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Historical review

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Title: Historical review Author: SS Last modified by: raed Created Date: 9/27/2009 9:06:52 PM Document presentation format: On-screen Show Company – PowerPoint PPT presentation

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Title: Historical review


1
Historical review
  • Before the year 1967 the tax in Palestine were
    imposed by the Egyptian government through the
    law 13/1947 in Gaza strip.
  • And imposed by the Jordanian government through
    the law 25/1964 in west bank and Jerusalem.
  • From the year 1967 to 1994 the Israeli occupation
    imposed the tax payment by military orders.
  • The Palestinian suffered a lot during this
    period.
  • From the year 1994 to 1997 the Palestinian
    authority returned to law 13/1947 in Gaza strip
    and the law 25/1964 in west bank.

2
Historical review
  • From 1997 the Palestinian authority applied new
    law ( AL KANOON AL MOKTARAH ) proposed law and
    continued to 1999, it is very similar to 13/1947
    law with some amendments
  • From 1999 to 2004 the Palestinian authority
    applied the slides law and that happened with the
    beginning of AL Aqsa intifada. And that made a
    big problem for us. Why ???!!!
  • From the year 2005 until now the applied law in
    Gaza and west bank 17/2004 (our target) and it
    started in in September 2005

3
Historical review
  • In the Ramalla there some amendments for this law
    17/2004 but still not applied in Gaza

4
  • Calculation of VAT
  • Tax base tax percent
  • Total base tax value
  • Total base (1 tax percent)
  • Base total / (1 tax percent)

5
  • Case Vat 16
  • The following are some information for Jaber
    sons Company, and tax registration number
    900576398 for 12/2006
  • Purchases
  • On 3/12 purchased on credit 5 fridges amounted
    3000 NIS for each, not include VAT from Naser
    Company invoice 64.
  • On 7/12 purchased 5 TVs 16 inch with price 1300
    per unit, and 6 TVs 20 inch with price 1700 per
    unit and the price not include VAT, invoice
    257.
  • On 16/12 purchased 10 fans with price 105 per
    unit include VAT and 8 heaters with price 120 per
    unit include VAT from Sharaf Company invoice
    346 with cheque.
  • On 31/12 paid PALTEL expense invoice 791 with
    amount 232 and delayed to tax report 1/2007.
  • On 31/12 bring back 2 fridges to Naser company
    and get sales return invoice 6.

6
  • Sales
  • On 3/12 sold 3 fridges with total value 12600.
  • On 15/12 sold 4 SONY TVs 16 inch with price 1800
    includes VAT and 6 TVs 20 inch with price 2200
    include VAT with cheque.
  • On 23/12 sold 8 fans with price 760 for all for
    the base value by cheque.
  • Assume VAT 16

7
  • Required
  • Prepare the statement of sales and purchases for
    12/2006
  • Determine the amount to pay or return with
    recording the entry.
  • Record the entry for PalTel invoice delayed.
  • The answer

8
  • Purchase statement

Date Invoice Statement tax Base Total
5/12 64 Purchase 2400 15000 17400
7/12 257 Purchase 2672 16700 19373
16/12 346 Purchase 277.2 1732.8 2010
31/12 6 Purchase return (960) (6000) (6960)
Total 4389.2 Out tax 27432.8 31822
9
Sales statement
Date Invoice Statement Tax Base Total
3/12 351 sales 1737.9 10862 12600
15/12 352 Sales 2813.5 17586 20400
23/12 353 Sales 121.6 760 881.6
Total 4673 In tax 29208 33881.6
10
  • Notes
  • Invoices delayed not appear in the statement of
    tax.
  • There is ability to delay invoices of purchases
    and expenses for 6 months from the date of
    purchasing.
  • We have no ability to delay sales invoices.
  • gtgt We can delay the tax amount not the invoices.
  • Q. when there is purchase or expense invoice at
    the end of the year, and we need to delay it, so
    we delay
  • The base value
  • The total value
  • The tax value

11
Purchase entries
Invoice Cr Dr Entry Series
64 17400 15000 2400 Purchase VAT Naser Co. 1
257 19372 16700 2672 Purchase VAT Cash 2
346 2010 1732.8 277.2 Purchase VAT Bank 3
791 232 200 32 Phone VAT cash 4
6 960 6000 6960 Naser Co. VAT Purchase return 5
12
Sale entries
Invoice Cr Dr Entry Series
351 1738 10862 12600 Cash Vat Sales 1
352 2813 17586 20400 Bank VAT Sales 2
353 121.6 760 881.6 Bank VAT Sales 3
13
  • The entry for preparing the statement of 12/2006
  • VAT 284
  • Accrued VAT 284
  • The entry of delaying invoice (Paltel)
  • VAT under adjustment 32
  • VAT
    32
  • Entering the Paltel invoice for the statement
    1/2007
  • VAT 32
  • VAT under adjustment 32
  • According to the tax law (VAT must be paid before
    (15/1/2007)
  • The entry of accrued VAT will be
  • Accrued VAT 284
  • Cash
    284
  • gtgt In tax out tax 4,673 4,389 284
  • So, profit the amount to pay (100/16) 284
    (100/16) 1,775

14
Definition of a tax
  • What is a tax?
  • An enforced contribution exacted pursuant to
    legislative authority in the exercise of the
    taxing power and imposed and collected for the
    purpose of raising revenue to be used for public
    or governmental purpose.

