Illustration: Tax Assessment - BBA III, BEDCOM III, BCOM FIN III, BCOM ACC III

Assume the usual accounting period of the Great Co. Ltd ends on 31st December of each year.
During the year of income 2015, the company fails to file/furnish the statement of estimated
income on the due date. However, on 30/9/2015, the company files the estimated income of shs.
10,000,000. Unfortunately, the company also, delayed the submission of the return of income
which is submitted on 30/9/2016 showing an income tax amounting to shs. 4 million. The
corporation tax rate is 30%.

Required: Compute Great Co. Taxable liability

Solution:

Convert Taxable income 10,000,000 into Tax liability; 10,000,000 x 30% = 3,000,000

Determine installment payment; (A- B)/C; 3,000,000/4 = 750,000

Determine Due Dates; 1st Installment: 31/3/2015

2nd installment: 30/6/2015
2nd installment: 30/9/2015
2nd installment: 31/12/2015
Due Date of Final Return: 2nd installment: 30/6/2016.
S.98 Penalty for late filling/submission of return

(2.5% x n x P) or (15CP x n); (2.5% x 6 x 3,000,000) or (15 x 15,000 x 6)

= 450,000 or 1,350,000; therefore the penalty will be the great number 1,350,000

S.100 Interest for late payment of installment taxes: P ( (1+r/12)n – 1)

1st installment: 750,000 ((1+0.16/12)6 – 1) =

1st installment: 750,000 ((1+0.16/12)3 – 1) =

1
S.99 Testing for under-estimation and interest for under-estimation

Testing under-estimation: 3,000,000/4,000,000 = 75%

There is under-estimation; therefore, there is under-estimation interest. P ((1+r/12)n – 1)

(4,000,000 – 3,000,000) ((1+0.16/12)15 – 1) =

Late Payment of Final return (due date 30/6/2016, payment 30/9/2016), 3 months

S.98 Penalty for late payment of final return

(2.5% x n x P) or (15CP x n); (2.5% x 3 x 1,000,000) or (15 x 15,000 x 3)

S.100 Interest for late payment of installment taxes: P ((1+r/12)n – 1)

1,000,000 ((1+0.16/12)3 – 1) =

Total Tax Liability

Estimated Tax =
S.98, Penalty for late submission =
S.100, Interest for late payment of two installment =
S. 99, Interest for under-estimation =
S.98, penalty for late payment of final return =
S.100, Interest for late payment of final return =

Total =