Explain the meaning of the terms emoluments, employments and office for the purposes of PAYE as you earn systems.
2. Explain the actual receipts basis of assessing the emoluments from the employment to income tax and explain how it is applied.
3. Explain the tax consequences of late payment of income tax deducted from emoluments under the Pay As You Earn System.
4. Describe the tests that should be taken into consideration to distinguish between an employee and a self-employed person.
5. Define turnover for the purposes of turnover tax and state the persons liable to turnover tax
6. The Property Transfer Tax Act Cap 340 provides for a change of Property Transfer Tax on the transfer of property. Property transfer tax is chargeable on the realized value of the property that is transferred.
Required;
explain what constitutes property for property transfer tax purposes
7. List any four (4) organizations that are exempted from paying property transfer tax
8. Luka`s had the following transactions for the tax year 2019:
(1)   Sold 150,000 ordinary shares of K1.50 each in Zambezi Plc K350, 000 on 30th June 2019. Zambezi Plc was listed on the Lusaka Securities Exchange in September 2018.
(2)   Sold a farming plot in Mkushi farming block for K350, 000 which was open market value on 1 September 2019 and was bought from a prominent farmer in the same area on 15th february 2013 at a cost of K200, 000.
(3)   Sold 1,500,000 ordinary shares of K1.00 each in Ndeke Ltd for K2, 000,000 on 17 march 2017. She bought these shares in the company in June 2017 immediately the company commenced operations.
(4)   Sold 350,000 ordinary shares of K1.00 each in Shop light Plc for K400, 000 on 230th June 2019. Shop light Plc was listed on the Lusaka security exchange in September 2016.
Required;
Calculate the amount of any property transfer tax arising on each one of the above transactions and state the due date when it should have been paid.
9. Value Added Tax (VAT) is a consumption-based tax that is levied in the supply chain at each point where value is added to a good or service. This tax is administered by ZRA under the Domestic Taxes division.
 
Required:
                   i.            Explain four (4) advantages and one (1) disadvantage of Value Added Tax (VAT).

                   ii.            Explain the meaning of the following:
         Supplies of goods
         Supplies of services
         Supplies of neither Goods nor Services  
 
b.      In the context of value-added tax explain the following:
                   i.            Taxable supplies
                  ii.            Exempt supplies
                 iii.            Standard-rated supplies
                 iv.            Zero-rated supplies
 
c.       Explain the types of registration for the purposes of Value Added Tax (VAT).
d.      List any Six (6) contents which must appear on the tax invoice.
e.       List any Six (6) documents that will be examined by the Zambia Revenue Authority (ZRA) officers during the VAT inspection visit in order to satisfy themselves that the VAT due has been correctly worked out.
10. Mr Bunte was employed by Lydia Enterprise Limited as an Electrical Technician on 1 January 2020 on a three (3) year contract on the following terms:
      i.            Annual salary: K180,000
     ii.            Annual Housing allowance: 20% of the annual basic salary
    iii.            Transport allowance: K3,500 per month payable at the end of each month.
    iv.            Medical allowance: K2,500 per month
 
He was also entitled to an educational allowance of K2,250 per term per child. Mr Bunte has two (2) school going children.
On 1 May 2022, he received a labour day award of K20,000 cash and an upright freezer worth K10,500 as the most hard working and punctual employee. In addition, the company paid him a bonus of K12,000 for being the most efficient and innovative employee.
On 31st May 2022, Mr. Bunte decided to resign from employment and received repatriation pay of K24,000 and his commuted leave pay was K18,000.
During his employment in the tax year 2022, the company deducted employee's NAPSA contributions at the rate of 5% of his gross employment earnings and deducted income tax under the Pay As you Earn system amounting to K5,500.
Mr Bunte made the following payment from his employment earnings during the year:
1.      Water and electricity bills of K800 and K1,200 respectively per month. The company reimbursed him the full cost of these bills at the end of each month.
 