15
According to the definitionTax have the
following characteristics
  • 1- the payment to the governmental authority by
    law.
  • 2- the payment is required pursuant to the
    legislative power to tax.
  • 3- the purpose of requiring the payment is to
    provide revenue to be used for public or
    governmental purpose.
  • 4- special benefits and services or privileges
    are not received as a result of making the
    payment.
  • The payment is not a fine or penalty that
    imposed under the powers of government.

16
Standards for evaluation tax
  • Equity . Certainty . Convenience . Economy
  • Equity
  • A tax should be based on the taxpayers ability to
    pay.
  • The payment of a tax in proportion to the
    taxpayers level of income results in equitable
    distribution of the cost of supporting the
    government.
  • Certainty
  • A taxpayer should know when and how a tax is to
    be paid.
  • And determine the amount of tax to be paid.

17
Standards for evaluation tax
  • Convenience
  • A tax should be levied at the time it is most
    likely suitable for the taxpayer to make the
    payment (when receive income) and have the money
    available to pay the tax.
  • Economy
  • A tax should have minimum compliance and
    administrative costs. To maximize revenue for
    government.

18
Types of the US (federal) taxes
  • Income taxes
  • Employment taxes
  • Social security taxes
  • Unemployment taxes
  • Sales taxes (VAT)
  • Property taxes
  • Excise taxes
  • Wealth transfer taxes

19
Local taxes
  • Direct taxes (no ability to be avoided)
  • 1- income taxes
  • 2- property taxes
  • Indirect taxes (can be avoided in some cases)
  • 1- excise taxes
  • 2- sales taxes (the same with VAT 14.5)
  • 3- customs

20
  • Case for financial institution VAT
  • The total salaries for a Islamic bank 40000
  • and the net profit at the end of the year
    250000 after vat for salaries
  • Required
  • 1- calculate the vat to be paid by the bank
    monthly and at the end of the year.
  • 2- calculate income tax assuming income tax rate
    15. And vat 16

21
Answer
  • 1- vat paid monthly 40000 16 6400
  • Vat for salaries at the of the year 640012
    76800
  • 2- vat for the net profit 250000 16 40000
  • Vat for the year 7680040000 116800
  • Net profit after vat for profit 250000- 40000
    210000
  • Income tax 21000015 31500

22
Case for the relationship between VAT and PROFIT
  • Najeeb company LTD started trading without
    bookkeeping but all transaction with tax invoices
    were entered to the statement of purchases and
    sales.
  • When examine the calculation we know that
  • 1- total amount paid to VAT government office
    during the year 5600
  • 2- no ending inventory
  • 3- total amount of fixed assets purchased which
    entered to statement of purchase and sale 11600
    and the depreciation rate 6.
  • 4- the base value for delayed purchase invoices
    for the next year 5000
  • 5- during the current year paid the following
    expenses
  • 15000 salaries. 300 interest. 200 others.

23
  • Required
  • Calculate the accrued income tax if income tax
    rate 15.
  • Notes
  • - VAT percent for this case 16
  • The base value of delayed purchase invoices due
    to current year but did not entered to statement.
  • Invoices of purchasing the fixed assets have been
    entered to the statement of the year and that
    mean deducted. But these purchasing due several
    years. So depreciation for one year should be
    deducted. That means we should add the base
    value of purchasing fixed assets to the profit.
  • Expenses which did not pay VAT did not enter the
    statement and did not deducted. So we must deduct
    it.

24
answer
  • The profit from the VAT statement
  • Payment 100/16
  • 5600 100/16 35000
  • Add the base value of purchasing the fixed assets
  • 11600/1.16 10000
  • Vat for fixed assets 1000016/100 1600 to make
    sure of Vat
  • Deduct the base value of purchase invoices
    delayed to next year (5000)
  • Net profit before expenses not pay VAT 16 40000
  • Deduct expenses not pay VAT as follow

25
  • Salaries (15000)
  • Interest (300)
  • Others (200)
  • Depreciation of fixed assets 100006(600)
  • Total of expenses 16100
  • Net profit (40000- 16100) 23900
  • Income tax 23900 15 3585

26
The relationship between VAT and other indirect
taxes
  • The most important step in tax calculation is by
    following this arrangement
  • 1- customs
  • 2- the purchase tax (sales)
  • 3 value added tax
  • The following case shows the details.
  • A company will import raw material for trading
    with price 4000 and the customs 20 and purchase
    tax 60 and the vat 16.
  • Required calculate the price after taxes.

