Meridian Ltd: company tax, alternative corporate tax and withholding

Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The rate for a company that is not a small company or a bank is 29 percent.
• Normal tax = 29% x Rs. 36,000,000 = Rs. 10,440,000.
• The alternative corporate tax rate is 17 percent.
• Alternative corporate tax = 17% x Rs. 40,000,000 = Rs. 6,800,000.
• The normal tax of Rs. 10,440,000 is higher than the alternative tax of Rs. 6,800,000, so the normal tax is payable.
• The tax payable is the higher of the normal tax and the alternative corporate tax.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The general withholding rate on sale of goods where the payment is to a company is 5 percent.
• Withholding tax = 5% x Rs. 120,000,000 = Rs. 6,000,000.
• Because the customers were on the ATL, the normal rate applies and is not doubled.
• Tax still to pay = Rs. 10,440,000 - Rs. 6,000,000 = Rs. 4,440,000.
• The withheld tax is a credit against the liability, as the question tells us to assume it is adjustable.
• If a customer was not on the ATL, the rate would double to 10 percent, and more tax would have been withheld.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• Meridian Ltd is a withholding agent and must deduct tax from the payment and pay it to the government.
• The services are not specifically listed, so the rate for services not mentioned in the table applies, which is 15 percent for persons on the ATL.
• Because the software firm is not on the ATL, the rate doubles to 30 percent.
• Tax to be withheld = 30% x Rs. 2,000,000 = Rs. 600,000.
• If Meridian Ltd fails to deduct the tax, or deducts it and does not pay it into the treasury, it can be made liable for the tax, and for default surcharge and penalties.
• Meridian Ltd should keep records and file the statement of withholding tax by the due date.

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Tick each point that your answer made clearly and only once. Points here are this site's own. A real examiner may accept other valid points.

• The alternative corporate tax is based on accounting income, as adjusted, and it is not reduced by many of the allowances and reliefs that reduce taxable income.
• A company with large allowances or losses could have a low normal tax and the alternative tax prevents it from paying very little when it reports accounting profit.
• For example, if Meridian Ltd's taxable income were only Rs. 20,000,000, the normal tax would be Rs. 5,800,000, below the alternative tax of Rs. 6,800,000, so the alternative tax would be payable.

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