2.      Professional subscriptions of K2,000 to the National Electrical Association (NEA) to which he is a member.
 
Mr. Bunte other income in the tax year included consultancy fees of K8,500 (net) and income from a business he started running immediately after receiving his benefits from Ms Lydia Enterprise Ltd.
Mr Bunte started running a small business repairing electrical domestic appliances on 1 June 2022 and prepared the first accounts to 31 December 2022. He will prepare accounts
annually to 31 December each year. He bought a second-hand repair shop at a cost of K250,000, comprising K50,000 for land and K200,000 for the shop building on 1 June 2022. He also bought a second-hand Nissan Hard body double cab van at a cost of K90,000 as his utility vehicle. It was agreed with the Commissioner General that the business use of the car in the tax year 2022 was 60%.
For the period ended 31 December 2022, he made a profit before tax of K26,400 from a turnover of K850,000, after charging the following expenses:
1)      Depreciation of K27,000.
2)      Motor vehicle running expenses for the Nissan hard body van amounting to K11,250.
 
3)      A donation to a political party of K3,000.
4)      Salary of K3,200 per month for his assistant.
5)      Cost of a course in advanced electrical engineering amounting to K6,000 for himself.
6)      A fine for a speeding offense of K1,200 incurred by an employee on a business trip outside Lusaka.
7)      Cost of K2,500 for entertaining his new clients.
Required:
a.      Explain how the basis period for the profits made by Mr. Bunte for the period ending 31 December 2022, will be determined.
b.      Compute the final taxable profits from the business for the period ending 31 December 2022.
 
c.       Calculate the income tax payable by Mr. Bunte for the tax year 2022.
11. You are employed in a firm of Chartered Accountants. Your firm has been approached to provide training at a workshop organized by an association that represents the Small and Medium Enterprises in the agricultural sector. The training will cover the following matters:
       i.            Tax avoidance and tax evasion.
      ii.            Due dates for payment of tax and submission of returns.
     iii.            Penalties for non-compliance.
 
Your supervisor has asked you to prepare short notes for the training on the issues highlighted above. Your firm recently employed graduates as trainees in various departments of the firm. Your supervisor has additionally asked you to prepare notes on professional code of ethics to be used in a training workshop for the graduate trainees.
 
Required:
a. Prepare brief notes to be used in the training workshop for the representatives of the Small and Medium Enterprises addressing the following maters:
       i.            Explaining the differences between tax avoidance and tax evasion.
      ii.            Stating the due dates for the submission of turnover tax returns and self-assessment income tax returns.
     iii.            Explaining the consequences for late submission of returns and late payment of income tax.
 
b. Prepare brief notes to be used in the training workshop for the graduate trainees explaining:
       i.            The meaning of integrity and objectivity as fundamental principles contained in the IESBA's Code of Ethics for Professional Accountants.
 
      ii.            The meaning of a self-review threat and an advocacy threat.
12. Mary and Monica are in partnership sharing profits and losses in the ratio 2:1. On 31 May 2022, Monica decided to retire from the partnership and on the same date Tumelo was admitted into the partnership. Before Tumelo joined, the partners were entitled to annual salaries of K45,000 each. However, the new partnership agreement provided that Tumelo would be entitled to an annual salary of K30,000, while Mary would continue to earn the same salary as in the previous agreement. The new profit and loss sharing ratio after the admission of Tumelo was 3:2.
The financial statements for the year ended 31 December 2022 showed a net profit of K126,000 after charging the following expenses:
       i.            Depreciation at the rate of 25% on cost for each of the two (2) motor cars used by the partners in the partnership was charged during the year. The two (2) motor cars were purchased on 22 March 2021 costing K56,000 each. The motor cars are used for both private and business purposes. The Commissioner General provided a private use adjustment of 20% for each motor car.
     ii.            The motor car running expenses incurred during the year amounted to K94,000. The partners drove a total of 25,000 kilometers of which 5,000 kilometers related to private use.
   iii.            The general expenses incurred of K7,000 included K3,000 for telephone bills and K2,400 was donated to a political party, while the remainder of the expenses are all allowable for tax purposes.
   iv.            The partners took some goods from the business costing K3,400 for their private use without paying for them. The profit mark-up is 20%.
    v.            The first-born son to Mary works for the partnership on a full time basis. He earns an annual salary of K36,000. However, the other employee doing the same job as Mary's son earns an annual salary of K24,000.
   vi.            The repairs and renewals incurred during the year amounted to K6,500 of which K1,250 was for re-painting Tumelo's office and all other repairs are allowable for tax purposes.
 
 
 vii.            The charge for electricity is made up of as follows:
                                                                             K
Electricity for partners' houses                             600
Administrative offices                                          400
                                                                             1,000
viii.            All the partners were actively involved in running the partnership and the salaries for Mary and Tumelo of K6, 000 and K4,000 respectively were deducted from the gross profit.
Required:
a)      Calculate the partnership's tax adjusted business profit for the tax year ended 31 December 2022.
b)     Calculate the amount of business profits on which each partner will be assessed for the tax year ended 31 December 2022.
 