27
answer
Statement Value Taxes
The price 4000
Customs 400020 800 800
Price after customs 4800
Purchase tax 480060 2880 2880
Price after purchase tax 7680
VAT 7680 16 1229 1229
Price after VAT 8909
28
Calculation of importing several goods
Merchandise Cost Customs Added rate Purchase tax VAT Value after taxes
Soap 10000 13.6 50 10 17
Cars 90000 7 - 75 17
Milk 5000 75 17
29
Merchandise Cost Customs Added rate Purchase tax VAT Value after taxes
Soap 10000 13.6 50 10 17 21930
Cars 90000 7 - 75 17 197174
Milk 5000 75 17 10238
30
The difference between VAT and customs
Standard VAT Custom purchase tax
1 When imposed With all steps of production. sale. distribution Imposed once when enter the goods for local area
2 Mechanism of collection Collect from consumer then paid to government First paid to government then collect from consumer
3 Tax classification Consider balance sheet account Part of good cost (trading account) or income statement
4 Tax rate 14.5 It is according to good classification and economic agreements and political situation
5 The ability of facing problems difficult in applying Easy
6 Evasion Easy (Paris agreement) Difficult or no way
31
income
  • Income defined
  • (includes income from all resources)
  • Minus excluded income
  • Equals gross income
  • Minus deduction and exemptions
  • Equals taxable income
  • tax rate (from tax law)
  • Equals income tax
  • Minus tax prepayments
  • Tax credit
  • Equals tax (refund) due with return

32
case
  • Omar works in private company with monthly salary
    2000 NIS. Calculate the tax income if you know
    that he is married and has 2 sons under 18 years
    old.
  • Note The exchange rate for dollar is 4 NIS.

33
  • Answer
  • Annual income 200012 24000
  • 24000/4 6000
  • Exemptions
  • Resident 3000
  • Wife 500
  • Sons 10005002
  • Total 4500
  • Taxable income 1500 8 120 annually
  • Tax value per month 120/ 12 10
  • 104 40 NIS
  • Salary after income tax 1960 NIS

34
case
  • Hassan works in private company with monthly
    salary 3000 NIS.
  • He lives in a rent home 200 monthly.
  • He is married and has 5 sons.
  • Required
  • Calculate the accrued income tax if you know that
    the exchange rate for dollar is 4 NIS.

35
  • Answer
  • Annual income 300012/4 9000
  • Exemptions
  • Resident 3000
  • Wife 500
  • Sons 25005005
  • Rent 2000
  • Total of exemptions (8000)
  • Taxable income 1000 8 80 annually
  • Tax value per month 80/ 12 6.66
  • 6.664 26.6 NIS
  • Salary after income tax 2973.4 NIS

36
case
  • Mr. Marwan works as a manager for a company with
    monthly salary 9000 NIS and has bonus addition
    career 1500 and bonus addition high cost of
    living 750 and bonus addition for travel 250
  • Required calculate the income tax if you know
    that he is married and has 2 sons, one of them
    study via Islamic university
  • the exchange rate for dollar 5 NIS
  • Note Marwan works in private company so bonus
    for travel included with income tax

37
  • Answer
  • Base salary 9000
  • Bonus addition career 1500
  • bonus addition high cost of living 750
  • bonus addition for travel 250
  • Total salary 11500 12/5 27600
  • Exemption
  • Resident 3000
  • Wife 500
  • Sons 500 5001
  • Student (university) 2500
  • Total of exemption 6500

38
  • Taxable income 27600- 6500 21100
  • 100008 800
  • 600012720
  • 510016 816
  • Annual income tax 8007208162336
  • Monthly income tax 2336/12194.6
  • 194.651946 NIS
  • Salary after income tax 11500-19469554 NIS

39
case
  • Mr. Jehad works in the investment bank with
    monthly base salary 309 and bonus addition high
    cost of living amounted 80 of base salary. and
    bonus addition for cash risk 25.7100 monthly,
  • If you know that his contribution of saving box
    with 5 of base salary. And social security
    contribution (pension) 32.02. Mr. Jehad get 14
    salaries yearly (banking system)
  • Required calculate the income tax in the
    following cases
  • 1- single.
  • 2- (married 4) and additional income from part
    time work 200 for 6 months annually.

40
  • Answer case 1
  • Base salary 309
  • addition high cost of living 247.2 (30980)
  • addition for cash risk 25.7
  • total monthly salary 581.9
  • Deduct nontaxable income
  • saving box 15.45
  • social security contribution (pension) 32.02
  • Total of nontaxable income 47.47
  • Net income 534.43
  • Annual net income 534.4314 7482.02
  • Deduct the exemption
  • Resident 3000
  • Net taxable income 4482.028 358.56
  • Monthly income tax 358.56 / 12 29.88

41
  • Answer case 2
  • Base salary 309
  • addition high cost of living 247.2 (30980)
  • addition for cash risk 25.7
  • total monthly salary 581.9
  • Deduct nontaxable income
  • saving box 15.45
  • social security contribution (pension) 32.02
  • Total of nontaxable income 47.47
  • Net income 534.43
  • Annual net income 534.4314 7482.02 (
    2006)8682.02
  • Deduct the exemption
  • Resident 3000
  • Wife 500
  • Sons 2000 (5004)

42
  • Net taxable income 3182.028 254.56
  • Monthly income tax 254.56 / 12 21.21

43
  • Income
  • Income includes both taxable and nontaxable types
    of income
  • Deductions
  • Deductions are amounts that tax law specifically
    allows as subtractions from gross income.
  • The rule is an item may not be deducted unless
    the tax law specifically permits it.
  • Deductions are characterized as expenses, losses,
    and exemptions.
  • An expense is a current period expenditure that
    is incurred to earn income.
  • Deductions for expenses are limited to those
    incurred in a trade or business in an
    income-producing activity.
  • And certain specifically allowed personal
    expenses of individuals.

