DIPLOMA Assignment

January - June BTX622 Taxation

BOTSWANA OPEN UNIVERSITY

DIPLOMA IN BUSINESS MANAGEMENT

TAXATION
(BTX622)

ASSIGNMENT

Marks: 100

Instructions:

1. This assignment is based on material covered in the course module.

2. The assignment consists of TWO sections: A and B.
3. Answer questions according to instructions given in each section.
4. Use correct English grammar.
5. This is an individual assignment. No duplication of work will be tolerated. Any plagiarism or
collusion may result in disciplinary action.
6. Ensure that your work must be referenced in APA style.

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SECTION A - SHORT ANSWER TYPE QUESTIONS. [65 MARKS]

Answer ALL questions in this section.
1. Explain the main objectives of taxation in an economy. (6 marks)

The objective of tax is to generate income for the government expenditure, and for wealth
redistribution, and to stimulate economic growth as well as to control inflation.

2. “No tax system is perfect and hence a state of balance has to be maintained in designing any
tax system”.

Referring to the above, discuss the four basic principles of taxation that can maintain a balance.
(8 marks)

1) Canon of equality or equity: By equality is meant equality of sacrifice. Accordingly, Canon of

equality states t that the burden of taxation must be distributed equally or equitably in relation to
the ability of the tax payers. Hence, to ensure canons of equality, taxes are to be imposed in
accordance with the principle of ability to pay.
2) Canon of Certainty: This canon argues that the tax which an individual has to pay should be
certain and not arbitrary with respects to the time of payment, the manner of payment, the
quantity to be paid (tax liability) etc. In other words, Canon of Certainty states that there must be
certain to the taxpayer as well as to the tax-levying authority in respect to certainty of revenue the
government intends to collect over the given time period.
3) Canon of Economy: This canon implies that the cost of collecting a tax should be as minimum
as possible. Any tax that involves high administrative cost and unusual delay in assessment and
high collection of taxes should be avoided altogether.
4) Canon of Convenience: According to this canon, taxes should be levied and collected in such a
manner that it provides the greatest convenience not only to the taxpayer but also to the
government. For example, it is convenient to pay a tax when it is deducted at source from the
salaried classes at the time of paying
3. Explain the three (3) basic methods of calculating tax. (9 marks)

4. Given the different types of taxation methods (i.e. progressive, proportional, and regressive)

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argue for each and say which is preferable. (7 marks)

Regressive Taxes
Low-income individuals pay a higher amount of taxes compared to high-income earners under a
regressive tax system

Proportional Taxes
A proportional or flat tax system assesses the same tax rate for everyone regard less of income or
wealth.

Progressive Taxes
Taxes assessed under a progressive system follow an accelerating schedule, so high-income
earners pay more than low-income earners.

5. Define the term “The Taxpayer” as per the Income Tax Act. (4 marks)
The taxpayers in terms of the income tax act is any person both natural and legal that accrues
taxable income in any given tax year

6. Discuss the duty of confidentiality imposed on tax officers. Indicate the exceptions to that
duty. (6 marks)

Tax officers are duty-bound to uphold confidentiality in section 5 of the income tax act.
They can only reveal information in a court of law during court precoding’s when required by
the attorney General or when giving evidence or testimony. They can also divulge information
with written consent of the taxpayer to divulge such information.
7. Discuss the offences committed by employers and penalties applicable to that offences.
(8 marks)
Failure to deliver to any employee a certificate of tax deducted from remuneration, as and when
required, shall be guilty of an offence and liable to a fine of P4, 000 and to imprisonment for two
years.
Failure to lodge a correct return
Failure to register as an employer, shall be guilty of tax
Failure to furnish a tax return

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Failure to deduct tax from payments made to employees

8. Classify individuals in the following cases as resident or non-resident persons with reasons:
(9 marks)
(a) Mr. Phule is employed by Debswana as the Finance Manager. He has been serving the
company for the past 10 years. The company’s policy is to renew the contracts of its senior
managers every five years. To date, Phule’s contract has been extended for further five years.

Mr Pule is resident as has been physically present in Botswana for a period not less than 183
days in a given tax year and has been present in Botswana in the preceding 10 years continuously

(b) DTC Zambia, a company with more than 10 branches in Zambia, employs Mirriam. The
company has established another branch here in Botswana. This new branch is registered in
Botswana. As the Senior Tourism Officer, Mirriam was transferred to work in Botswana for only
two months so that she assist in coming up with a system similar to that at the branch he is
currently working in Zambia. Within a period of one and half month, Mirriam had accomplished
her mission and she returned to Zambia to resume her duties.

Mirriam is a non-resident person as she has stayed less than 183 days in a given tax year.
Moreover, she has not been present in Botswana in the preceding years nor is he/she going to be
present in the immediate coming years

(c) R G Motors is a company registered in Botswana. The company has established itself
country wide and is one of the major giants on the Botswana Stock Exchange.