 
13. The Zambia Revenue Authority (ZRA) has a huge responsibility to collect revenue on behalf of the government of the Republic of Zambia. One of the avenues of raising revenues is through levies and taxes.
Required:
Explain the following types of taxes:
       i.            Indirect taxes  
     ii.            Direct taxes  
   iii.            Regressive taxes  
   iv.            Progressive taxes  
     v.            Capital taxes and Revenue taxes  
14. For the purposes of this question you should assume that today's date is 1 November 2023
You are employed as a Tax Manager in a firm of Chartered Accountants. You are dealing with the tax affairs of GLT Limited, a new client of the firm. The directors of the company have informed you that they recently received a letter from the Zambia Revenue Authority giving them notice of their intention to perform a tax audit on the affairs of the company. This letter also warned that penalties and interest may be payable, should the audit uncover any undeclared income or tax defaults.
GLT Ltd is engaged in manufacturing and commenced operations a year ago. In January 2022, the directors of the company estimated the provisional taxable income for the tax year 2022 to be K9,500,000. However, due to the adverse effects of the Corona Virus Pandemic (COVID 19) on the performance of the company the directors revised the provisional taxable income to only K6,500,000.
The company submitted the return of provisional income in respect of the tax year 2022 on 10 April 2022 and paid the provisional income tax relating to the first quarter on this date. The second and third instalments of provisional income tax relating to the second and third quarters were both paid on 30 September 2022, whilst the final instalment of provisional income tax relating to the fourth quarter was paid on 31 December 2022.
The directors have informed you that for the year ended 31 December 2022, the company generated a profit before taxation as per accounts of K6,900,000 and they calculated the actual amount of the company income tax liability for the tax year 2022 based on this profit figure. The directors also computed the balance of income tax payable for the tax year 2022, on this basis and paid this on 21 June 2023. The self-assessment income tax return in respect of the tax year 2022 was also submitted on 21 June 2023.
They have provided you with the financial statements for the year ended 31 December 2022 and using these, you have established that the actual tax adjusted profit for the company for the tax year 2022 was K12,500,000. You computed the correct amount of the company income tax liability and the balance of the income tax payable for the tax year 2022. The directors paid the amount of tax which was underpaid on 21 October 2023.
Whilst performing work on this assignment, you noticed that the directors omitted a significant amount of income from the company's previous year's (i.e. the tax year 2021) self-assessment return. You have approached the directors and advised them to make the necessary corrections and submit an amended return, but they have refused and instead, they have offered you K200,000 cash, to keep this information to yourself and not disclose it to anyone in line with your professional duty of confidentiality.
You should assume that the Bank of Zambia discount rate is 8.5% per annum and that the tax regulations for the tax year 2023, apply throughout
Required:
a)      Advise the directors of GLT Ltd of the company's exposure to penalties and interest. Your answer should be supported by calculations of the amount of interest and penalties arising as far as the information provided permits.
b)     Evaluate the ethical and profession issues you face in relation to the undisclosed income by GLT Limited and the directors offer of money to you, recommending any appropriate course(s) of action that should be taken.
c)      Describe any four (4) audit procedures a tax auditor should carry out to uncover any hidden income when performing a tax audit on the affairs of a tax payer.
15. Explain two (2) advantages of the provisional tax system.
16. Explain any two (2) methods apart from taxation, central government may use to raise revenue.
17. Explain the circumstances under which capital allowances on expenditure incurred by a person carrying on farming operations may be available at higher rates.
18. Explain the consequences of the late payment of VAT and late submission of VAT returns.
19. Explain any five (5), the badges of trade.
20. Mr. Motoka imported a second hand light truck with gross weight of 15 tons from Japan costing $1050 in February 2015. The charge for insurance was $100 and freight up to Nakonde (the point of entry into Zambia) was $1000. The freight charge from the point of entry to his premises was K2, 200.
The Commissioner General advised that the Exchange rate ruling at the time was K6.1 per US $1. However, when Mr. Motoka bought the US dollars for paying for the importation of the truck, exchange rate was K6 per US$1.
Required:
Calculate the following for the motor vehicle:-
(I) The value for duty purposes for customs duty  
(ii) The amount of customs duty payable  
(iii) The amount of excise duty payable and
(iv) The Value Added Tax payable
21. Thomas Lubilo was offered a contract by Limbikani Limited on 1 April 2021 as plumber, doing all plumbing works. Under the terms of this contract, he is only required to report for work on days the company has plumbing work for him to do, which is usually from Monday to Friday from 08:00 hours to 17:00 hours. He is paid an agreed amount at the end of the month based on the amount of work performed in that particular month. On days when there is no work for him to do for Limbikani Limited, he is allowed to work for other clients. He provides his own tools whenever his doing his work at Limbikani Ltd as well for his own personal clients.
He is not supervised by anyone when performing his work and normally does the work with his nephew as his helper. Thomas pays his nephew a monthly salary of K2, 000.
A friend of Thomas Lubilo has advised him to report the company to the labour office because he feels that Thomas Lubilo works like a full time employee as opposed to a self- employed individual. He has argued that Thomas Lubilo should be entitled to a monthly salary because he spends most of his time at the company. As an employee he could be entitled to other allowances such as housing allowance, transport allowance, lunch allowance and such other perks. He also advised him that he may be visited by Zambia Revenue Authority (ZRA) because he is supposed to Pay, Pay As you Earn (PAYE) for his nephew.
Thomas Lubilo is now puzzled by these revelations from his friend and has approached you for advice.
Required:
(a) Briefly explain to Thomas Lubilo the factors which should be considered by the tax authorities to establish whether he is an employee or self-employed individual.  
 