44
  • Tax prepayments
  • The tax prepayments are subtracted from the
    income tax liability to determine whether the
    taxpayer has underpaid and owes additional tax
    with the return (tax due).
  • Tax credit
  • A tax credit is a direct reduction in the income
    tax liability. Tax credit are treated like tax
    prepayments, a credit is not deducted to arrive
    at taxable income but instead subtracted directly
    from the income tax liability. cause of
    (withholding)

45
  • Income defined
  • (includes income from all resources)
  • Minus excluded income
  • Equals gross income
  • Minus deduction and exemptions
  • Equals taxable income
  • tax rate (from tax law)
  • Equals income tax
  • Minus tax prepayments
  • Tax credit
  • Equals tax (refund) due with return

46
  • Filing returns
  • Every taxpayer must hold (work with) regular
    accounting documents to keep debit and credit tax
    payments and make the adjustment at the end of
    the year.
  • Taxpayer and the government can correct errors on
    returns within a limited time after 30th of April
    the next year.
  • Palestinian income tax system is based on (self
    assessment) which requires taxpayers to report
    and pay their taxes correctly.

47
Revenue and expenses accounts for auditing office
Expenses Revenue
10000 salaries 28000 accounting fees
8000 rent 12000 auditing fees
7000 harborage expenses 15000 feasibility study fees
3000 water and electricity
5000 bad debits
1000 Exchange computer loss
800 phone expense
500 allocated bad debits
4000 training expenses
7000 donation for ministry
8700 net profit

55000 total 55000 total
48
  • You have the following information
  • 1- cost of computer 1000 and accumulated
    depreciation 300 and the exchange price for the
    old one 100 and the new cost 1000.
  • 2- tax officer accept 60 of phone expense, and
    the bad debits documented with judgment.
  • 3- the office is owned by Mr. Haider and he is
    married and has 8 sons, one of them is university
    student.
  • Required calculate the income tax to be paid
    annually and monthly.

49
answer
Expenses Revenue
10000 Salaries 28000 accounting fees
8000 Rent 12000 auditing fees
0 harborage expenses 15000 feasibility study fees
3000 water and electricity
1100 bad debits(550002)
600 Exchange computer loss
480 phone expense(80060)
0 allocated bad debits
550 training expense (550001)
0 donation for ministry
31270 net profit

55000 total 55000 total
50
  • 31270 Calculated net profit before harborage and
    donation
  • (6254) Deduct donation (3127020)
  • (938) Deduct harborage expenses (312703)
  • 24078 Taxable income 31270 (6254938)
  • Deduct exemptions
  • 3000 resident
  • 500 wife
  • 4000 sons (5008)
  • 2500 university student
  • (10000) Total
  • 14078 Net taxable income
  • (100008407812)800489.361289.36 annually
  • 1289.36/12107.44 monthly

51
  • Case
  • Dr. Yahia works in his own private clinic and you
    have the following information on 31-12-2007
  • The total gross income 130000 NIS
  • And paid the following expenses
  • Electricity bills 1800 NIS annually.
  • Water bills 600 NIS annually.
  • Phone bills 2160 NIS annually.
  • - On the first of January 2007 bought
    Computerized Tomography (CT) equipment amounted
    5000 and the depreciation rate is 7 annually.
  • Mrs. Om Naser work as a nurse with monthly salary
    900 NIS
  • Akram work as an office assistant with monthly
    salary 600 NIS
  • Dr. Yahia married with Dr. Suzan and she work in
    the ministry of health.
  • They have three sons, Ahmed student in the 6th
    class and Amjad student via Islamic university
    with certificate document, and Rana married and
    lives with here husband.
  • Dr. Yahia live with his father and he has pension
    from Palestinian army.
  • They live in a rent house 200 monthly paid by
    Dr. Yahia

52
  • If you know that Dr. Yahia has no income except
    200 monthly salary from (USAID) paid for his
    medical consulting.
  • Required calculate the following
  • 1- total gross income.
  • 2- taxable income.
  • 3- The deductions and exemptions.
  • 4- the accrued value of tax annually and monthly.
  • The exchange rate for dollar 4.5 NIS.

53
  • 1- The total gross income from all recourses
    130000/4.5 28888.8

  • 200 12 2400
  • Total income
    31288.8
  • Gross taxable income
    28888.8
  • Deductions
  • Electricity 1800/ 4.5 400
  • Water 600/ 4.5 133
  • Phone 2160/ 4.5 480
  • Depreciation of CT 5000 7 350
  • Om Naser salary 90012/ 4.5 2400
  • Akram salary 60012/ 4.5 1600
  • total of deductions 5363.

54
  • Exemptions
  • Resident 3000
  • Wife 0
  • Sons 500
  • University student 2500
  • Married daughter 0
  • Rent of house 2000 (200122400) max
    2000
  • Total of exemption 8000
  • Total of deductions and exemptions 53638000
    13363
  • Net taxable income 28888.8 13363 15525.8
  • Annual income tax (100008 5525.812)

  • 800 663 1463
  • Monthly income tax 1463/12 121.9
  • 121.9 4.5
    548.6 NIS

55
  • Case
  • Mrs. Eman is a relict woman, she works in private
    company with monthly salary 1850 NIS, She has
    three sons and lives in a rent house 8500 NIS
    annually
  • Required calculate the income tax to be paid
    (the exchange rate 5 NIS)
  • Note in this case we have family woman, and she
    will have all the exemption have been given to
    the family man.
  • Answer
  • Annual income 185012/5 4440.
  • Deduct the exemption
  • Resident 3000
  • Husband (dead) 0
  • Sons 1500 (3500)
  • Rent 1700
  • Total 6200
  • So tax is 0 because the exemption are more than
    the income.

