Sales Tax Instructions

Interest rate from saving schemes.
Sales Tax Instructions, 2009
As a very general guide, a firm ought to be earning;
a higher rate than could be earned from a bank deposit account.
at least the annual inflation rate.
If it is not, its owners (investors) are losing money in real terms. The question for the
audit officer is why not? The low return may be because of factors that will affect the tax
liability.
Gross profit percentage
This ratio is defined as;
Gross profit x 100
Sales
It shows the profit the business is making per Rs. 1 of sales. This is an important ratio so
an example of the impact of changes is given below:-
Year end 31 December 2003 2002
Sales 20,000 15,000
Opening stock 1,500 1,000
Purchase 16,000 12,000
17,500 13,000
Less closing stock 2,000 1,500
15,500 11,500
Gross profit 4,500 3,200
As can be seen sales have increased over the year, but the gross profit has fallen i.e. in
2003 profit 22.5%, and in 2002 profit = 23.3%.
Further investigation is necessary, the following may or may not have contributed to a
fall in the rate of gross profit:-
- Suppression of sales/inflation of purchases?
- Higher prices for goods purchased?
- Bad buying or slow-moving stocks?
- Errors in stocktaking?
- Pilferage of goods and / or cash?
- A change in the ―mix‖ of sales-higher sales of goods with a low profit margin
and fewer sales of goods with a higher profit margin?
Again, this measure is only useful when compared to previous years of business. As with
all of these items, an amount result may be evidence of poor (or good) management, and
may not have any tax significance whatsoever. However, the fall in profit in the absence
of explanations may indicate manipulation of the accounts.