(b) Explain any four (4) factors which are likely to show that Thomas Lubilo is self-employed and not an employee of Limbikani Limited.  
(c) Explain whether Thomas' nephew will be required to pay PAYE as an employee.          
(d) In relation to employment, explain the meaning of the following terms:
(I) Emoluments  
(ii) Office
22. State the factors Zambia Revenue Authority (ZRA) uses to determine the residence of the     company for tax purposes.
23. Persons who are not resident in Zambia are exempt from Zambian Income Tax. However, certain persons are exempt from Zambian Income Tax although they are resident and ordinarily resident in Zambia.
Required:
State any five (5) persons exempt from paying Income Tax in Zambia.
24. The following situations are given to you as a Tax Consultant:
 
(I) Trade Queens Ltd is a company that is incorporated in Zambia. The Board of Directors meets every week in a country called Muzo where the company has several branches. In Zambia the company has only the head office.
 
(ii) Good Steel Limited is a company that is incorporated in a country called Democratic Republic of Zema. The company's Board of Directors holds weekly meetings in a country called Hindu. The company has the highest number of branches than in Hindu, and in the Democratic Republic of Zema.  
 
(iii) Tusole Tea Estates is a company that is engaged in the growing of citrus fruits. The company was incorporated in a country called Tseba, but has only one branch in Zambia. The Board of Directors holds its weekly meetings in Zambia while in Tseba, meetings are only held at least once in a year.  
(iv)  Jamuka is a company incorporated in Luba - Lunda where it's Board of Directors meets every week. The company has only a few branches in Zambia and meetings are held only once every year in the Zambian capital Lusaka.
Required:
Explain whether each of the above companies should be treated as a resident in Zambia for tax purposes.
25. Explain two (2) advantages of the provisional tax system and provide examples to illustrate each advantage.
26. Describe the tests that should be taken into consideration to distinguish between an employee and a self-employed person.
27. Central governments have a range of methods at their disposal to generate revenue, aside from taxation. List and explore two alternative methods commonly utilized
28. Turnover tax is a tax system that is based on the turnover or gross sales of a business rather than its net profit. To provide a comprehensive understanding, let's expand on the definition of turnover for the purposes of turnover tax and state the persons liable to this tax.
29. Discuss how VAT is different from Sales tax