- 20 Marks
Question
a) The following relates to the Kanto Mining Company (KMC) for the 2023 year of assessment.
| GHe’ million | |
|---|---|
| Operating Margin | 1,700 |
| Tax paid against 2023 year of assessment | 100 |
| Royalty paid | 1.64 |
The following forms part of the tax returns of the company: i) The gross production was 2 million ounces of gold. ii) Revenue from the sale of the gold was GH¢6.8 billion. iii) Financial cost incurred from derivative which was included in the determination of the margin above was GH¢12 million. iv) The company made income from tailings amounting to GH¢14 million. The tailings value was not used in the determination of the margin above. v) The company received a machinery worth GH¢250 million in return for gold sold to affiliate, the market value of the machinery was GH¢270 million. This was not used in the computation of the margin above. vi) Research and development expenditure of GH¢0.7 million was used in arriving at the margin above. vii) Revenue received from the sale of fertilizer was GH¢45 million. This was a one-off transaction with an associated cost of GH¢23 million. These details have been included by the accountant in arriving at the margin above as part of gross revenue and production cost respectively. viii) Loan of GH¢120 million was received with interest of GH¢30 million each year to be liquidated in the next 4 years from an uncontrolled company. Part of the gold was used to pay for the interest repayment through a hedged programme. The quantity of gold was valued at GH¢38 million at the time of exchange and has not been accounted for in the books of account. ix) Shaft sinking and overburdening stripping cost incurred in the development of another field was GH¢67 million and added to production cost. x) Contribution towards community development programme of GH¢46.5 million was added to cost of production. The company provided proof with pictures of the donation with paper headlines on the ceremony. xi) Dividend received from three sources: a mining company at Obuasi, a petroleum upstream company in Takoradi and ceramics company at Datok (Upper East) all in Ghana amounting to GH¢20,000, GH¢30,000 and GH¢40,000 respectively. The total amount has been captured as part of revenue in note (ii) above. xii) Written Down Value carried forward of mining assets was GH¢140 million agreed with the Ghana Revenue Authority. They have granted capital allowance three times.
Required: Compute the tax payable.
b) Maanikuur Company LTD, a self-assessed taxpayer of the Ghana Revenue Authority (GRA), estimated its chargeable income for the assessment year, 2023 to be GH¢30 million.
The company commissioned a new Plant in April 2023 and realised that its production capacity has improved hence revised its estimated chargeable income to GH¢50 million in May 2023 and notified the GRA accordingly. Withholding taxes of GH¢150,000 was paid in May 2023.
In November 2023, the Directors were advised by the company’s External Auditors to adjust their chargeable income to avoid an imposition of a penalty by GRA. This was adhered to and subsequently the estimate was further revised to GH¢75 million and notified GRA. Withholding taxes of GH¢260,000 was paid in November 2023.
The company submitted its 2023 annual tax returns on the due date of 30 April 2024 and posted actual chargeable income of GH¢93.750 million.
The company tax rate is 25% and the Bank of Ghana statutory rate is 20%.
Required: i) Compute the instalment payments for the four quarters in the 2023 year of assessment. (6 marks) ii) Compute penalty payable by Maanikuur Company LTD, if any for 2023. (2 marks)
Answer
(a). Kanto Mining Company (KMC) Computation of tax payable Year of assessment 2023 January 1-December 31, 2023
| GHe’ million | GHe’ million | |
|---|---|---|
| Operating Margin | 1,700 | |
| Add back: | ||
| Financial Cost | 12 | |
| Tailings | 14 | |
| Machinery | 250 | |
| Transfer Pricing | 20 | |
| Gold for Interest | 30 | |
| Research and Dev | 0.7 | |
| Shaft Sinking | 67 | |
| Cost of fertilizer | 23 | 416.7 |
| 2,116.7 | ||
| Deduct the following: | ||
| Fertilizer sale | 45 | |
| Capital Allowance | 70 | |
| Royalty | 351.8145 | |
| Dividend-Mining | 20 | |
| -Petroleum | 30 | |
| -Ceramics | 40 | 556.8145 |
| Chargeable income | 1,559.8855 | |
| Tax charged @ 35% | 545.96 | |
| Tax paid | 100 | |
| Tax Payable | 445.96 | |
| Add Royalty Payable | 351.8145 | |
| Total Tax Payable | 797.7745 | |
| Other income-fertilizer | ||
| Fertilizer income | 45 | |
| Cost | 23 | |
| Chargeable income | 22 | |
| Tax charged @ 25% | 5.5 |
Workings
- Computation of royalty payable
| GH¢ | |
|---|---|
| Gross revenue | 6,800,000,000 |
| Tailings | 14,000,000 |
| Machinery | 270,000,000 |
| Fertilizer | (45,000,000) |
| Gold-Loan | 30,000,000 |
| Dividend (20,000+30,000+40,000) | 90,000 |
| Total | 7,069,090,000 |
| Royalty @ 5% | 353,454,500 |
| Royalty Paid | (1,640,000) |
| Royalty payable | 351,814,500 |
- Computation of Excess Financial Cost/Gains
| GHe | |
|---|---|
| Financial Cost | 12,000,000 |
| Financial Gain | (8,000,000) |
| Financial Cost carried Forward | 4,000,000 |
(b).
i) Amount of each installment payment is calculated as follows
A−BC\frac{A – B}{C}
A = current estimated tax payable B = prior tax paid during the year + withholding tax withheld and paid C = number of installments remaining
1st Installment A = 25% GH¢30,000,000 = GH¢7,500,000 B = 0 C = 4
=7,500,000−04=GH¢1,875,000= \frac{7,500,000 – 0}{4} = \text{GH¢1,875,000}
2nd Instalment A = 25% × GH¢50,000,000 = GH¢12,500,000 B = 1,875,000 + 150,000 = GH¢2,025,000 C = 3
=12,500,000−2,025,0003=GH¢3,491,666.67= \frac{12,500,000 – 2,025,000}{3} = \text{GH¢3,491,666.67}
3rd Instalment A = 25% × GH¢50,000,000 = GH¢12,500,000 B = 1,875,000 + 150,000 + 3,491,666.67 = GH¢5,516,666.67 C = 2
=12,500,000−5,516,666.672=GH¢3,241,666.67= \frac{12,500,000 – 5,516,666.67}{2} = \text{GH¢3,241,666.67}
4th Instalment A = 25% × GH¢75,000,000 = GH¢18,750,000 B = 1,875,000 + 150,000 + 3,491,666.67 + 3,241,666.67 + 260,000 = GH¢8,018,333.34 C = 1
=18,750,000−8,018,333.341=GH¢10,731,666.66= \frac{18,750,000 – 8,018,333.34}{1} = \text{GH¢10,731,666.66}
(6 marks)
ii) Penalty =
Estimated Tax payable Less 90% of Actual payable Difference in Tax
Computation of margin of error
=Estimated AmountActual Amount×100= \frac{\text{Estimated Amount}}{\text{Actual Amount}} \times 100 =75,000,000×10093,750,000=80%= \frac{75,000,000 \times 100}{93,750,000} = 80\%
This is below 90%. The margin of error is 100 – 80 = 20%. The company is liable to pay penalty.
90% of Actual: 90% × 93,750,000 × 25% = 21,093,750 Less Actual Tax paid Difference (to attract interest)
Interest will be imposed on the difference and not penalty. The law has changed. The requirement was therefore not necessary
- Tags: chargeable income, instalment payments, Self Assessment., Tax Penalties, Withholding Tax
- Level: Level 3
- Uploader: Samuel Duah