STUDY MANUAL

Paper L.3 ADVANCED TAXATION
ZICA ACCOUNTANCY PROGRAMME PROFESSIONAL (Final Draft)

3 – Advanced Taxation Amendment Act 2006/07 .L.

All rights reserved. recording or otherwise without the prior written permission of the Zambia Institute of Chartered Accountants (ZICA).o Box 32005 Lusaka Zambia © 2007 Acknowledgements We are grateful to the Zambian Government through the Ministry of Finance and National Planning under PEMFA project for funding the printing of these books. No past of this publication may be reproduced. Furthermore we are grateful to the Professionals and specialists for undertaking the process of writing these study materials. . the Chartered Institute of Management Accountants. we also acknowledge the Association of Chartered Certified Accountants. photocopying. and the Institute of Chartered Accountants of England & Wales and Other Accountant Professional bodies for permission to reproduce some of the past Examination questions. electronic.Published by the Zambia Institute of Chartered Accountants (ZICA) 24 Joseph Mwilwa Road RhodesPark P. stored in a retrieval system or transmitted. Finally. in any form or by any means. mechanical.

4 Review of cannons of taxation…………………………………………………………6 Properties of good taxation…………………………………………………………….3 Sources of tax law in Zambia…………………………………………………………......3 – Advanced Taxation Amendment Act 2006/07 ...36 Chapter 2 – Personal Business Taxation An evaluation of the badges of trade……………………………………………….92 Employed or self employment………………………………………………………..(Detailed) PAG E UNIT 1 – INCOME TAX Chapter 1...108 Share Option Schemes……………………………………………………………...7 Residence and ordinary residence……………………………………………………8 The role of the direct taxes division………………………………………………….......71 Turnover tax……………………………………………………………………………79 Chapter 3...46 Accounting dates…………………………………………………………….....28 Tax reforms – basic concepts………………………………………………..121 Taxation of Income from Royalties……………………………………………….126 L........94 Payments in addition to salary ……………………………………………………......20 Problems of the Zambian tax system……………………………………………….Taxation of Investment income Introduction…………………………………………………………………………..110 Chapter 4.103 Operation of the PAYE System……………………………………………………...118 Kinds of investment………………………………………………………….119 Taxation of Income from Letting of Property……………………………………..41 Computation of trading taxable profits………………………………………………44 Computation of capital allowances…………………………………………………....Taxation of income from employment Deemed Income……………………………………………………………………….Principles of Income Tax Taxation as a source of revenue for government……………………………………1 Performance of tax revenue collection………………………………………………..101 Lump Sum Payments………………………………………………………………..

.....167 Taxation of Income from Foreign Sources………………………………….153 Source of Income……………………………………………………………....188 Loans to effective shareholders……………………………………………….........193 Investment Income for Companies……………………………………………194 Relief for Trading Losses………………………………………………………...240 International Aspects of Mining Taxation…………………………………………...Taxation of Mining Operations Brief history of Zambian Mining……………………………………………………224 Mining Policy…………………………………………………………………………226 Why Mining Companies are taxed differently…………………………………….....250 Indexation of Mining Losses and Capital Allowances……………………………260 L......230 Mineral Royalty Tax…………………………………………………………………......230 Small Scale mining operations……………………………………………………......163 Computation of Income Tax Payable by Partnerships……………………..181 Treatment of Employee benefits in Kind……………………………………....Company Income Taxation Introduction……………………………………………………………………......180 What is business?..........Personal Income Tax Computations and payment of tax Amalgamation of income……………………………………………………...198 Foreign Exchange Gains and Losses…………………………………………....128 Taxation of Dividends from Zambian companies…………………………130 Taxation of Investments in Pension Funds…………………………………135 Chapter 5...171 Double Taxation Relief…………………………………………………………171 Chapter 6......156 Receipt of Income…………………………………………………………….163 Computation of Income Tax Payable by Individuals……………………….200 Chapter 7...227 Rights to Minerals vested in the president………………………………………...247 Carry forward of losses in United States Dollars…………………………………..Taxation of Interest Income………………………………………………………...231 Income Tax Deductions for Mining Investments…………………………………...195 Double Taxation Relief…………………………………………………………......239 Expenditure on community services………………………………………………...158 Independent taxation for married couples…………………………………......3 – Advanced Taxation Amendment Act 2006/07 ....229 Large Scale mining operations……………………………………………………....

