Tax Declaration Assignment
The complexity of the tax regulations applicable to infinitely diverse nature of business and personal transactions and diversification and growth of Business Enterprises in form and size forced taxation to branch out as a distinct specializing area in accounting. The most important function of tax accounting is preparing and filing tax returns. Currently, there are some 17 types of tax declaration forms in Ethiopia to comply with the Federal Tax Laws. These are:
- Personal Income Tax Declarations (ERCA Form 1101 and 1102)
- Employment Income Tax Declarations (ECRA Form 1103 and 1104)
- Withholding Income Tax on Payments (ERCA Form 1105 and 1106)
- Rental Income Tax Declarations with Books of Accounts (ERCA Form 1201)
- Rental Income Tax Lessee Details Declarations (ERCA Form 1202 and 1203)
- Rental Income Tax Declaration without book of Accounts (ERCA from 1205 and 1206) –is form used by taxpayer (lessor) not marinating books of Accounts
- Business income Tax Declaration with Annexes (ERCA) from 1301)-This form shall be used by businesses with an annual turnover of over Birr 100.000 it is a profit and loss account with the necessary annexes
- Balance sheet Declaration with Annexes (ERCA from 1302) this form is used by large businesses whose annual turnover is birr 500.000 or more. All businesses are not to declare balance sheet only large businesses are required to declare balance sheet with necessary annexes Both income statement and balance sheet are declared annually
- Capital Gain Tax on Building Declaration with (ERCA from 1401)-is a form used by a businesses disposing its factory building
- Capital Gain Tax on Shares Declaration (ERCA from 1402)-is a form used by any person or body while selling shares of incorporated companies
- Schedule D withholding Tax Declaration (ERCA from 1404 and 1405)-is a form used to declare withholding on royalty income, technical service fee, interest income. games of chance income, and dividend income
- Casual Rental income Tax Declaration (ERCA form 1406):
- Presumptive Tax Declaration (ERCA from 1501):
- Turnover Tax Declaration ERCA form 2301):
- Excise Tax Declaration from (ERCA A form 2101and2102):
- Value Added Tax Declaration (ERCA from 3001):And
- cost Sharing Declaration (ERCA from 4103)
As a student of taxation, one is required to understand exhaustively and completely the tax laws of the country so as to comply with them and carry out ones duty or accountability and report in an accurate manner. The duty of reporting is directly linked to student’s ability to complete tax declarations. The objective of this project is to introduce student to the tax declaration and enable them complete all tax declarations that are required at Federal level. You should read all the instructions before you complete the declaration forms. The declaration forms are available at http://www.erca.gov.et.
- Consider ABC real estate Commission Agent plc with Tin (00051919400) located at Addis Ababa Lideta sub-city Woreda (n.a) Kebele 03/15) House No (441) Telephone No (+251-115-511625) and fax No (+251-115-511868). During the tax year 2006, ABC real estate commission Agent plc has leased a building from a lessor (PLC) with TIN (0006549124) located at Addis Ababa Bole sub-city Woreda (n.a) Kebele (26) House No (356) Telephone No(+251116-181869) and Fax No(+251-116-181216).
The building has 105 m2 of rentable spaces (3 equal size rooms) on each floor including the ground floor. As per their agreement the sub-lessor leased each m2 of rentable space on the ground floor at Br 100, 1st floor at Br 90, 2nd floor at Br 80, and so forth per month that is it declines by Br 10 for each m2 of rentable space from one floor to the next upper as we go upstairs till the 5th floor. Land lease cost will be borne by the lessor. Land lease cost amounted Br 15,000. The building was constructed at Br 4 million. The sub-lessor has agreed to pay the cost of repairs and maintenance of the building. All other costs related to generating rental income from lessees will also be borne by the sub-lessor as per the lease term. The sub-lessor has withheld the withholding tax required by the law from rental payment to the lessor.
The sub-lessor leased the building to numerous small and medium Size businesses at the following rates: each m2 of rentable space on the ground floor at Br 280, 1st floor at Br 270, 2nd floor at Br 260, 3rd floor at Br 250 and so forth per month that is the rental income decreases by Br 10 from the lower floor to the next upper floor as we go upstairs to the 5thfloor. The spaces (the rooms) were occupied throughout the tax year 2006 and the sub-lessor (ABC Real Estate Commission Agent plc) incurs the following expenses per annum:
o Administrative salary expenses………………………………….Br25,000
o General expense……………………………………………………27,000
o Advertising expenses……………………………..………………..78,000
o Cost of repair and maintenance…………………………………….20,000
Sub-lessees withhold tax from rental payment to the sub-lessor as required by law. All sub-lessees are PLCs except those at the fourth and fifth floor, which are all sole trading.
A. Determine withholding tax on payments of rental income to lessor and sub-lessor.
B. Determine Taxable Rental income, Rental Income Tax liability and Net Rental income for both the lessor and sub-lessor for tax year 2006
ANSWER The taxable rental income of a taxpayer for a tax year is the gross amount of income derived by the taxpayer from the rental of a building or buildings for the year reduced by the total amount of deductions allowed to the taxpayer for the year.
