ACCA Taxation
Past Questions
23+ verified Taxation past questions for ACCA. Step-by-step worked answers in 5 Nigerian languages.
Taxation topics (2)
Sample Taxation past questions
1. Direct tax example:
- A. VAT
- B. Income tax
- C. Excise duty
- D. Customs duty
Answer: B
AI Explanation
**The reasoning** A **direct tax** is one paid directly by the person or business that earns the income or owns the property — the tax burden cannot be shifted to someone else. **Income tax** fits perfectly: when you earn a salary, *you* pay tax on it directly to the government. The person earning bears the cost. In contrast, **indirect taxes** are collected from one person but passed on to another. The seller collects it, but the buyer ultimately pays through higher prices. **Why the wrong options tempt you** - **VAT (Value Added Tax)** — This seems government-related, but it's *indirect*. Shops collect it from you when you buy goods, then remit it to government. You bear the burden, not the shop. - **Excise duty** — Charged on manufacturers (e.g., beer, cigarettes), but they pass the cost to consumers through higher prices. Indirect. - **Customs duty** — Importers pay this, but add it to the selling price. You, the buyer, ultimately foot the bill. Indirect. **Quick takeaway** If *you* earn it and *you* pay tax on it directly, it's a direct tax — think income tax, company tax, property tax.
2. Indirect tax example:
- A. Income tax
- B. Corporation tax
- C. VAT
- D. Capital gains
Answer: C
AI Explanation
**The reasoning** Taxes fall into two camps: **direct** and **indirect**. **Direct taxes** are paid straight from your pocket to the government. They're based on what you *earn* or *own* — like income tax (on your salary), corporation tax (on company profits), or capital gains tax (on profit from selling assets). The government knows exactly who paid. **Indirect taxes** are sneaky — you pay them *through* someone else, usually when buying goods or services. **VAT (Value Added Tax)** is the classic example. When you buy ₦1,000 airtime and ₦75 is VAT, the vendor collects it from you and passes it to government. You're the real payer, but indirectly. **Why the wrong options tempt you** Income tax, corporation tax, and capital gains are all **direct** because they target specific people/entities based on their income or profits. Students mix them up because all taxes feel like they come "from" you — but the key is *how* the government collects them. **Quick takeaway** If the tax hits your income or wealth directly, it's direct; if it's hidden in the price you pay for stuff, it's indirect.
3. VAT is borne ultimately by the:
- A. Producer
- B. Final consumer
- C. Government
- D. Wholesaler
Answer: B
4. A taxable person must register for VAT once turnover exceeds the:
- A. Minimum wage
- B. Registration threshold
- C. Bank limit
- D. Audit fee
Answer: B
5. Input VAT is VAT paid on:
- A. Sales
- B. Purchases
- C. Salaries
- D. Dividends
Answer: B
6. Direct tax differs from indirect tax in that direct tax is:
- A. Imposed on goods
- B. Imposed on income/profits and borne by the same person
- C. Always lower
- D. Charged at customs only
Answer: B
AI Explanation
Direct taxes are on income/profits (CIT, PIT) — same person bears the burden. Indirect taxes (VAT, customs) are on consumption.
7. Withholding tax is BEST described as:
- A. A penalty
- B. An advance collection of tax from payments at source
- C. A bonus
- D. A surcharge on imports
Answer: B
AI Explanation
WHT is deducted at source by the payer and remitted to the tax authority — usually creditable against the payee's final liability.
8. Tax avoidance is:
- A. Illegal
- B. Legal arrangement of affairs to minimise tax
- C. Always punished
- D. A duty
Answer: B
AI Explanation
Avoidance is legitimate (within the law). Evasion (illegal misrepresentation) is the criminal version.
9. Double tax treaties exist primarily to:
- A. Increase tax on foreign income
- B. Eliminate double taxation of the same income in two jurisdictions
- C. Replace VAT
- D. Mandate dividends
Answer: B
AI Explanation
DTTs allocate taxing rights between jurisdictions and provide relief (credit/exemption) to avoid double taxation.