R G Motors is a resident person, as it is domicile in Botswana. It has offices countrywide and is

controlled/managed in Botswana as it listed in the in the stock exchange.
9. Discuss the requirements for considering an individual a resident in Botswana. (8 marks)

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Should have permanent place of abode in Botswana

Should be maintaining a place of abode in Botswana for a period not less than 183days in a given
tax year
A person who is physically present in Botswana for a period not less than 183days in a given tax
year

SECTION B. [35 MARKS]

Answer ALL questions in this section.

Question 1
The following are the results of Perfect Tech Manufacturing Company (Pty) Ltd, a company
recognized as an approved manufacturing company for tax purposes, for the year ended 31
March 2016:
P
Income
Sales 8,390,263
Fair value adjustment 296,224
Rent received 142,896
Interest received 67,382
––––––––––
8,896,765
––––––––––
Expenses
Cost of sales 3,611, 805
Salaries and wages 1,960, 321
Administrative expenses 874, 139

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Goodwill written off 200, 000

Impairment of investment 375, 000
Loss on sale of plant 39, 897
Depreciation 489,729
Donations 28, 526
Amortization of patent 58, 027
Provision for future expenses 176, 800
Management fees 350, 000
––––––––––
8,164,244
––––––––––
Net profit for the year 732,521
––––––––––
The following additional information is provided:
1. The tax value of the assets at 1 April 2015 is made up as follows:
Furniture Plant Vehicles

P P P
Cost 275,034 2,893,682 1,678,338
Accumulated capital allowances (87,290) (1,652,906) (873,752)
––––––––
–––––––– ––––––––––
–
Tax value 1 April 2012 187,744 1,240,776 804,586
–––––––– –––––––––– –––––––
––
2. The loss on sale of plant is calculated:

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P
Cost 528,113
Accumulated depreciation (208,216)
––––––––
319,897

Fair value adjustment 120,000

Sales price
(400,000)
––––––––

Loss on sale 39,897

––––––––
Capital allowances amounting to P328, 424 had been claimed in respect of the sold plant as at 31
March 2016.

3. Replacement plant was purchased for P822, 600.

4. Management fees are payable to a non-resident. Withholding tax of P26, 250 was paid during
the year.

5. The company made the following tax payments during the year:
P
Required:

(a) Calculate the balancing charge or allowance for Perfect Tech Manufacturing Company (Pty)
Ltd for the year ended 31 March 2016 on the sale of plant, taking advantage of any reliefs
that are granted. (4 marks)
Written down Value = Cost – Capital allowances

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= 528,113 - 328,424
= 199,689
Sales (proceeds) 400,000 – WDV 199,689 = 200,311(balancing charge)
(b) Calculate the taxable income for Perfect Tech Manufacturing Company (Pty) Ltd for the year
ended 31 March 2016. (15 marks)
Net profit for the year 732,521
Add: Depreciation 489,729
Loss on sale of plant 39, 897
Goodwill written off 200, 000
Impairment of investment 375, 000
Amortization of patent 58, 027
Balancing Charge 200, 311

Less: Capital Allowance 895, 267

Fair value adjustment 296,224

Taxable Income 903,994

(c) Calculate the net tax payable by or refundable to Perfect tech Manufacturing Company (Pty)
Ltd for the year ended 31 March 2016. (3 marks)
Tax = 903,994 * 15% = 135,599
Less tax credits: Self-ssessment tax 150,000
Withholding tax on interest received 6,738
Withholding tax on rent received 7,145

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Tax refundable 28,284

(d) Briefly define the scope of VAT in Botswana. (3 Marks)
VAT is an indirect tax levied on goods and services utilized in Botswana. It is charged at a
rate of 14% and has 3 categories being Category A, Category B and Category C. Category A
and Category B are bi-monthly categories while category C is a monthly category. The due
date for VAT returns is the 25th

Question 2 (10 marks)

(a). Mr. D. Chuma, a chemical scientist based at Francistown Technical College earned the
following income during the current year of assessment:

a) He received a monthly salary and allowances amounting to P20 000 from Francistown
Technical College, his employer.

b) In February of the current year of assessment, he went for contract leave at the Pretoria
Technikon from where he earned P10 000.

c) He wrote, whilst in Botswana, a book on Chemical Engineering and received P 200 000
as royalties from its sale in Southern African countries.

d) His late uncle left a house valued at P500 000 in Serowe which Mr. D Chuma inherited
but because he had his own house he actively sought for buyers and he sold the house for
P560 000.

e) He sold one of his secret chemical formula for P60 000.

Required:
You are requested to advise Mr. D Chuma on the taxability of the above amounts for the current
year of assessment.
The P20 000 from Francistown Technical College, his employer is taxable

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Pretoria Technikon income of P10 000 is not taxable in Botswana as its source is outside
the country

P 200 000 of royalties is taxable as part of his gross income for the tax year

P560 000 income received from disposal of property is subject to Capital Transfer Tax

P60 000 is taxable as part of his gross income

END OF ASSIGNMENT

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