56
  • Mr. Ibraheem work at the ministry of finance in
    Gaza with monthly base salary 1742.77 NIS and has
    additional career 25 from the base salary.
  • He has monthly the following
  • Addition allowance (wife) 60 NIS
  • Addition allowance (son) 20 for each son 2 40
    NIS
  • Addition for traveling 54 NIS
  • Addition for salary purpose 2 of base salary and
    the addition career.
  • Required
  • Calculate the income tax if you know that
    government calculate tax according to exchange
    price for dollar 4.4 NIS
  • note
  • Often the government saving 10 of base salary
    and addition career.

57
  • Answer
  • Base salary 1742.77
  • Addition career 435.69 ( 1742.7725 )
  • Addition allowance (wife) 60 NIS
  • Addition allowance (son) 20 for each son 2 40
    NIS
  • Addition for salary purpose 2 of base salary and
    the addition career
  • 2178.462 43.57 NIS
  • Addition for traveling 54 NIS
  • Total of salary 2376,03
  • Deduct excluded income according to Palestinian
    income tax law.
  • - Government saving (1742.77435.69) 10
    217.84
  • Addition for traveling 54
  • Health security 75
  • Total of excluded
    income 346.84
  • taxable income
    2029.184
  • Annual income for Ibraheem 2029.184 12 / 4.4
    5534.188

58
  • Deduct exemption
  • Resident 3000
  • Wife 500
  • Sons 1000
  • Total of exemptions 4500
  • Net taxable income after exemption 1034.14
  • Annual income tax 1034.148. 82.73
  • Monthly income tax 82.73/12 6.89 4.4 30.34
    NIS.
  • Net salary after tax 2029.148 54 30.34
    2052.808 NIS.

59
  • Case
  • The following are information for a taxpayer
    taken from his self assessment for the year 2007
  • Revenues
  • Salary from vacancy during the year 10000
  • Sales for his own shop 48000
  • Net profit from shares 22000
  • Revenue from farming project 12000
  • Gift from relative person 11000
  • Expenses
  • Cost of goods sold for his own shop 18000
  • Purchased a fridge machine for the shop amounted
    3000 and the depreciation rate 10 annually.
  • Rent for the shop 1200
  • The depreciation for the car 2000 only 50
    accepted by tax officer.
  • Utilities expenses for business (water,
    electricity, phone) 500
  • Rent of his house 5000
  • Medical care expenses for his son (documented)
    3000
  • Cost of school premium for his sons. (American
    school) 1400
  • Living cost for his family 5000

60
  • Personal information
  • Married and has two sons.
  • No accrued tax from previous years
  • The owner for his vacancy work deduct 100
    monthly paid to tax office.
  • Required
  • 1- total income
  • 2- non taxable income
  • 3- taxable income
  • 4- deductions
  • 5- exemptions
  • 6- net taxable income
  • 7- Tax credit (if any)
  • 8- accrued tax
  • 9- tax value to be paid or refund
  • 10- Not accepted deductions or exemptions (if
    any)

61
  • Answer
  • 1- Total of income 103000
  • Salary from vacancy during the year 10000
  • Sales for his own shop 48000
  • Net profit from shares 22000
  • Revenue from farming project 12000
  • Gift from relative person 11000
  • 2- non taxable income 45000
  • Net profit from shares 22000
  • Revenue from farming project 12000
  • Gift from relative person 11000
  • 3- taxable income 58000
  • Salary from vacancy during the year 10000
  • Sales for his own shop 48000
  • 4- deductions 21000
  • Cost of goods sold for his own shop 18000
  • fridge machine depreciation 300
  • Rent for the shop 1200
  • The depreciation for the car 502000 1000

62
  • 5- exemptions
  • Resident 3000
  • Rent of house 2000
  • Medical care 3000
  • Wife 500
  • Sons 1000
  • 6- net taxable income 27500
  • 7- Tax credit 100 12 1200
  • 8- accrued tax 3360
  • 10000 8 800
  • 600012 720
  • 1150016 1840
  • 9- tax value to be paid or refund 2160 paid
  • 10- Not accepted deductions or exemptions
    10400
  • 1000 3000 1400 5000

63
Case for partner ship
  • A taxpayer is partner in partnership owns 40 of
    capital and has monthly salary 2500 NIS for
    managing, he is married and has three sons one of
    them study in the university with certificate and
    others are school age.
  • The taxpayer lives with his father and mother and
    take care of them, he lives in a rent house 500
    NIS monthly.
  • The operation result for the partnership as
    follow
  • gains and expenses
  • Dollar 4 NIS