10. VAT in most countries operates on:
- A. Single-stage tax
- B. Input-output (multi-stage non-cumulative) basis
- C. Annual basis only
- D. Customs only
Answer: B
AI Explanation
VAT is multi-stage but non-cumulative — businesses set off input VAT against output VAT so only value added is taxed.
11. Capital allowances are granted as a substitute for:
- A. Salaries
- B. Depreciation, which is generally disallowed for tax
- C. Audit fees
- D. Interest
Answer: B
AI Explanation
Tax authorities replace accounting depreciation with statutory capital allowances to standardise relief on capex.
12. A 'permanent difference' between accounting profit and taxable profit:
- A. Reverses in future periods
- B. Will never reverse (e.g. entertainment costs disallowed)
- C. Causes deferred tax
- D. Equals temporary differences
Answer: B
AI Explanation
Permanent differences (e.g. fines, entertainment) never reverse and so do not generate deferred tax.
13. A 'temporary difference' may give rise to:
- A. No tax effect
- B. A deferred tax asset or liability
- C. Goodwill
- D. Equity bonus
Answer: B
AI Explanation
Temporary differences (e.g. depreciation timing) generate deferred tax under IAS 12.
14. Tax 'incidence' refers to:
- A. Number of audits
- B. Who ultimately bears the economic burden of a tax
- C. Filing date
- D. Tax year
Answer: B
AI Explanation
Incidence is the final economic resting place of a tax — different from who legally pays it.
15. Tax 'progressivity' means:
- A. Same rate for all
- B. Higher rates on higher incomes
- C. Lower rates on higher incomes
- D. Imports only
Answer: B
AI Explanation
Progressive tax applies higher marginal rates to higher income brackets (e.g. PAYE bands).
16. An 'ad valorem' tax is charged:
- A. Per unit of quantity
- B. As a percentage of value
- C. Annually only
- D. On imports only
Answer: B
AI Explanation
Ad valorem taxes (e.g. VAT) are calculated as a percentage of value; 'specific' taxes are a fixed amount per unit.
17. Tax 'expenditure' refers to:
- A. Government collection costs
- B. Revenue foregone by granting exemptions/reliefs
- C. Tax-officer wages
- D. Refunds
Answer: B
AI Explanation
Tax expenditures are revenues effectively 'spent' through preferences/exemptions — fiscal cost akin to subsidies.
18. Adam Smith's canons of taxation include all EXCEPT:
- A. Equity
- B. Certainty
- C. Convenience
- D. Complexity
Answer: D
AI Explanation
Smith's canons: Equity, Certainty, Convenience, Economy. Complexity is not desired.
19. Loss relief carried forward typically requires:
- A. No conditions
- B. Continuity of trade and (often) ownership
- C. Government grant
- D. Auditor signature
Answer: B
AI Explanation
Loss carry-forward usually requires the same trade to continue; major changes in ownership or trade can restrict relief.
20. Transfer pricing principles require related-party transactions to be:
- A. Free
- B. At arm's length
- C. Subsidised
- D. At a premium
Answer: B
AI Explanation
Arm's-length principle — prices between related parties should match those between unrelated independent parties.
21. A 'CFC' (Controlled Foreign Company) rule generally targets:
- A. Domestic dividends
- B. Income parked in low-tax foreign subsidiaries to defer/escape tax
- C. Charitable donations
- D. Trade discounts
Answer: B
AI Explanation
CFC rules attribute certain income of low-taxed foreign subsidiaries to the parent jurisdiction to limit base erosion.
22. Self-assessment requires the taxpayer to:
- A. Wait for assessment from authority
- B. Compute, file and pay tax due — subject to audit
- C. Avoid filing
- D. Submit only at audit
Answer: B
AI Explanation
Self-assessment shifts computation to the taxpayer; authority verifies later via audits.
23. Penalties for late filing of tax returns typically include:
- A. No consequence
- B. Monetary penalty plus interest on unpaid tax
- C. Imprisonment only
- D. Asset confiscation
Answer: B
AI Explanation
Most jurisdictions impose fixed/percentage penalties plus interest at a prescribed rate on amounts unpaid.
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