Question Tag: Corporate Tax

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  • 10 Marks

PT – Nov 2024 – L2 – Q4a – Chargeable Income Computation

Compute the chargeable income and tax payable for Amasa Architecture and Building LTD for the 2022 and 2023 years of assessment.

Amasa Architecture and Building LTD has been in business for the past seven years. The following information relates to the company’s operations for the years ending 31 December 2022 and 2023.

DETAILS 2022 (GH¢) 2023 (GH¢)
Profit before tax 795,000 2,110,000
Provision for Depreciation 230,000 115,000
Donation to Manhyia Children Home (Approved by Social Welfare Department) 350,000 210,000
Donation towards 2023 Adae Kese Festival 105,000 150,000
Capital allowance agreed with the Ghana Revenue Authority 1,500,000 1,700,000
Withholding tax paid as contained in certificates received 10,000 25,000

Required:
Using the information provided above, compute the chargeable income and tax payable by Amasa Architecture and Building LTD for the years of assessment 2022 and 2023.

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  • 20 Marks

FM – Nov 2024 – L2 – Q2 – Investment Appraisal

Calculate the NPV of launching two new products, Agbui and Loloi, and advise on the investment decision.

Santrofi PLC is a publisher that wants to expand its market share in magazine publications. The company plans to launch two new products, Agbui and Loloi, at the start of January 2025, which it believes will each have a 4-year life span. The sales mix is assumed to be fixed. The information below is relevant:

  1. Expected sales volumes (units) for Agbui:
Year 1 2 3 4
Volume 30,000 55,000 50,000 15,000

  1. The first year’s selling price and direct material costs for each Agbui unit will be GH¢31 and GH¢12, respectively. On the other hand, the company expects to sell 25% more Loloi units than Agbui. Both selling price and direct material cost of Loloi are expected to be 25% less than Agbui’s.

  2. Incremental fixed production costs are expected to be GH¢500,000 in the first year of operation, apportioned based on revenue. Advertising costs will be GH¢250,000 in the first year of operation and then GH¢125,000 per year for the following two years.

  3. To produce the two products, an investment of GH¢1 million in machinery and GH¢500,000 in working capital will be needed, payable at the start of the period. Santrofi PLC expects to recover GH¢600,000 from the sale of machinery at the end of the project life. Investment in machinery attracts a 100% first-year tax-allowable depreciation. The company has sufficient profit to take full advantage of the allowance in Year 1. For the purpose of reporting accounting profit, the company depreciates machinery on a four-year straight-line basis.

  4. Revenue and costs are expected to be affected by inflation after the first year as follows:

    • Selling price: 3% a year
    • Direct material cost: 3% a year
    • Fixed production cost: 5% a year

  5. The company’s real discount rate is 10% for investment appraisal. Average inflation is deemed to be 3%. The applicable corporate tax rate is 25%.

Required:
Calculate the Net Present Value (NPV) of the proposed investment in the two products and advise the company on its investment appraisal.

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  • 5 Marks

ATAX – May 2019 – L3 – Q7b – Corporate Tax Compliance and Reporting

Compute the total tax liabilities for Alaba Trading Limited for the 2018 assessment year, considering its assessable profit, capital allowances, and dividend payable.

For the assessment year 2018, below are the extracts from the tax computations of Alaba Trading Limited:

Item Amount (₦)
Assessable profit 8,200,000
Capital allowances 5,400,000
Dividend payable 6,000,000

Required:
Determine the total tax liabilities of Alaba Trading Limited for the assessment year.

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  • 7 Marks

ATAX – May 2019 – L3 – Q5c – Double Taxation Reliefs and Credits

Advise on double taxation relief for SOKGlobal Limited and compute the applicable relief.

SOKGlobal Limited is a wholly owned Nigerian company that deals with stationery items. It has a functional business unit in Cape Town, South Africa. The company’s operating results for the year ended December 31, 2017, are as follows:

Profit attributable to South Africa business: ₦8,740
Capital allowances agreed with tax officials for Nigeria and South Africa businesses were ₦5,500,000 and ₦2,210,000, respectively.

Required:
Advise the company on the double taxation relief applicable to the company, showing the necessary computations.

