SCHOOL OF BUSINESS, ECONOMICS AND MANAGEMENT

AFIN 208 – PRINCIPLES OF TAXATION

MID-TERM ASSIGNMENT

ANSWER ALL QUESTIONS

INCOME TAX COMPUTATIONS

QUESTION ONE
(a)
Calculate the final income tax payable by each of the following taxable persons for the tax year
2020:

Njolwe

Njolwe has business profit of K303,000 for the tax year 2020. The turnover of the business for
the tax year 2020 was K450,000.

Tiindwa
Tiindwa runs a farm on a commercial basis in the Dundumwezi. Her farming profits for the tax
year 2020 were K205,350. She received profits from shares she disposed of from a non-listed
LuSE company amounting to K35,000. She has no other sources of income.

Linda
Linda is employed at annual salary of K39,600 which is payable to her in twelve monthly
instalments. She was in employment throughout the tax year 2020. [6 MARKS]

(b)
Chembe who runs a business has taxable business profits of K670,000 for the charge year
2020. In addition, he also received the following: K
Salary from part time employment 134,000
Bank interest 20,900
Royalties 22,950

The amount of salary is the actual amount received. Income tax of K22,900 had been deducted
under the Pay As You Earn (PAYE) system.
The amounts of bank interest and royalties are the actual amounts received. Withholding tax
had been deducted at source where applicable.

Required:
Calculate the final amount of income tax payable by Chembe for the charge year 2020.
[ 6 MARKS]

(c) The employers of Chembe for the part time employment were wondering as to whether they
were vicariously responsible for his offences which the Zambia Police were pursuing on his
job after he defrauded a customer.
As a Tax Principal in your organization, what tests would you carry to assist them determine
the level of the employer`s responsibility towards his worker ( 8 Marks)

(TOTAL: 20 MARKS)
QUESTION TWO

(a)
HJK Ltd, a Zambian resident company has provided the following information for the tax
year 2020: K
Business Profits 345,900
Dividends from Zambian companies 34,890
Bank interest received 12,500
Treasury bill discounts received 22,780
Rent received 45,000
In respect of investment income, the amounts shown above are the actual amounts received.
Withholding tax had been deducted at source where applicable. The dividends were received
from companies that are not listed on the Lusaka Stock Exchange.
Required:
Calculate the company income tax payable for the tax year 2020. [6 MARKS]
(b)
Katembwe, who has been in business for many years produced the following statement of
profit or loss for the year ended 31 December 2020:
K K
Gross Profit 589,850
Less expenses
Depreciation 145,200
Wages and salaries (Note 1) 100,250
Bad debts (Note 2) 25,750
Rent and rates (Note 3) 29,000
General expenses (all tax allowable) 55,800
(356,000)
Net profit 233,850

The following additional information is available:

Note 1 – Wages and salaries

Wages and salaries include a nominal salary of K22,500 for Katembwe and a salary of K20,000
paid to Katembwe’s son for working part time in the business. Other employees were paid an
average salary of K23,000 for doing similar work as Katembwe’s son. In addition, a salary of
K12,000 paid to Mrs. Katembwe is included in the figure for wages and salaries. Other
employees who did similar work as Mrs. Katembwe were each paid a salary of K9,000.
Note 2 – bad debts
These were made up of the following: K
K
Trade debt Written off 21,500 Balances b/f
Loan to former employee 5,000 General Provision 6,800
Balances c/f Specific Provision 8,800
Specific Provision 7,050
General Provision 7,800 Profit and loss 25,750
41,350 41,350

Note 3 – Rent and Rates

It has been agreed with the Commissioner General that one fifth of the expenditure on rent and
rates relates to the private use. This is because Katembwe’s business is run from a shop that is
situated below the flat in which he and his family live.
Note 4 – Goods taken for personal use
Katembwe took goods from the business for personal use. The cost of these good that was
recorded as sales was K6,000. Katembwe’s gross profit percentage on sales is 20%.
Note 5 – Capital allowances
These have been agreed at K11,650 for the tax year 2020.

Required:
Calculate for Katembwe the amount of taxable business profits for the charge year 2020 and
the amount of income tax payable.
(10 MARKS)

QUESTION THREE
Banda is in business preparing accounts annually to 31 December. He has acquired the
following assets since the commencement of his business:
Date Asset Cost
K
1 July 2019 Toyota car 107,500
31 December 2019 Equipment 120,000
1 January 2020 TATA Truck 450,000
31 October 2020 Furniture 110,000

All of the above assets were used wholly and exclusively in the business. Banda’s business
does not include any aspect of manufacturing.
Required:
Calculate the capital allowances claimable by Banda for the charge years 2019 and 2020,
showing the income tax values at the start and end of each year. [6 MARKS]

QUESTION FOUR
Monica constructed a building and put it into business use from 10 March 2020. The cost of
the building was as follows:
K
Land 100,000
Staff canteen 250,000
Showroom 300,000
Main factory 800,000
Total cost 1,450,000
Required
Calculate the cost qualifying for industrial building allowances and the total capital
allowances on buildings that can be claimed in the tax year 2020. [5 MARKS]

QUESTION FIVE
In relation to Value Added Tax, explain what is meant by each of the following
(a) Registration ( 2 MARKS)
(b) Deregistration ( 4 MARKS)
(c) Tax Invoice ( 4 MARKS)

QUESTION SIX
(a) In relation to Customs and Excise duties, explain what is meant by Value for Duty
purposes and how it is calculated (2 MARKS)
(b) Mr Tundwe imported a light truck for use at his farm from Japan. The FOB was
$2,450, Insurance $250 and shipment was $1,200 up to Tanzania.
He incurred the following costs bringing it up to Nakonde Boarder Post:
Bus fare from Lusaka to Nakonde ZMK200
Bus fare from Nakonde to DAR ES SALAAM TS 30,000
Hotel lodging in Tanzania TS 15,000
Fuel cost to Nakonde TS 200,000

Calculate the following:

a) Value for Duty Purposes
b) Customs duty
c) Excise Duty
The following information was relevant at the time of importation
The US Dollar to ZMK was $1 = ZMK15
The TS to ZMK was 1 TS = ZMK 3.5 (10 MARKS)