Paper F6 (MWI)

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 (UK) Specimen Paper.

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 K.
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
K K
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

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 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 (UK) 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 K13,500,000. During that year Madengu Limited purchased
second hand plant amounting to K5,250,000 and a saloon car costing K4,500,000.

What is the maximum capital allowances which Madengu Limited could claim on the additions purchased during
the year ended 31 December 2013?
A K6,150,000
B K4,425,000
C K3,525,000
D K6,675,000

2 Endor Limited is registered for value added tax (VAT). During the month of June 2014 sales of taxable supplies
amounted to K550,000 and zero-rated sales amounted to K150,000. Endor Limited received an invoice for office
rental for the month amounting to K350,000.
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 K57,750
B K28,326
C K53,076
D K49,571

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)

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Section B – ALL SIX questions are compulsory and MUST be attempted
Note: Only two specimen questions are provided. For full specimen exam, see F6 (UK) 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) Paid electricity bills amounting to K32,500.
(ii) Bought stationery from a registered supplier amounting to K106,500.
(iii) Sold air conditioners to the University at a value of K365,000.
(iv) Paid for the company’s phone bill amounting to K18,500.
(v) Purchased air conditioners for resale from a registered manufacturer at a cost of K300,000.
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 K45,000.

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:
K K
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 K125,000.
Capital allowances for the practice have been calculated as:
K
Dental surgery equipment 322,600
Motor vehicle 115,800
––––––––
438,400
––––––––
The turnover for the dental practice for the year was K5,650,000.
The following information is available regarding John’s other earnings, in addition to the business income, for the year
ended 30 June 2014:
K
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) 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)

(b) 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)

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Answers
Fundamentals Level – Skills Module, Paper F6 (MWI) Specimen Answers
Taxation (Malawi) and Marking Scheme

Section A

1 C {40% x 5,250,000 + 10% x 5,250,000 + 20% x K4,500,000} = 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

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Section B Marks

1 (a) Late filing will result in penalties being suffered, a late filing fee of K20,000 and an additional K1,000 each 1
day the return is not filed. ½
Interest will be charged for late payment of value added tax (VAT) as follows: ½
15% of the unpaid amount and ½
a further amount of 5% per month or part thereof the amount remains unpaid. ½
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3
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(b) Calculation of VAT claimable and payable by XYZ Limited for the month of March 2014
Value for VAT
VAT
K K
Sales 365,000 60,225 ½
Electricity charges 32,500 (5,363) ½
Stationery 106,000 (17,490) ½
Telephone bills 18,500 (3,053) ½
Purchases 300,000 (49,500) ½
–––––––
Excess of input over output tax (15,181) ½
–––––––
–––––––
The excess will be carried forward to the next return. 1
–––
4
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(c) A taxpayer is required to register for VAT if their turnover is expected to exceed K2 million in a tax year. ½
However, a taxpayer can register for VAT if their turnover does not exceed K2 million, where the taxpayer
believes their business will suffer if they do not do so. ½
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 K2 and K6 million does not need to register for VAT if the
taxpayer is liable to pay turnover tax. 1
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3
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10
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2 (a) Calculation of John Mlenga’s income subject to taxation for the year ended 30 June 2014
John Mlenga – practice income
K K
Net profit before taxation 450,000 ½
Add: Items not allowed for taxation
John’s salary 850,000 1
Rent for John’s house 950,000 1
Depreciation: 233,300 ½
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 ½
Motor vehicles (115,800 x 2/3) 77,200 (399,800) 1
–––––––– ––––––––––
Adjusted profits for tax 2,125,167
––––––––––
––––––––––

10
 Marks
K K
Profits from business 2,125,167 ½
Director’s fees 80,000 1
Interest:
NBS Bank 28,000 ½
Less exempt (10,000) 18,000 1
––––––––
Dividend – not taxable – ½
House rents 360,000 ½
Less: Mortgage interest (96,000) 1
Repairs (15,800) 248,200 ½
––––––––
Donations – 1
––––––––––
Taxable income 2,471,367
––––––––––
–––––––––– –––
12
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(b) Tax to be paid by John Mlenga

K
Workings for PAYE
Salary 850,000
First K240,000 0
Next K60,000 at 15% 9,000
Balance over K300,000 at 30% 165,000 ½
––––––––
174,000
––––––––
Taxable income 2,471,367
Tax
First K240,000 0
Next K60,000 at 15% 9,000
Balance over K300,000 at 30% 651,410 ½
––––––––––
660,410
Less:
PAYE (174,000) ½
Withholding tax
Rent at 15% (54,000) ½
Director’s fees at 10% (8,000) ½
Interest at 20% (5,600) ½
––––––––––
Tax payable/(refundable) 418,810
––––––––––
–––––––––– –––
3
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15
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