(a) Chris and Wendy graduated from high school in 2012 and set up a hair-dressing shop in the form of a limited company, Hair Ltd. The total amounts received from the customers of Hair Ltd in each of the last three years has been as follows. The income is evenly spread over the 12 months.
Year RMB
2012 200,000
2013 300,000
2014 300,000
In order to encourage small enterprises, the State Council has granted the following tax reliefs:
– Before 1 August 2014, an entity with a turnover of less than RMB20,000 per month was exempt from business tax (BT).
– For the period from 1 August 2014 to 31 December 2018, the exemption threshold was increased to RMB30,000 per month.
Hair Ltd files business tax on a monthly basis.
Required:
Calculate the business tax payable by Hair Ltd in each of the three years, 2012, 2013 and 2014.
Year
2012 Monthly turnover is RMB16,667 (200,000 ÷ 12), which is lower than the taxation threshold of RMB20,000.
Exempt from BT
2013 Monthly turnover is RMB25,000 (300,000 ÷ 12), which is over the taxation threshold.
BT payable is RMB15,000 (300,000 x 5%)
2014 BT from January to July is RMB8,750 (25,000 x 5% x 7 months). 1
From August to December, the monthly turnover is below the revised threshold of
RMB30,000, so exempt from BT.
Calculate the enterprise income tax (EIT) of Hair Ltd of 2014.
Enterprise income tax of 2014 = RMB50,000 x 50% x 20% = RMB5,000