/116 5) x 16 5% = 28,326 3 D 9
Section B Marks 1 (a) Late filing will result in penalties being suffered, a late filing fee of 20,000 and an additional 1,000 each 1 day the return is not filed. Interest will be charged for late payment of value added tax (VAT) as follows: 15% of the unpaid amount and a further amount of 5% per month or part thereof the amount remains unpaid. 3 (b) Calculation of VAT claimable and payable by XYZ Limited for the month of March 2014 Value for VAT VAT Sales 365,000 60,225 Electricity charges 32,500 (5,363) Stationery 106,000 (17,490) Telephone bills 18,500 (3,053) Purchases 300,000 (49,500) Excess of input over output tax (15,181) The excess will be carried forward to the next return. 1 4 (c) A taxpayer is required to register for VAT if their turnover is expected to exceed 2 million in a tax year. However, a taxpayer can register for VAT if their turnover does not exceed 2 million, where the taxpayer believes their business will suffer if they do not do so. The commissioner can register a person if he believes that person would meet the requirements for registration. 1 However, any taxpayer whose income is between 2 and 6 million does not need to register for VAT if the taxpayer is liable to pay turnover tax. 1 3 10 2 (a) Calculation of John Mlenga s income subject to taxation for the year ended 30 June 2014 John Mlenga practice income Net profit before taxation 450,000 Add: Items not allowed for taxation John s salary 850,000 1 Rent for John s house 950,000 1 Depreciation: 233,300 Motor vehicle expenses (125,000 x 1/3) 41,667 2,074,967 1 2,524,967 Less: Allowable expenditure Capital allowances: Dental surgery equipment 322,600 Motor vehicles (115,800 x 2/3) 77,200 (399,800) 1 Adjusted profits for tax 2,125,167 10
Marks Profits from business 2,125,167 Director s fees 80,000 1 Interest: NBS Bank 28,000 Less exempt (10,000) 18,000 1 Dividend not taxable House rents 360,000 Less: Mortgage interest (96,000) 1 Repairs (15,800) 248,200 Donations 1 Taxable income 2,471,367 12 (b) Tax to be paid by John Mlenga Workings for PAYE Salary 850,000 First 240,000 0 Next 60,000 at 15% 9,000 Balance over 300,000 at 30% 165,000 174,000 Taxable income 2,471,367 Tax First 240,000 0 Next 60,000 at 15% 9,000 Balance over 300,000 at 30% 651,410 660,410 Less: PAYE (174,000) Withholding tax Rent at 15% (54,000) Director s fees at 10% (8,000) Interest at 20% (5,600) Tax payable/(refundable) 418,810 3 15 11