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 : 1.On 3/12 purchased on credit 5 fridges amounted 3000 NIS for each, not include VAT from Naser Company invoice # 64. 2.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. 3.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. 4.On 31/12 paid PALTEL expense invoice # 791 with amount 232 and delayed to tax report 1/2007. 5.On 31/12 bring back 2 fridges to Naser company and get sales return invoice # 6.

6. Sales: 1.On 3/12 sold 3 fridges with total value 12600. 2.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. 3.On 23/12 sold 8 fans with price 760 for all for the base value by cheque. Assume: VAT = 16%

7. Required: 1.Prepare the statement of sales and purchases for 12/2006 2.Determine the amount to pay or return with recording the entry. 3.Record the entry for PalTel invoice delayed. The answer

8. Purchase statement: DateInvoice #StatementtaxBaseTotal 5/1264Purchase24001500017400 7/12257Purchase26721670019373 16/12346Purchase277.21732.82010 31/126Purchase return (960)(6000)(6960) Total4389.2 Out tax 27432.831822

9. Sales statement DateInvoice #StatementTaxBaseTotal 3/12351sales1737.91086212600 15/12352Sales2813.51758620400 23/12353Sales121.6760881.6 Total4673 In tax 2920833881.6

10. Notes: 1.Invoices delayed not appear in the statement of tax. 2.There is ability to delay invoices of purchases and expenses for 6 months from the date of purchasing. 3.We have no ability to delay sales invoices. >> 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 #CrDrEntrySeries 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 6960 6000 6960Naser Co. VAT Purchase return 5

12. Sale entries Invoice #CrDrEntrySeries 3511738 10862 12600Cash Vat Sales 1 3522813 17586 20400Bank VAT Sales 2 353121.6 760 881.6Bank 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 >> 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 definition Tax 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 = 6400*12= 76800 2- vat for the net profit = 250000* 16% = 40000 Vat for the year = 76800+40000= 116800 -Net profit after vat for profit = 250000- 40000= 210000 -Income tax = 210000*15%= 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= 10000*16/100= 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 10000*6%=(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 StatementValueTaxes The price4000 Customs 4000*20%800 Price after customs4800 Purchase tax 4800*60% 2880 Price after purchase tax7680 VAT 7680* 16% 1229 Price after VAT8909

28. Calculation of importing several goods MerchandiseCostCustomsAdded rate Purchase tax VATValue after taxes Soap1000013.6%50%10%17% Cars900007%-75%17% Milk500075%17%

29. MerchandiseCostCustomsAdded rate Purchase tax VATValue after taxes Soap1000013.6%50%10%17%21930 Cars900007%-75%17%197174 Milk500075%17%10238

30. The difference between VAT and customs StandardVATCustom & purchase tax 1When imposedWith all steps of production. sale. distribution Imposed once when enter the goods for local area 2Mechanism of collection Collect from consumer then paid to government First paid to government then collect from consumer 3Tax classificationConsider balance sheet account Part of good cost (trading account) or income statement 4Tax rate14.5%It is according to good classification and & economic agreements and political situation 5The ability of facing problems difficult in applyingEasy 6EvasionEasy (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 = 2000*12= 24000 24000/4 = 6000$ Exemptions Resident 3000 Wife 500 Sons 1000=500*2 Total =4500 Taxable income =1500* 8% 120$ annually Tax value per month = 120$/ 12 =10$ 10$*4 = 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 = 3000*12/4= 9000$ Exemptions Resident 3000 Wife 500 Sons 2500=500*5 Rent 2000 Total of exemptions =(8000) Taxable income =1000* 8% 80$ annually Tax value per month = 80$/ 12 =6.66$ 6.66$*4 = 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= 500*1 Student (university) 2500 Total of exemption = 6500$

38. Taxable income 27600- 6500= 21100$ 10000*8%= 800 6000*12%=720 5100*16%= 816 Annual income tax = 800+720+816=2336 Monthly income tax= 2336/12=194.6$ 194.6*5=1946 NIS Salary after income tax = 11500-1946=9554 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$ (309*80%) + 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 =534.43*14= 7482.02$ Deduct the exemption Resident 3000 Net taxable income 4482.02*8% = 358.56$ Monthly income tax 358.56 / 12 = 29.88$

41. Answer: case 2 Base salary 309$ + addition high cost of living 247.2$ (309*80%) + 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 =534.43*14= 7482.02$ + ( 200$*6)=8682.02 Deduct the exemption Resident 3000 Wife 500 Sons 2000 (500*4)

42. Net taxable income 3182.02*8% = 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 30 th 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 10000salaries28000accounting fees 8000rent12000auditing fees 7000harborage expenses15000feasibility study fees 3000water and electricity 5000bad debits 1000Exchange computer loss 800phone expense 500allocated bad debits 4000training expenses 7000donation for ministry 8700net profit 55000total55000total

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 10000Salaries28000accounting fees 8000Rent12000auditing fees 0harborage expenses15000feasibility study fees 3000water and electricity 1100bad debits(55000*2%) 600Exchange computer loss 480phone expense(800*60%) 0allocated bad debits 550 training expense (55000*1%) 0donation for ministry 31270net profit 55000total55000total