C. Complete Rental income tax Declaration (ERCA form 1201) for tax year 2006 for the lessor
D. Complete Rental Income Tax declaration (ERCA form 1201) for tax year 2006 for the sub-lessor
E. Complete Rental Income Tax lessees Details Declaration (ERCA form 1202and 1203) for tax year 2006 both for the lessor and sub-lessor
- ABC Shoe Factory, VAT registered PLC purchased 10,000 kgs of processed leather from AWASH Leather Factory at VAT exclusive price of Br 800 per kg. It has also imported chemicals and other raw materials worth Br 500,000 (including C.I.F and other duty excluding VAT) for shoe making in the month of Tir 2007 E.C. ABC exported international standard shoes to Canada and India worth Br 4 million and sold 30,000 pairs of shoes at VAT inclusive price of Br 400 for each pairs of shoes to local market.
Required: Determine the total VAT payable or refund for the given month assuming Ethiopian Standard Vat Rate and a Vat credit Carried forward from previous month Br 15,000.
3. Assume Lemma Café and Restaurant plc with TIN (0006231011) located at Addis Ababa Woreda (22) Kebele (03) house No (453) Telephone No )+251-911-201717) and fax No (+251-116-181414). The TAN for employment income tax of this business is 654-01 and the factory has 2 administrative workers. Each is expected to work 160 hours per month. The details about basic salary, overtime hours, overtime duration and other employment benefits of the administrative staffs for the month of Ginbot 2007 E.C are given as follows:
|S No||Employee Name||Basic salary||Overtime Hours||Overtime duration||Transport Allowance|
|1||Teshome Ayehu||Br 3,800||10||10:00p.m– 6:00a.m.||500|
|2||Gezhahegn Meshesha||3,200||16||Weekly rest days||1000|
Both of the above employees are permanent ones and subject to pension contribution.
Required: ( Use tax law at the Federal Level)
A. Determine Taxable Employment income and the Employment income tax liability of each employee under the tax laws currently in force in Ethiopia.
B. Prepare the Employment income Tax Declaration that must be filed with ERCA revenue office using Demissie Enyew as a preparer
C. Determine the amount that must reported on line 20 and line 30 of ERCA form 1103
D. Show the entries required to account for salary payment.
E. Record payroll tax expense
F. Record payment to revenue authority
G. Record payment to Pension Fund
- Consider ARTISTIC PRINTING ENTERPRISE TIN 0000014909 located at Addis Ababa LEDETA sub-city Woreda (21) Kebele (13/53) house No(355) Telephone No(+251-115-5143388) and Fax No(+251115-511433). During the tax period, Meskerem 2005(September 2012), it acquired different goods and received different services from the suppliers below. The enterprise made payment to suppliers on Meskerem 20, 2005.
|Name of Suppliers||Region||Zone/sub-city||Woreda||Kebele||House No||Gross Payment|
|Tibebe printers Trading plc||14||Kirkose||–||02/03||236||40,300.00|
|Zemili paints Factory pls||14||Bole||–||11||499||17,360.86|
|Tibebe priners Trading pls||14||Kirkose||–||02/03||236||19,000.00|
- Complete ERCA from 1105 and 1106 (withholding Tax on payment Declaration and the Continuation sheet)
- Record the purchase transaction on Meskerem 20, 2005
- Record the payment of withholding tax on Tikimt 10, 2005.
- What amount should have been reported on line 20 of ERCA form 1105 by ARTISTIC PRINTING ENTERPRISE for the period Meskerem 2005?
- Consider Ato MELAK MIKERU H/GEBRIEL with TIN(0002345673), TAN 321-05 Addis Ababa Nefas silke Lafto sub-city, Woreda 24, Kebele 14/53, House No 289, Telephone No (+251-114-162657) and No Fax No is declaring Rental income at Kebele 14/53 Revenue Office. He has two houses that are leased for residential purpose each of the houses was let out in the following manners:
1. The first house with one salon, two bed rooms, one shower and one kitchen was let out at Br1,800.00 per month to Ato Tolla Hagos and occupied throughout the tax year 2005
2. The second house with one salon and one bed room was let out at Br700 per month to W/zo Sinedu Bekele and was vacant for two month during tax year 2005
The owner of the building has paid Br 800 land building tax during the tax year .
Required:Complete Rental income Tax Declaration assuming the taxpayer does not-maintain books of accounts (form 1205 and1206)
- Consider DMX plc with TIN(0000014909)VAT Registration No (456871)located at Addis Ababa Gulelie sub-city Woreda (01) Kebele (09/15) house No (433)Telephone No (+251-111-273810)Fax No (+251-111-271433) which is a Vat registered trader and has three Branches, one of the Branches is engaged in the manufacturing of drugs, the second Branch is engaged in the manufacturing of Leather products and the third Branch is engaged in Coffee Export. During the month of Tahisas 2005 the sales and purchases were as follows:
1. Br 700,000 coffee was purchased from VAT registered coffee traders and birr 300,000 from non-registered traders
2. Raw Materials purchased and imported to manufacture drugs was birr 100,000 and 250,000 respectively from VAT registered traders
3. Raw Material for leather products purchased from local VAT registered tannery was birr 150,000
4. Repair and Maintenance Expense of Birr 30,000 Telephone Expense Br 1,200 and stationery Materials of Br 20,000 were incurred during the month. Telephone expense is subject to VAT but others not.
5. The Business exported Br2,000,000 coffee during the month
6. DMX sold Br 500,000 drug during the month
7. DMX sold Br 1, 200,000 leather products during the month
Required: Complete VAT Return (ERCA form 3001) for the month of Tahsas assuming Ethiopian Standard Vat Rate and a Vat credit Carried forward from previous month Br 9,000. Assume the monetary figures given above are exclusive of VAT.