- 5 Marks
Question
Kankoka is registered with the Registrar General Department of Ghana as a Non- Governmental Organisation (NGO) and had income amounting to GH¢30,000,000 in 2018 year of assessment.
A detailed analysis reveals the following composition of the income: Support from Benefactor based in Germany GH¢10,000,000 Transport business GH¢10,000,000 Government afforestation project disbursement GH¢10,000,000
Required: Determine the tax payable if any by Kankoka and comment on your answer and state any relevant assumption.
Answer
Introduction An NGO is a charitable organization that is exempt from tax on its NGO activities. When an exempt entity engages in business activities, that business activities shall be subject to tax.
Income from Benefactor of GH¢ 10,000,000 Following from the above, the support from the Benefactor based in Ghana is not a business activity after all NGOs run their activities based on funds from Benefactors and like-minded persons.
Transport business income of GH¢ 10,000,000 Transport business is income from business for which Kankoka shall be subject to tax. Therefore, the income of GH¢10,000,000 from the transport business shall be subject to tax using the marginal tax rate of 25%.
Income from Government Afforestation The funds from Government on afforestation is income that is meant for a dedicated purpose. This income is therefore exempt from tax in the hands of Kankoka.
Tax computation: GH¢ Income from Transport business 10,000,000 Tax charged @ 25% 2,500,000
The assumption is that the income of GH¢10,000,000 has taken into account all cost associated with the transport business.
- Tags: Business income of NGOs, Charitable organization, NGO Taxation
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: MAY 2020
- Uploader: Theophilus