50. 31270 Calculated net profit before harborage and donation (6254) Deduct donation (31270*20%) (938) Deduct harborage expenses (31270*3%) 24078 Taxable income 31270 – (6254+938) Deduct exemptions: 3000 resident 500 wife 4000 sons (500*8) 2500 university student (10000) Total 14078 Net taxable income (10000*8%+4078*12%)=800+489.36=1289.36 annually 1289.36/12=107.44 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 6 th 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 = 900*12/ 4.5 = 2400$ Akram salary = 600*12/ 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$ (200*12=2400) max 2000$ Total of exemption 8000$ Total of deductions and exemptions = 5363+8000 =13363$ Net taxable income =28888.8 – 13363 = 15525.8$ Annual income tax = (10000*8% + 5525.8*12%) 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 1850*12/5 = 4440$. Deduct the exemption Resident 3000$ Husband (dead) 0$ Sons 1500$ (3*500) 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 ( 1742.77*25% ) 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 2178.46*2% = 43.57 NIS Addition for traveling 54 NIS Total of salary =2376,03 Deduct excluded income according to Palestinian income tax law. - Government saving = (1742.77+435.69) * 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 =1034.14*8%. =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 50%*2000= 1000$ * Utilities 500$

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 6000*12% =720 11500*16% = 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 DrCr Purchase250000Sales525000 Begging inventory 125000Ending inventory 60000 Sales expenses 17500 Managerial expenses 7500 Salary for partners 50% 60000 Furniture depreciation 10000 Rent7500

64. Sales525000 Cost of goods sold315000 Purchases250000 Begging inventory125000 Ending inventory60000 Gross income210000 Deductions102500 Managerial expense7500 Sales expense17500 Furniture depreciation (10000*10%)10000 Rent7500 Salary for two partners60000 Net revenue107500 Total revenue for partner107500*40% = 43000 Total income for taxpayer43000+ 30000 salary (2500*12)= 73000

65. Annual income73000/4= 18250$ Exemptions9500$ Resident3000$ Wife500$ Son *21000$ University student2500$ Father and mother1000$ Rent house 500*12/41500$ Taxable income8750 Paid income tax8750*8% =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$ 26875*15% =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 2300*12 = 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 (19000*60%) Depreciation for car and furniture 800 NIS (4000*20%) Total of deductions = 49200 NIS = 12300$

77. Exemption Resident 3000$ Wife 500$ Son 500$ University student 2500$ Parent 500*2= 1000$ Grandmother = 0$ ? Total of exemption = 7500$ Net taxable income 9800$ 9800*8% = 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. statementPurchase during the year 1-Metal1000,000 2-Concrete material300,000 3-Stone400,000 4-constructive material200,000 5-pipes100,000 6-paint100,000 Total2100000

80. Trading account on 31\12\2005 200,000Beginning inventory 2100000Sales 1800000Purchase200,000Ending inventory 300,000Total profit 2300000 Profit and lossaccount on31\12\2005 80,000Managerial expense 300,000Total profit 20,000Financing expense 200,000Net profit 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 200,000Beginning inventory 2487805Sales 2100000Purchase200,000Ending inventory 387805Total profit 2687805 correctProfit and lossaccount on31\12\2005 80,000Managerial expense 387805Total profit 20,000Financing expense 287805Net profit 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. 1.Pay penalty because of not offering the self assessment 2% monthly. 2.Pay penalty because of not paying the tax 3% monthly. 3.Interest of delaying the tax payment 10% yearly. 4.Add penalty 2% monthly because of changing foreign currency Required: 1.Determine the accrued tax must be paid to tax revenue service (tax officer) 2.Determine the saved amount if he paid the tax on time. 3.Calculate the amount if the payment was on 25/1/2006.

86. 1- Accrued tax for the year 200512000 NIS Prepayments during the year (900*10)9000 NIS Accrued balance3000 NIS Penalty for not offering the self assessment (3000*2%*4)240 NIS Penalty for not making the payment (3000*3%*4)360 NIS The accrued amount after penalties3600 NIS Add interest 10% yearly (4 months ) 3600*10%* 4/12120 NIS Add foreign currency changes 3600*2%*4288 NIS The accrued tax4008 NIS 2- the saved amount if the tax paid on time1008 NIS 3- if the payment was on 25/1/2006 (12000*6%)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. 1.Self assessment estimation or self tax estimation, by the taxpayer, by using personal information or balance sheet. 2.Arbitrary estimation (random), by the tax officer or the internal revenue services 3.External look for taxpayer, by the tax officer by looking for his car, home, shop, school or university and so on. 4.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 STATEMENTVALUE NIS STATEMENT 15000Rent100000Total income 1500Capital interest100Credit interest of withdraw 700Construction error (penalty)2000Collected bad debits 7000Amortization for goodwill 8000Establishment cost 3000Car expenses 10000Salaries for partners 6000Reserve for expansion 1000Loss of re-evaluation 10000Furniture 39900Net profit 102100Total102100Total

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 STATEMENTVALUE NIS STATEMENT 15000Rent100000Total income -Capital interest-Credit interest of withdraw -Construction error (penalty)800Collected bad debits -Amortization for goodwill 1600Establishment cost 1200Car expenses 10000Salaries for partners -Reserve for expansion -Loss of re-evaluation 1000Furniture 72000Net profit 100800Total100800Total

91. Taxable income =72000 Tax vale = 72000* 15% = 10800 The recording entry 72000 profit & loss account 10800accrued tax 61200retained 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 owner’s accounting documents: Whole sales 700000 NIS with profit percent 10% Retail sales 300000 NIS with profit percent 20%

93. Required: 1.Calculate the taxable profit assuming that there is fraud (unrealistic) with whole sales and retail sales. 2.Assume the owner is married and has 4 sons one of them university student, calculate the exemption. 3.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 180000*70% /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 owner’s calculation 60000 / 4.2 = 14286 $ Deduct the same exemption 7500 $ Net taxable income after exemption 6786 $ 6786 $ *.08 = 543 $ The difference = 1200 $ - 543 $ = 657 $