Company Income Tax PDF

# COMPANY INCOME TAX ## COMPUTATION, PAYMENT AND ACCOUNTING FOR THE COMPANY TAX In computing the tax liability and the income tax due for a fiscal year, the following aspects are to be taken into consideration: - The rate of the tax; - The payments on account (tax advances) made during the fisca...

# COMPANY INCOME TAX ## COMPUTATION, PAYMENT AND ACCOUNTING FOR THE COMPANY TAX In computing the tax liability and the income tax due for a fiscal year, the following aspects are to be taken into consideration: - The rate of the tax; - The payments on account (tax advances) made during the fiscal year; - The annual tax liability; - The fiscal minimum tax (minimum levy for the annual company tax); and - The balance of the tax due. ## THE RATE OF THE COMPANY TAX According to section 17 of the GTC the principal rate of the company tax is 30%. This is to be increased by an additional council tax rate of 10%, making the final rate to that is, 30% + 10% of 30%. In derogation to this main rate, the tax law also provides motivational company tax rates to promote certain economic activities. Sections 17a 108 109 123 and 124 of the GTC lay down incentive company tax rates as follows: - Company tax at the reduced principal rate of 25% for companies whose annual turnovers before tax amount to at most three billion Frs cfa. - Company tax at the reduced principal rate of 25% for companies whose ordinary shares are listed on the CEMAC stock exchange and for companies involved in public issues of shares through this stock market as tax incentive measures to promote the issue and floating of shares on this stock market. - Company tax at the reduced principal rate of 15% for research start-up companies in the domain of information and communication technologies as an incentive measure to promote digital economy. To benefit from this reduced rate, the companies should be registered with an approved management centre and be in the operation phase of the end of the incubation period. The beneficial period shall be five years. - Company tax at the reduced principal rate of 20% for public establishments dealing with the promotion of local building materials. In computing the tax, the taxable profit should be rounded down to the nearest 1,000 Frs cfa. ## ADVANCES ON ANNUAL COMPANY TAX LIABILITY Companies liable to the company tax usually pay advances on the company tax of a period within that period so as to reduce the burden of paying a heavy lump sum at the end of the fiscal year. The various forms of advance payments include: - The advance company tax on the monthly turnover before tax realised during each month. - The advance company tax (prepaid tax) on purchases (section 21 of the GTC), - The advance company tax on real estate rental income; and - The deductible tax on incomes earned on fixed or time deposits. ## The advance company tax on turnover The rates of the advance company tax based on turnover are as follows: - 2% of the monthly turnover before tax for taxpayers of the actual earnings system. For companies of the flourmill sector, the base of application of the 2% advance tax shall carry an abatement of 50%. - 5% of the monthly turnover before tax for taxpayers of the simplified taxation system. - For companies not register in the filling system of any given tax centre, the advance tax rate is to be 10%. It shall be 20% for firms of the forestry sector who in addition to not being registered in the filling system of any given tax centre are not having a justifiable exploitation authorisation delivered by the competent authorities. - 14% of the gross margin for companies of the actual tax system classified under the regulated margin sectors. However, the law further stipulates that firms of the regulated margin sectors can opt for the common law system whereby the tax advance shall be assessed on the basis of their monthly turnover at the rate of 2%. Firms which take this option shall inform their tax centres through a simple letter latest by the 31st of January and this option shall remain irrevocable till the end of the year. - reduced rate of 1.5% of the monthly turnover for companies whose ordinary shares are listed on the CEMACstock exchange. These rates shall be increased by the additional council tax rate of 10%, making the final applicable rates to be 2.2%, 5.5%, 11%, 22%, 15.4% and 1.65%. This advance should be declared and paid by the 15th of the following month after each monthly period. The accounting entries are as follows: - During the payment of the advance: - Dr: 4492 - State, advances and payments on account for taxe - Cr: Class 5 account. - At the end of the fiscal year to determine the outstanding company tax payable: - Dr: 441- State, tax on taxable income - Cr: 4492 - State, advances and payments on account for taxes N.B: The 2.2% or 5.5% or 1.65% or (additional council tax rate included) advances referred to above shall be deducted at source (withheld) during settlement of bills paid from the budget of the State, regional and local authorities, public administrative establishments and certain major enterprises. That is, sales to public institutions and certain major