Dr Cr
Purchase 250000 Sales 525000
Begging inventory 125000 Ending inventory 60000
Sales expenses 17500
Managerial expenses 7500
Salary for partners 50 60000
Furniture depreciation 10000
Rent 7500
64
Sales 525000
Cost of goods sold 315000
Purchases 250000
Begging inventory 125000
Ending inventory 60000
Gross income 210000
Deductions 102500
Managerial expense 7500
Sales expense 17500
Furniture depreciation (1000010) 10000
Rent 7500
Salary for two partners 60000
Net revenue 107500
Total revenue for partner 10750040 43000
Total income for taxpayer 43000 30000 salary (250012) 73000
65
Annual income 73000/4 18250
Exemptions 9500
Resident 3000
Wife 500
Son 2 1000
University student 2500
Father and mother 1000
Rent house 50012/4 1500
Taxable income 8750
Paid income tax 87508 700





66
  • Assume the given information for sharing company
    or corporation!!!
  • What is the main difference?
  • The same situation without exemptions
  • Total revenue 107500/4 26875
  • 2687515 4031 income tax
  • Net income after income tax 26875- 4031 22844
    40 share for the partner 9137

67
  • Administrative appeals
  • A taxpayer who does not agree with the agent's
    (tax officer) report may request a meeting with
    agent administrative tax office within 30 days by
    written message, or he will lose the opportunity
    to do the appeal.
  • The administrative appeal process allows
    taxpayers one additional opportunity to reach
    settlement before resorting to the courts.
  • Note that both taxpayer and tax officer do not
    want reach the litigation. ! Why?
  • Taxpayer do not pay tax amount according to the
    law, and he want to pay the lowest tax payment,
    he is very weak because of not holding regular
    documents.
  • Tax officer want to reach for arrangement point
    (adjustment) to pay the tax payment (sensible to
    tax officer) because the litigation will take a
    long time (one year at least) and that will
    inhibit providing the public treasury for the
    ministry of finance.
  • Important note
  • Since the year 1967 tell now we have no
    litigation case for income tax !!!
  • But for VAT and CUSTOMS we have several cases.

68
  • Tax evasion
  • Tax avoidance
  • Tax planning and strategy
  • What is the main difference between them?
  • Tax evasion is illegal work and that stands by
    offering wrong information and phoney documents
    to pay less payment of the accrued tax.
  • That will cause criminal liability to tax payer.
  • Tax avoidance is legal work by following the
    procedures of income tax law and get the best and
    largest of deductions and exemptions by searching
    for the way that make the tax payment very
    little.
  • it is important to say that tax avoidance is
    accepted by the tax officer to inhibit illegal
    tax evasion.

69
  • To reach the tax avoidance which is legal
    operation, every taxpayer must think about the
    way and the most suitable condition for the
    project type
  • Trading or service or industrial project , ..
  • Every type has different key way for making the
    best legal tax avoidance.
  • Tax planning and strategy
  • Tax planning and strategy is a smart operation
    for all taxpayers and business managers, so every
    taxpayer must know the best way of management for
    the situation of investment, for example
  • Take the advantage of deduction and exemption
  • Know the timing of cash flow which leads taxpayer
    to higher tax payment according to tax slides (1-
    10000)X 8, (10001- 16000)X12, (more 16000)X16.
  • Offer one tax report (self assessment) for
    husband and wife if both of them have separated
    income, that accepted by tax law
  • Applied case for combined income.

70
  • The right selection for the legal entity for the
    firm or company, individual or partner or
    corporation, association
  • Make the best benefit from expenses of medication
    , traveling, training, or by new fixed assets.
  • The benefit from the tax planning is a
    continuous operation round the time for the
    project to compare between several decision
    making
  • 1- buy an asset or rental one, which is better?
    from the tax low's point of view. ?
  • 2- cash sales or credit sales or premium. The
    effect on cash flow.
  • 3- buy fixed assets by loan or new partner or new
    shares !!!
  • What is your opinion about tax avoidance !!??

71
  • Tax characteristics
  • 1- Imposed obligatory (no selection process)
  • 2- Imposed by the government for all individuals,
    partners, corporations.
  • 3- imposed pursuant legislative law.
  • 4- special benefits and services or privileges
    are not receive as a result of making the
    payment.
  • 5- paid cash.
  • 6- paid by regular amounts (periodic) annually,
    monthly or once only like wealth tax
  • 7- the payment of tax is ultimately (not
    available to restore it any way)

72
  • The importance of taxes
  • 1- Raising the revenue to be used for public or
    governmental purpose.
  • 2- The social effect of taxation
  • by making the redistribution of large income for
    poor people (people without income)
  • Imposing large taxes for unfavorable activities
    (cigarette, alcohol)
  • Note the revenue of these activities are very
    large when comparing with other revenues.
  • 3- The economic effect of taxation
  • Make balancing for the prices.
  • Controlling the inflation and local currency.
  • Markdown prices in case of recession and
    unemployment
  • Provide some projects with taxation facilities to
    hire labor and local industries.
  • 4- protect the local industries by imposing large
    customs for import merchandise which has
    competitor local products to inhibit or reduce
    it.

73
  • The following are some products or goods, give
    your comment according the effect of taxation.
  • There is no written answer (discussion point).
  • Grandiose cars
  • Local clothes
  • Local soft drinks (cola , Meca cola, .)
  • Gaza and west bank.
  • Transporting cars (for service or goods)
  • White Paper and cleaning paper
  • Plastic products
  • Fruits ( Baitlahia, West bank, Israel )
  • Mobiles
  • What about tunnels and taxation ?!

