Piping Beverages expansion into South Africa:

Piping Beverages expanded its operations into South Africa in $2024$; the new branch

operates as a separate entity that is considered a resident of the Republic of South

Africa for tax purposes. Piping is registered as a VAT vendor:

The South African branch had the following in their financial statements:

Piping Beverages $($South Africa$)$

Statement of profit or loss

For the year ended $31$ December $2024$

$2024$ Note

R million

Revenue $201$

Cost of revenues $(2\mathrm{.}5)2$

Gross profit $17\mathrm{.}5$

Operating expenses $(21)3$

Operating loss $(3\mathrm{.}5)$

Tax $?$

Profit$/($Loss$)$ for year $?1$

$1.$ Sales Revenue:

Piping Beverages introduced a new line of innovative beverage packaging that

quickly captured a significant market share in South Africa due to its unique

design and sustainability features. This new product line has been well$-$received

by both consumers and retailers, leading to high demand and substantial sales

within the first year of operations of R$20000000.$

Despite the substantial sales revenue, Piping had to invest significantly in

capital expenditures and human resources to support the expansion and

ensure the production and distribution capabilities were robust. As a result, the

company reported a balance of assessed loss of R$5500000.$ On further

investigation, the company$$s accountant found that this balance of assessed

loss was incorrectly calculated. The correct balance of assessed loss is

R$4000000.$

$2.$ Cost of revenue:

The cost attributable to revenue is solely from the purchase costs. For the

purposes of this question, there is no need to consider opening stock and

closing stock as per Section $22$ of the Income Tax Act.

$3.$ Operating expenses:

The operating expenses cover administrative, marketing and operational costs.

These amounts were substantially high because it is the first time that the entity

is operating.

Included in the operating expenses is the rental payment for the lease of a

factory building. The monthly rental payment amounts to R$135000$ and was

paid on the first day of every month during the current year of assessment.

Piping Beverages made a payment of R$945000$ at the end of the year which

was an advance payment relating to the monthly rental for $8$ months of the

following year of assessment.

Piping Beverages was officially disallowed to operate in the Republic after the

competition commission asked them to cease operating for a few months due

to the unfair advantage that they posed on the South African tea market due to

their size. Piping has been recently interviewed on the news and they claim that

it was unlawful for the commission to ask them to cease operation and they will

claim damages for it$.$ Piping received damages in the amount of R$3$ million for

loss of income during the period of the unlawful cessation of operations from

the competition commission. The damages were paid to Piping in the current

year of assessment.

Piping paid R$500000$ to the legal practitioner who argued the case against the

competition commission.

During the current year of assessment, a total impairment loss allowance $($IFRS

$9$ loss allowance$)$ of R$2000000$ was determined by Piping in terms of IFRS $9.$

It constitutes R$750000$ measured at an amount equal to the lifetime expected

credit loss and R$1250000$ measured at an amount equal to the $12-$month

expected credit loss.

Capital Expansion:

As part of the expansion, Piping intends to acquire various assets, such as

machinery, equipment and buildings, which are eligible for capital allowances

under South African tax laws

Piping purchased a new machine for R$862500($including VAT$).$ The machine

is to be used for the manufacturing of beverage packaging and has a six$-$year

write$-$off period. The manufacturing of the beverage packing is considered to

be a process similar to the process of manufacture. Piping claimed depreciation

on this asset amounting to R$129375$

A number of Piping employees were transferred from Northlandia to the South

African branch because they knew how to operate the business and Piping had

to provide accommodation to the employees. Piping purchased land for R$125$

$000.$ The construction of an apartment building for Piping commenced and was

completed during the current year of assessment. The apartment building was

occupied in the current year of assessment when the employees moved in$.$ The

apartment building comprises of $50$ units and can thus accommodate $100$

employees who share a unit. The unit cost of building each apartment

amounted to R$25000.$ Each employee paid rent of R$2000$ per month which is

not included in the calculation of the profit or loss for the year above. Piping

claimed depreciation on this building amounted to R$75000.$

REQUIRED:

$1.$ Calculate the normal tax liability of Piping Beverages for the year ended

$31$ December $2024.$ Clearly show all calculations and give reasons for all

considerations. $(20)$

$2.$ Using the general deduction formula