enterprises suffer a deduction at source of 2.2% or 5.5% or 1.65%... before settlement of the outstanding amount of sale ## Illustration 4.2: The advance company tax on turnover BOH PIc., specialised in the trading of household items and registered for taxation under the actual earnings system, realised the following transactions: - January to November 2020: sales of goods 5,566, 000, 000 Frs cfa tax exclusive. - December month 2020: sales of goods 788, 000, 000 Frs cfa tax exclusive. **Required** To Journalise the advance payment of company tax on the sales of December 2010, given that it is paid by cheque on the 15th of January and show the necessary adjustment entries for the determination of the net company tax payable on the 15th of February 2021. **Solution:** | Date | Account | Debit | Credit | |---|---|---|---| | 15/01/20X1 | Advances and payments on ac. For taxes | 17,336,000 | | | | Local bank | | 17,336,000 | | | Payment of advances and pay't on a/c for taxes (788,000,000\*2.2%=17,336,000) | | | | 28/02/20X1 | State, tax on net profit | 139,788,000 | | | | Advances and payments on ac. For taxes | | 139,788,000 | | | Adjusting the amount of tax payable (5,566,000,000\*2.2%)+17,336,000 | | | ## Illustration 4.3: Advance tax on turnover deducted at source on sales to the state and related institution On January 3rd 20X7, SOTICAM Plc, a trading business, sent an invoice to CAMTEL (Para public enterprise authorized to retain taxes at source) for goods worth 40,000,000 CFAF (ignore VAT). On January 25th 20X7, CAMTEL sent to SOTICAM PIc a UBA Bank cheque for settlement of the invoice with the following details: - Value of the goods: 40,000,000 - Deduction at source of company tax: 2.2\*\*40,000,000 = 880,000 - Outstanding amount payable: 39,120,000 **Required:** Show the corresponding journal entries for SOTICAM PIC **Solution** | Date | Account | Debit | Credit | |---|---|---|---| | Jan 25, 20X7 | Customers | 40,000,000 | | | | Sales of goods | | 40,000,000 | | | Credit Sales to CAMTEL | | | | | Cheques for collection | | 39,120,000 | | | State, adv. And pay'ts on account of taxes | | | | | Customers | 880,000 | | | | Settlement from CAMTEL | | 40,000,000 | ## 4-2.2) The advance company tax (prepaid or withheld tax) on purchases According to section 21 (3) of the GTC, a prepaid (or withheld) tax on purchases whose base is the commercial net or custom value of items shall be levied on the following: - Imports made by businesses, including businesses assessed under the global tax system, with the excemption of businesses under specialised management units. - purchases made by businesses from industrialists, farmers, importers, wholesalers, retail wholesalers and timber operators, except purchases made by the state, councils, persons living abroad and registered industrialists for the operating activities. - Transactions carried out by persons who do not have the taxpayer's card. The rates of the prepaid tax are: - 10% for taxpayers not listed under a given taxation centre; - 15% for these unlisted taxpayers who carry out importation. This rate shall be increased to 20% where the taxpayer carries out the sale of in-bond goods. It should be noted here that it is a fiscal obligation for all taxpayers to have their names listed in the register or filling system of a particular tax centre. - 14% of the gross margin for purchases of items with regulated margins. - 10% for taxpayers of the global tax system on their importation transactions. - 5% of the value of transactions carried out by taxpayers of the simplified and global taxation systems. - 2% of transactions carried out for registered businesses under the actual system. - 0.5% of purchase transactions made by operators of fuel filling stations on petroleum products The additional council tax rate is not applied on this tax. The withheld or prepaid tax on purchases shall be collected by the supplier or the custom service in the case of importation and paid to the state treasury by the 19 of each month during the monthly declaration and payment of taxes. The accounting records are as follows for the taxpayer (the purchaser of goods who makes the advance payment of the company tax): - when purchasing goods: - D: 4492-- State, advances on account for taxes - C: Class 4 or 5 account. - At the end of the fiscal year to determine the outstanding company tax payable: - D: 441 - State, tax on net income - c:4492 State, advances on account for taxes ## Illustration 4.4: Advance tax on purchases For the year ended 31 December 20X0, MANGA PIc registered under the actual earnings system of taxation, made gross purchases amounting to 450 000 000 CFAF with a trade discount of 10% on the gross purchases. The prepaid tax on purchases at the rate of 2% is deducted at source by suppliers. **Required.