74
  • Case
  • The following information have been taken from
    the tax self assessment for taxpayer Omar Hassan
  • Revenues
  • Monthly salary from employee 2300 NIS
  • Profit for his trading shop 33000 NIS
  • Revenue from legal consultation office 58000 NIS
  • Gift from non governmental organization 7000 NIS
  • Expenses
  • Cost of good sold 15000 NIS
  • Salaries for the trading shop 12000 NIS
  • Salaries for the legal office 10000 NIS
  • Expenses related to legal office 19000NIS
  • Personal living cost 8000 NIS
  • Depreciation for car and furniture 4000 NIS

75
  • additional information
  • The taxpayer live in Gaza
  • Gift is nontaxable income
  • The tax officer accepted 60 of legal office
    expenses
  • The tax officer accepted 20 of depreciation
  • The taxpayer is married and has two sons, one of
    them university student, his parent and
    grandmother depending on him.
  • He paid tax prepayments during the year 1700 NIS
  • The exchange price for dollar 4 NIS
  • Required
  • calculate the annual income tax.
  • And determine the tax payment, or refund.

76
  • Answer
  • Annual salary 230012 27600 NIS
  • Profit for his trading shop 33000 NIS
  • Revenue from legal consultation office 58000 NIS
  • Gift from non governmental organization 7000 NIS
  • Total income 125600 NIS
  • Nontaxable income 7000 NIS
  • Total of taxable income 118600 NIS 29650
  • Deductions
  • Cost of good sold 15000 NIS
  • Salaries for the trading shop 12000 NIS
  • Salaries for the legal office 10000 NIS
  • Expenses related to legal office 11400 NIS
    (1900060)
  • Depreciation for car and furniture 800 NIS
    (400020)
  • Total of deductions 49200 NIS 12300

77
  • Exemption
  • Resident 3000
  • Wife 500
  • Son 500
  • University student 2500
  • Parent 5002 1000
  • Grandmother 0 ?
  • Total of exemption 7500
  • Net taxable income 9800
  • 98008 784
  • Tax prepayment 425 ( 1700 NIS/4 )
  • Tax payment 359

78
  • Case
  • Assume that you are tax officer and you have the
    following information about accounting document
    for X company for the constructive material on
    31/12/2005
  • The company is keeping all purchase invoices and
    the sale invoices were given to costumers and by
    examine the store for the company there are
    materials that are sold, but there is ability to
    classify these materials into categories
    according to percent from the total profit for
    sales.
  • These categories are
  • 1- metal 10
  • 2- concrete 16
  • 3- stone 18
  • 4- Constructive materials 20
  • 5- pipes 28
  • 6- paint 30
  • According to these categories and the purchase
    invoices we have the following data

79
statement Purchase during the year
1-Metal 1000,000
2-Concrete material 300,000
3-Stone 400,000
4-constructive material 200,000
5-pipes 100,000
6-paint 100,000
Total 2100000
80
Trading account on 31\12\2005
200,000 Beginning inventory 2100000 Sales
1800000 Purchase 200,000 Ending inventory
300,000 Total profit
2300000 2300000

Profit and loss account on 31\12\2005
80,000 Managerial expense 300,000 Total profit
20,000 Financing expense
200,000 Net profit
300,000 300,000
81
  • What are the steps that must be followed to
    insure the correct sales with assuming the profit
    percents have been taken from the owner were
    correct.
  • The tax officer did not accept the calculations,
    but the taxpayer rejected and said that the
    profit percent for purchases about 17
  • Note you are not required to calculate income
    tax, but you have to show the steps of
    discovering the problem of tax evasion.

82
  • The answer
  • Purchases according to invoices 2100000
  • Purchases according to trading account 1800000
  • Hidden purchases 300000
  • Now estimate the volume of sales according to
    purchases
  • Sales purchases / 1- profit percent
  • 1- sales of metal 1000000/ 1-10 1111111
  • 2- sales of concrete 300000/ 1-16 357143
  • 3- sales of stone 400000 / 1-18 487805
  • 4- Sales of constructive materials 200000/ 1-20
    250000
  • 5- sales of pipes 100000 /1- 28 138889
  • 6- sales of paint 100000 /1-30 142857
  • Total of sales after correction 2487805

83
Correct trading account on 31\12\2005
200,000 Beginning inventory 2487805 Sales
2100000 Purchase 200,000 Ending inventory
387805 Total profit
2687805 2687805

correct Profit and loss account on 31\12\2005
80,000 Managerial expense 387805 Total profit
20,000 Financing expense
287805 Net profit
387805 387805
84
  • You have the following information for the year
    2005
  • Taxpayer has been taxed with the amount 12000 NIS
    after making the deductions and exemptions, and
    he paid during the year 10 premiums 900 NIS for
    each as prepayments, he did not offer the self
    assessment until 1/5/2006.
  • and after that date he decided to pay the accrued
    tax, so he offered the self assessment and made
    the needed calculation and deducted the
    prepayments amount.
  • But the tax officer wanted extra payment, because
    of the instructions given in the income tax law

85
  • Pay penalty because of not offering the self
    assessment 2 monthly.
  • Pay penalty because of not paying the tax 3
    monthly.
  • Interest of delaying the tax payment 10 yearly.
  • Add penalty 2 monthly because of changing
    foreign currency
  • Required
  • Determine the accrued tax must be paid to tax
    revenue service (tax officer)
  • Determine the saved amount if he paid the tax on
    time.
  • Calculate the amount if the payment was on
    25/1/2006.