346 Accounting for Output Tax……………………………………………………….292 Chapter 9 – Taxation of deceased estates and trusts Deceased person’s estate………………………………………………………….364 Administration of VAT…………………………………………………………….270 Farming Deductions and Capital Allowances……………………………………........330 Transfer of property by agents…………………………………………………….328 Exemptions………………………………………………………………………….329 Transfer of property held in a Trust……………………………………………….278 Valuation of Livestock………………………………………………………………..343 VAT Registration…………………………………………………………………......274 Stock Valuation……………………………………………………………………….3 – Advanced Taxation Amendment Act 2006/07 .Chapter 8 – Taxation of farming enterprises Introduction……………………………………………………………………………267 Definition of Farming……………………………………………………………….331 UNIT 3 – VALUE ADDED TAX Chapter 11 – Value Added Tax Meaning of supply………………………………………………………………..285 Fish Farming Activities………………………………………………………………291 Averaging of Farming and Fishing Income……………………………………….371 L.350 Deduction of Input Tax……………………………………………………………354 VAT Implications of leasing transactions………………………………….330 Taxation of Inherited property……………………………………………………..269 IAS 41 – Agriculture…………………………………………………………………..301 Taxation of Income of an Estate……………………………………………………306 Taxation of Trusts………………………………………………………………………………… 309 UNIT 2 – PROPERTY TRANSFER TAX Chapter 10 – Property Transfer Tax The meaning of Transfer and Realized value……………………………………325 Transfers within Groups of companies……………………………………………328 Transfers to members of the immediate family…………………………………..

..463 Pension Products…………………………………………………………………….467 L.428 The World Customs Organisation…………………………………………………. .454 Deposit based Investments…………………………………………………………463 Collective Investment products…………………………………………………….392 The Customs and Excise Division…………………………………………………396 Clearance procedures………………………………………………………………404 Customs acquittal documents and export procedures………………………….UNIT 4 – CUSTOMS AND EXCISE DUTIES Chapter 12 – Customs and excise duties Introduction………………………………………………………………………….435 Common Market for Eastern and Southern Africa (COMESA)…………………..408 Determination of customs and excise values…………………………………….438 The Free Trade Area………………………………………………………………..420 Chapter 14 – International Aspects World Trade Organisation………………………………………………………….418 Challenges of the duty drawback system………………………………………….3 – Advanced Taxation Amendment Act 2006/07 ...447 UNIT 5 – FINANCIAL PLANNING Chapter 15 – Financial Planning Meaning of financial planning………………………………………………………452 Sources of finance for individuals and companies……………………………….388 Protectionism and Trade quotas………………………………………………….411 Chapter 13 – Export Concessions Introduction……………………………………………………………………………413 Duty Drawback System……………………………………………………………..386 Globalization and International Trade…………………………………………….390 Tariffs and trade quotas…………………………………………………………….416 Basis of Payment…………………………………………………………………...

528 Appeals Procedures……………………………………………………………….499 Options for dealing with tax evasion………………………………………………..513 Extracting Profits from a Company…………………………………………………523 Disposal of a Business………………………………………………………………524 UNIT 7 – REVENUE APPEALS TRIBUNAL Chapter 18 – Revenue Appeals Tribunal The Revenue Appeals Tribunal………………………………………………….507 Remuneration packages………………………………………………………… 509 Choice of Business Medium……………………………………………………….482 Acceptable Limits of Tax Planning…………………………………………………484 Tax Avoidance………………………………………………………………………. 536 L..502 Chapter 17 – Tax Planning – Part II Employment versus Self employment…………………………………………….UNIT 6 – TAX PLANNING Chapter 16 – Tax Planning – Part I Meaning of Tax Planning……………………………………………………………481 Objectives of Tax Planning………………………………………………………….486 Source based taxation system…………………………………………………….495 Anti Avoidance Legislation in Zambia……………………………………………..530 Bibliography…………………………………………………………………………..527 Composition and Structure of the RAT…………………………………………....3 – Advanced Taxation Amendment Act 2006/07 .496 Tax Evasion…………………………………………………………………………...

3 – Advanced Taxation Amendment Act 2006/07 .(5%) Value Added Tax . imports.PURPOSE This paper will enable students apply judgement and technique in the provision of taxation services to clients.(10%) UNIT 1.0: INCOME TAX (40%) Element 1. Carry out computations for and advise clients on issues relating to taxation liabilities of corporate tax payers arising from income generation. 3. progressive and regressive tax • Meaning of residence for individuals and other types of tax payers L. General Learning Objectives: On completion of this paper. Provide advice on minimizing or deferring tax liabilities for individuals or corporate tax payers by utilizing exemptions.(40%) Property Transfer Tax . imports and exports and capital disposals. The paper is intended to equip students with the ability to resolve proplems involving the computation of tax payable and tax planning drawing upon the interaction of a wide range of taxes. reliefs and allowances 4.(10%) Financial Planning . Evaluate the Zambian Taxation system LEARNING CONTENTS 1 2 3 4 5 6 Income Tax . Prepare computations for and advise clients on issues relating to the taxation liabilities of individuals arising from income receipts.(15%) Tax Planning . the student should be able to: 1.1 Principles of Income Tax • Review of the Canons of taxation. 2.(20%) Role and Functions of the Revenue Appeals Tribunal . exports and capital disposals.