** - Calculate the of the prepaid tax on purchases deducted at source by the - Reconstitute the accounting entry of purchases made during the year by cheque. - Show the necessary adjustment entry as at 319t of January for the determination of the net company tax payable. **Solution** - Amount of prepaid tax on purchases - 40,000,000 CFAF x 0.9 x 2%= 8 100 000 CFAF **Accounting records** | Year 20X0 | Account | Debit | Credit | |---|---|---|---| | | Purchase of goods | 405,000,000 | | | | Prepaid tax on purchases | | 8,100,000 | | | Local bank | | 413,100,000 | | | Account | Debit | Credit | |---|---|---|---| | 31/01/20X1 | | 8,100,000 | | | | Prepaid tax on purchases | | 8,100,000 | | | Adjusting the amount of tax payable | | | ## 4.2.3) The advance tax on real estate income The fiscal law brings out two types of tax advances payable on real estate 15% at source and a tax of 5% not deducted at source. According to section 87 Of the GTC, 15% of rental revenue shall be deducted at source by the administration and persons (natural and artificial) assessed under the simplifies and actual tax systems when paying their rents. Taxpayers assessed under the actual systems who earn rental revenues from real estate properties and specialised management unit shall not be subject to this deduction. According to section 89 Of the GTC taxpayers assessed under the actual systems who earn rental revenues from real estate properties and placed under a specialized management unit shall pay 5% of their quarterly rents received to the taxation Centre of the place of the location of the building, using an official counterfoil book, not later than the of the month following the end of each quarterly period. 15% deduction and 5% quarterly payment shall represent for the taxpayer' a payment on account (advance payment) of the annual income tax liability. The accounting records are as follows: - During year when the 15% deductions are made: - D. Cash account (by the net amount received; i.e. 85% of rental revenue)' - 4492 State, advances and payments on account for taxes - C: 7073 - Hiring and rental revenues (or 706 - Services sold) - During the year When the 5% payments are made: - D: 4492 -- state, advances and payments on account for taxes - C: Cash Account - After the end of the year during the determination of the outstanding tax payable: - D: 441 state, tax on net income - C: 4492 state, advances and payments on account for taxes. ## Illustration 4.5: Advance company tax on real estate rental revenue HIHI plc, placed under the major enterprise tax unit receives monthly rents of 750 000 CFAF on a building which she is leasing out as a warehouse. **Required:** Journalise the tax on rental revenue for the fourth quarter of the 20XJ financial given that the declarations and payments are always made by the 15th in cash. Present the necessary adjustment entry, given that the annual company tax is computed on the 28th of **Solution** The quarterly tax is: 750 000 x 3 x 0.05 = 112 500 CFAF The annual advanced tax is: 750 000 x 12 x 0.05 = 450 000 CFAF The necessary journal entries shall be as follows: | Date | Account | Debit | Credit | |---|---|---|---| | 15/01/20X2 | State, advances on account for taxes | 112,500 | | | | Cash | | 112,500 | | | Being tax on rental revenue | | | | 28/02/20X2 | State, tax on net profit | 450,000 | | | | Advance taxes to the state | | 450,000 | | | Adjusting the amount of tax payable | | | ## 4.2.4 The advance tax on income from securities There are three types of income from securities that companies can earn by investing in financial assets: interests, capital gains and dividends. According to section 70 Of the GTC all incomes from financial assets shall be taxed at the flat rate of 16.5% (15% as principal tax and 0.15% as additional council tax). That is, no consideration shall be made on the amount or the type of the income (dividend, capital gain or interest). This tax is deducted at source by the person paying the income to the company. The deducted tax on income earned from financial assets shall be treated as an advance on the annual company tax liability. ## Illustration 4.6: Advance company tax on revenue from security ABC co. Ltd earned an interest of 200 000 CFAF on one of her savings accounts in DEF as indicated on the bank statement received on the 10/01/20XX. **Required:** Determine the tax on income from securities to be deducted at source by DEF bank. **Solution** Deductible tax on interest: 0.165 x 200 000 = 33 000 CFAF. This shall be subtracted from the annual company tax liability since this income shall be liable to the company tax. ## 4.2.5 Annual declaration of advances on company tax All advance payments of company tax are brought together in Table T9 of the Statistical and Tax Returns for the Minimum Cash System or Table CFI Quater of STR for the Standard system. This table has two main sections as follows: - **An identification section:** It carries the name of the company, its address and identification (UIN), the financial year ended and its duration in months. - **A section for advances paid during the fiscal year ended:** This section carries six (6) columns and thirteen (13) lines or rows as follows: * The columns are for the tax advances paid during the fiscal year ended, specified as follows: - Column 1 for the prepaid tax on purchases, - Column 2 for the principal of the advanced tax on turn over, - Column 3 for the council tax amount of the advanced tax on turn over, - Column 4 for withholdings on turnover suffered