86
1- Accrued tax for the year 2005 12000 NIS
Prepayments during the year (90010) 9000 NIS
Accrued balance 3000 NIS
Penalty for not offering the self assessment (300024) 240 NIS
Penalty for not making the payment (300034) 360 NIS
The accrued amount after penalties 3600 NIS
Add interest 10 yearly (4 months ) 360010 4/12 120 NIS
Add foreign currency changes 360024 288 NIS
The accrued tax 4008 NIS
   
2- the saved amount if the tax paid on time 1008 NIS
   
3- if the payment was on 25/1/2006 (120006) 720 NIS
And the accrued tax is 2280 NIS
87
  • List the methods that are used for the estimation
    of income tax and name the party which makes this
    estimation.
  • Self assessment estimation or self tax
    estimation, by the taxpayer, by using personal
    information or balance sheet.
  • Arbitrary estimation (random), by the tax officer
    or the internal revenue services
  • External look for taxpayer, by the tax officer by
    looking for his car, home, shop, school or
    university and so on.
  • Supplementary tax, by both taxpayer and tax
    officer, or by the court in some cases.

88
  • You have the profit and loss account for X
    sharing company 31/12/2007

VALUE NIS STATEMENT VALUE NIS STATEMENT
15000 Rent 100000 Total income
1500 Capital interest 100 Credit interest of withdraw
700 Construction error (penalty) 2000 Collected bad debits
7000 Amortization for goodwill
8000 Establishment cost
3000 Car expenses
10000 Salaries for partners
6000 Reserve for expansion
1000 Loss of re-evaluation
10000 Furniture
39900 Net profit
102100 Total 102100 Total
89
  • Additional information
  • Goodwill has been estimated
  • Establishment cost must be amortized for 5 years.
  • 40 of car expense is accepted because of using
    it for personal needs.
  • The collected bad debts include 800 NIS were
    recognized for the previous year as bad debts.
  • The furniture was purchased on 1/1/2007 and the
    depreciation rate 10 annually.
  • Required
  • 1- determine the taxable income
  • 2- determine the accrued tax
  • 3- Show the recording entry for annual accrued
    tax.

90
VALUE NIS STATEMENT VALUE NIS STATEMENT
15000 Rent 100000 Total income
- Capital interest - Credit interest of withdraw
- Construction error (penalty) 800 Collected bad debits
- Amortization for goodwill
1600 Establishment cost
1200 Car expenses
10000 Salaries for partners
- Reserve for expansion
- Loss of re-evaluation
1000 Furniture
72000 Net profit
100800 Total 100800 Total
91
  • Taxable income 72000
  • Tax vale 72000 15 10800
  • The recording entry
  • 72000 profit loss account
  • 10800 accrued tax
  • 61200 retained earring
  • Currency of Dollar ??
  • Assume that the same company owned by Omar and he
    is married and has 3 sons and the company
    registered as an individual firm make the same
    required. Dollar currency 3.8 NIS
  • With considering the salaries of partners are
    salaries for employees.

92
  • Case of tax evasion
  • The net profit for an individual company 60000
    NIS,
  • By examining the accounting documents, the tax
    officer discovered that-
  • Begging inventory 190000 NIS
  • Purchase 950000 NIS
  • Ending inventory 90000 NIS
  • Given information according to the owners
    accounting documents
  • Whole sales 700000 NIS with profit percent 10
  • Retail sales 300000 NIS with profit percent 20

93
  • Required
  • Calculate the taxable profit assuming that there
    is fraud (unrealistic) with whole sales and
    retail sales.
  • Assume the owner is married and has 4 sons one of
    them university student, calculate the exemption.
  • Calculate the difference between the calculation
    of the owner and the tax officer
  • Exchange price for dollar 4.2 NIS

94
  • Answer
  • The cost of sales 190000 950000 90000
    1050000
  • Cost of whole sales 700000 90 630000
  • Cost of retail sales 300000 80 240000
  • Hidden cost 1050000 870000 180000
  • Hidden whole sales 18000070 /90 140000
  • Hidden retail sales 180000 30 / 80 67500
  • Total of hidden sales 140000 67500 207500
  • Hidden profit 207500 180000 27500

95
  • Calculated Total profit 60000 recorded by the
    owner and 27500 hidden 87500 NIS, and this
    taxable number.
  • 87500 / 4.2 20833
  • Deduct the exemption
  • 3000 resident
  • 500 wife
  • 1500 sons 3
  • 2500 university student
  • 7500 total of exemption
  • Net taxable income after exemption 20833 7500
    13333
  • 10000 .08 800 3333 .12 400
  • Tax payment 1200

96
  • According to owners calculation
  • 60000 / 4.2 14286
  • Deduct the same exemption 7500
  • Net taxable income after exemption 6786
  • 6786 .08 543
  • The difference 1200 - 543 657
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