3 – Advanced Taxation Amendment Act 2006/07 . • Basis periods. Payment of Income tax. strengths and weaknesses of the currently available reliefs for trading losses. standard assessment and self assessment. Element 1. industrial buildings and commercial buildings. including turnover tax.3 Income from Employment • Factors used to distinguish between employment and self employment • Allowable expenses and basis of assessment • Taxable and exempt emoluments.2 Personal Business Taxation • Evaluation of the badges of trade • Computation of tax adjusted profits for sole traders and partnerships • Capital Allowances on implements. • Rules relating to small businesses with annual turnover that is less than the Value Added Tax registration threshold. other than payments on termination of employment • Lump sum payments on termination of employment • Share Option Schemes. Element 1. including the rules applicable on commencement. L. Role and functions of the Direct taxes division of the Zambia Revenue Authority.• • • Collection of income tax by deduction at source.4 Investment Income • Income from letting of Property • Royalties • Bank Interest. • Trading losses. • Operation of the Pay As You Earn System Element 1. cessation and change of accounting date. submission of income tax returns and penalties and interest on overdue tax.5 Personal Income tax computations and payment of Income tax • Independent taxation system for married couples and joint property • Computation of income tax payable by individuals • Taxation of Income from foreign sources and Double taxation relief. Building society interest and treasury bill discounts • Interest on Government bonds • Other Interest receivable • Dividends from Zambian companies Element 1. plant and machinery.

farm works allowance.2 Element 2. including the treatment of benefits in kind • Loans to effective shareholders and computation of company income tax payable • Capital allowance for companies • Investment income for companies • Relief for trading losses and its strengths and weaknesses • Taxation of Mining operations • Overseas aspects of company income taxation. Element 1.8 Taxation of Estates.1 Element 3. Development allowance and Capital allowances on implements.5 Element 2.4 Element 2. Settlements (Trusts) and Miscellaneous Income • Types of Trusts • Administrators of Estates • Payment of tax chargeable on estates and trustees UNIT 2. including foreign exchange gains and losses and double taxation relief • Payment of Company income tax and submission of returns.6 Company Income taxation • Taxable business profits of companies.4 PROPERTY TRANSFER TAX (5%) Meaning of transfer and realized value Transfers within groups of companies Transfers to members of the immediate family Computation of Property transfer tax and its payment Transfer of property held in a trust Penalties Exemptions VALUE ADDED TAX (10%) Types of Supplies Registration and Deregistration for Value Added Tax (including group registration and businesses with Branches) Accounting for Input and Output Tax Implications of Sale and Leaseback and Repurchase agreements L.0 Element 3. Element 1.2 Element 3.Element 1.7 Taxation of Farming Enterprises • Qualifying Farming activities • Farm improvements allowance.1 Element 2.6 Element 2.3 Element 2.3 Element 3.3 – Advanced Taxation Amendment Act 2006/07 . plant and machinery • Averaging of Farming and fishing income.0 Element 2.7 UNIT 3.

1 Revenue Appeals Tribunal Regulation 1998 as Amended Administration Proceedings Appeals Procedures Costs Finality of Tribunal Decisions Element 6.4 Element 4. Outright purchase.6 UNIT 4.1 Trading within the COMESA Free Trade Area Administration of Value Added Tax FINANCIAL PLANNING (15%) Sources of finance for individuals and companies Leasing.0 Element 4. TAX PLANNING (20%) Employment compared to Self employment Remuneration packages Choice of Business medium Incorporation of a business Extracting profit from a company Tax implications arising from disposal of a business. Equity finance Loan finance Personal Financial Planning Deposit based investments Collective investment products Pension products covering distinctions defined contributory schemes and defined benefit schemes.2 Element 5.4 Appeals to High Court L.5 UNIT 5.2 Members of the Tribunal Element 6.3 Element 4.1 Element 5.2 Element 4. Hire purchase.3 Element 5.0 Element 5.Element 3.6 UNIT 6.5 Element 3.0 Element 6.5 Element 5.3 Registrar of the Tribunal Element 6. ROLE AND FUNCTIONS OF THE REVENUE APPEALS TRIBUNAL (10%) Element 4.3 – Advanced Taxation Amendment Act 2006/07 .4 Element 5.

3 – Advanced Taxation Amendment Act 2006/07 . L. The paper will consist of seven (7) questions out of which candidates will be required to attempt five (5) questions.STRUCTURE OF THE EXAMINATION PAPER The Examination will be a THREE (3) hours paper.

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