ABC & XYZ is VAT registered sole proprietorship companies in Ethiopia. ABC in manufacturing company & XYZ is whole seller company. ABC purchased raw materials from VAT registered suppliers with birr 260,000 VAT inclusive & are sold after processing raw materials in to finished products to XYZ company for birr 330,000 before VAT.XYZ company re-sold to retailer with the amount of birr 460,000 including VAT. During the fiscal year other expenses & employment income tax paid are respectively birr 48,000 & 13,000 for aBC & 38,000 & 11,000 for XYZ company (hint: any purchased & sales transaction is carried out with sole proprietorship). 1. Required business profit tax? 2. Calculate net profit? PDF 3. Calculate VAT payable? 4. Calculate direct & indirect tax? Based on calculate Ethiopian tax system

1. To calculate the business profit tax, we first need to determine the net profit for each company.

Net profit for ABC:
Sales revenue (from selling finished products to XYZ) = 330,000
Cost of raw materials purchased = 260,000
Other expenses = 48,000
Employment income tax = 13,000

Net profit = Sales revenue - Cost of raw materials - Other expenses - Employment income tax
Net profit = 330,000 - 260,000 - 48,000 - 13,000
Net profit = 9,000

Net profit for XYZ:
Sales revenue (from selling to retailer) = 460,000
Cost of goods purchased from ABC = 330,000
Other expenses = 38,000
Employment income tax = 11,000

Net profit = Sales revenue - Cost of goods purchased - Other expenses - Employment income tax
Net profit = 460,000 - 330,000 - 38,000 - 11,000
Net profit = 81,000

2. The net profit for ABC is 9,000 birr and for XYZ is 81,000 birr.

3. To calculate the VAT payable, we need to determine the VAT collected and the VAT paid by each company.

VAT collected by XYZ:
Sales revenue = 460,000
VAT collected (15% of sales revenue) = 460,000 * 0.15 = 69,000

VAT paid by ABC:
Cost of raw materials purchased = 260,000
VAT paid on purchases (15% of cost) = 260,000 * 0.15 = 39,000

VAT payable = VAT collected - VAT paid
VAT payable = 69,000 - 39,000
VAT payable = 30,000

4. The direct tax is the business profit tax paid by both companies, which is calculated based on their net profits. The indirect tax is the VAT payable by XYZ company.

Based on the Ethiopian tax system, the direct tax rate for sole proprietorship companies is 30%.

Business profit tax for ABC = 9,000 * 0.30 = 2,700
Business profit tax for XYZ = 81,000 * 0.30 = 24,300

Therefore, the direct tax paid by ABC is 2,700 birr and by XYZ is 24,300 birr. The indirect tax paid by XYZ is 30,000 birr.