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  • 20 Marks

ATAX – May 2019 – L3 – Q3 – Taxation of Companies

Prepare capital allowance computations and tax liabilities for Pardo Nigeria Limited based on its financial data and asset acquisitions.

Pardo Nigeria Limited is a manufacturer of polythene bags. It was incorporated on January 1, 2013, but commenced business operations on March 1, 2013. The following is the summary of its adjusted profits for the respective years:

Period Ended Adjusted Profit (₦’000)
December 31, 2013 7,200
December 31, 2014 10,700
December 31, 2015 12,650
December 31, 2016 15,220
December 31, 2017 19,850

The company acquired the following assets:

Date Asset Type Amount (₦’000)
April 5, 2013 Factory building 5,400
January 17, 2014 Office furniture 2,750
December 1, 2014 Motor vehicle 4,500
January 3, 2015 Production plant 1,820

The company sold some of its assets on December 31, 2017 as follows:

Asset Type Cost (₦’000) Proceeds (₦’000)
Office furniture 250,000 35
Production plant 650,000 60

As the newly appointed tax consultant to the company, the managing director sought your advice on both capital allowances available to the company and the tax liabilities resulting from them for the relevant years. He, however, informed you during the finalization of the engagement that the factory building was purchased second-hand from a company that had ceased operation six months earlier.

Required:
Prepare a report addressed to the managing director of the company showing, for all the relevant years:

a. Capital allowance computations (9 Marks)
b. Tax liabilities payable (11 Marks)

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  • 15 Marks

ATAX – Nov 2016 – L3 – Q4b – Corporate Tax Compliance and Reporting

Compute the relevant tax liabilities for Gringrin Nigeria Ltd. in scenarios with different accounting dates

Gringrin Nigeria Limited is proposing to embark on two courses of action:

i) Change its accounting date from March 31 to June 30; or
ii) Change its accounting date from March 31 to December 31.

The adjusted profits in each scenario are as follows:

  • Change to June 30:
Period Adjusted Profits (N’000)
Year ended March 31, 2011 30,000
Year ended March 31, 2012 33,000
Period ended June 30, 2013 (15 months) 78,000
Year ended June 30, 2014 34,000
  • Change to December 31:
Period Adjusted Profits (N’000)
Year ended March 31, 2011 50,000
Year ended March 31, 2012 60,000
Period ended December 31, 2013 (21 months) 180,000
Year ended December 31, 2014 70,000

As the Tax Consultant, you are required to:

Compute the relevant tax liabilities. (15 Marks)

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  • 15 Marks

FM – Nov 2021 – L3 – Q7 – Financing Decisions and Capital Markets

Analyze the effects of a 1-for-5 rights issue for James Obasi plc, calculate theoretical ex-rights price, and assess investor options and impacts.

James Obasi plc, a medium-sized drone manufacturing firm, is considering a 1-for-5 rights issue at a 15% discount to the current market price of N4.00 per share. Expected issue costs are N2 million, payable from the funds raised. The proceeds from the rights issue will be used to redeem some of the company’s existing bonds at par.

Financial Information:

Statement of Financial Position (N’000):

Required:

a. Ignoring issue costs and any use of the funds raised by the rights issue, calculate: i. The theoretical ex-rights price per share. ii. The value of rights per existing share. (4 Marks)

b. Identify the alternative actions available to an owner of 1,500 shares in James Obasi plc concerning the rights issue and determine the effect of each action on the investor’s wealth. (6 Marks)

c. Calculate the current earnings per share and the revised earnings per share if the rights issue funds are used to redeem some of the existing bonds.
(5 Marks)

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  • 30 Marks

ATAX – Nov 2021 – L3 – Q1 – Corporate Tax Compliance and Reporting

Calculation of tax liabilities, corporate tax compliance, and adjustments in financial reporting.

Carrol Nigeria Limited, a medium-sized company, commenced business in 2011. The company has three subsidiaries in the manufacturing of household utensils and baby products. Over the last three years, its fortunes have dwindled due to high costs of imported raw materials, overheads, low patronage from customers, and increasing demands from the host communities for social amenities.