at source, - Column 5 for other deductions, - Column 6 for the total advances for each month (columns 1+2+3+4+5) * The rows are the months from lines 01 to 12 for the months of January to December with line 13 reserved for the totals for each of the columns. ## 4.3) DETERMINATION OF THE ANNUAL TAX LIABILITY The annual company tax liability is determined using two aspects: based on the taxable profit or on the fiscal minimum tax set for the annual company tax. - **Annual tax liability based on the taxable profit** - The taxable profit for the fiscal year ended as obtained from the computation shown in section 3.2 above is rounded down to the nearest 1000 CFAF. - The rounded down amount is multiplied by the tax rate to obtain the annual tax liability. - That is: Company tax liability = Taxable profit X 33% (or 30.8% or 27.5% or 16.5% or 22%) - **Annual tax liability based on the Fiscal Minimum Tax** - According to paragraph 2 of section 22(2) of the GTC, the annual company tax liability shall not be less than the advance company tax on turnover, meaning that the annual tax liability shall not be less than: - 2.2% of the annual turnover for taxpayers under the actual earnings system; - 15.4% of the annual turnover for taxpayers under the regulated margin sectors; - 5.5% of the annual turnover for taxpayers under the simplified taxation system and liberal professional; or - reduced rate 1.5% of the monthly turnover for companies whose ordinary shares are listed on the ECCAS stock exchange. - In a situation where the annual tax liability is based on the annual turnover, the tax liability is determined as follows: - The total turnover (before turnover iax9 for the fiscal ended is down to the nearest 1 000 CFAF. - The rounded down amount is multiplied by the given minimum rate according to the taxation system to obtain the annual tax liability. - **Company tax liability=Annual turnover (before turnover taxes) X Fiscal minimum rate** - The determination of the annual tax liability based on the minimum tax is based on one of two situations: - When the fiscal net income is a net loss; or - When the sum of the monthly advance taxes on turnover paid fiscal year is more than the tax on the taxable profit. ## Illustration 4.10 Determination of annual company tax liability A company registered for taxation purposes under the actual earnings system, earned a taxable profit of 4 800 000 CFAF. **Required:** Calculate the company tax of this company under the following hypotheses: - The annual turnover (exclusive tax) realised in the same fiscal year is 46 000 000 CFAF; - The annual turnover (exclusive tax) realised in the same fiscal year is 178 000 000 CFAF. **Solution** **Calculation of the company tax** | Hypothesis | Amount of tax based on taxable profit: taxable profit x 27.5% | Amount of tax based on fiscal minimum: 2.2% of turnover before tax | Amount to be considered as company tax liability | |---|---|---|---| | Turnover=46,000,000, CFAF | 1,320,000 CFAF | 1,012,000 CFAF | 1,320,000 CFAF | | Turnover=178,000,000 CFAF | 1,320,000 CFAF | 3,916,000 CFAF | 3,91 6,000 CFAF | (1) The higher a mount between the tax based on the fiscal profit and that based on the fiscal minimum ## 4.4) THE COMPANY TAX PAYABLE OR DUE FOR A FISCAL YEAR ENDED company tax due for a fiscal year ended is the difference of the advances between and the company payments taxon calculated on the fiscal profit of that year and the sum of the advances and payments on account made within that fiscal year. NS: balance payable or due has to be paid in a single instalment by March 15th of the next fiscal period. These are in cases where the annual tax liability is based on the fiscal profit. The company tax due is provided by the following formula: Company tax due= Annual tax liability (tax on fiscal profit) + Tax on income not deducted at source - Advances and payments on account for taxes - Tax abatement and relief ## 4.5) ACCOUNTING FOR THE COMPANY TAX In addition to the entries made for advances and payments on account for taxes, the company proper is recorded by taking into consideration two situations: - When the tax is based on the net profit; or - When the tax is based on the fiscal minimumtax. ## i) Case where the tax is based on the net profit The tax is based on the net profit when there is a net profit, with the tax on the net profit being more than the fiscal minimum. The net profit before tax which is the difference between revenues and expenses is recorded by the credit side of account 131-Net profit. The following items should be taken into consideration for the full accounting records of the company tax after it has been determined. * 131 Net profit; * 441 State, tax on net profit; * 4478 State, taxes deducted at source (for prepaid taxes on purchases, taxes deducted at source on real estate income and incomes from securities); * 4492 State, advances and payments on account for taxes; * Cash account (521 or 571) * 891 income tax of the period (company tax liability based on taxable profit) **Recording of the company liability: indebtedness towards the State:** | CFAF | |---|---| | Company tax based | | On taxable profit | | |