Due to the challenging business environment, the board decided in 2016 to reduce workforce and permanently close one of its subsidiaries. This led to the appointment of a young accountant with limited taxation and fiscal policy knowledge as the Group Accountant after two Finance Department staff were affected.

In the past three years, the company faced challenges with tax authorities on tax compliance. The Group Managing Director was embarrassed when informed by the tax officer that essential records necessary for determining tax liabilities were not maintained. Gaps were also observed in the annual returns filed by the company, and the Revenue Service is conducting a back duty audit.

The Group Managing Director has sought assistance in addressing these challenges and provided documents for recomputation of the company’s income tax liabilities for the year ended December 31, 2020.

The statement of profit or loss for the year ended December 31, 2020, is as follows:

Additional Information:

  1. Other income included ₦320,000 realized from the disposal of an old plant.
  2. Administrative expenses included ₦250,000 paid to a legal practitioner for the defense and release of the company’s driver caught by traffic officers.
  3. 30% of motor running expenses was expended on the personal expenses of the Managing Director.
  4. 20% of the donation was paid to a State Government fund assisting insurgent victims.
  5. Repairs and maintenance included ₦215,000 for erecting a gate destroyed during a youth protest.
  6. Allowance for doubtful debts comprised ₦600,000 in general provision and ₦400,000 in specific provision.
  7. Miscellaneous expenses included ₦450,000 for hamper gifts to customers during Sallah and Christmas.
  8. A review revealed the gross turnover was understated by ₦750,000.
  9. The following is the schedule of qualifying capital expenditure on property, plant, and equipment:
    Nature Date of Acquisition Amount (₦’000)
    Factory building September 8, 2016 3,800
    Furniture & fittings October 12, 2016 1,600
    Motor van June 19, 2018 4,200
    Factory building March 8, 2020 6,500
    Furniture & fittings April 15, 2020 2,000
    Industrial plant July 1, 2020 5,700
    Motor van December 20, 2020 4,240
  10. Unutilized capital allowances brought forward was ₦1,500,000, with a balancing charge of ₦155,000 on disposal of the old plant.

Required:
As the company’s tax consultant, prepare a report to the Group Managing Director covering the following:

a. Provisions of the Companies Income Tax Act CAP C21 LFN 2004 (as amended) and Finance Act 2020 regarding maintenance of books or records of accounts (4 Marks)

b. Back duty audit and its implications (4 Marks)

c. Computation of the company’s tax liabilities (with supporting schedules) for the relevant tax year (22 Marks)

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  • 30 Marks

ATAX – Nov 2020 – Q1 – Taxation of Companies

Analyze tax implications for Sunchi Limited's operations in Nigeria and corporate tax obligations for resident and non-resident companies.

The recent trade tariff war on goods exported between the United States and China has opened a vista for corporate players in the two countries and their allies to venture into new areas considered to be business-friendly.

Sunchi Limited, Shanghai, is a computer accessories company that was incorporated in China in 2003. The company established its subsidiary outlet, Sunchi West Africa Holdings, in Ibadan, Nigeria, on January 1, 2018. The Nigerian company adopted December 31, annually (same as the parent company) as its end of financial year.

The first set of consolidated accounts was audited by a reputable audit firm based in China. Taxes for both business operations were also paid in China.

The Nigerian tax inspectors from the Federal Inland Revenue Service demanded for annual returns and tax computations from the subsidiary company but the General Manager of the company claimed that the company had paid personal income tax of its employees and directors, value-added tax on imported equipment, and relevant custom duties. Furthermore, since the parent company is not registered in Nigeria, there is no reason why it should be liable to companies’ income tax. The issue is yet to be resolved.

The Managing Director of the subsidiary company in Nigeria, with the permission of the head office in China, appointed you as the company‘s tax consultant to help unravel the issue of payment of companies’ income tax by resident and non-resident companies operating in Nigeria. He also submitted to you the statement of profit or loss for the year ended December 31, 2018, after conversion of the transactions in head office‘s Chinese currency (Yuan) to Nigerian Naira.

(i) Miscellaneous income:
This consists of income realised from the sale of component parts to the head office. The transaction was made at open market price.

(ii) Legal expenses comprise:

Description Amount (N’000)
Debt collection 800
Preliminary expenses 2,100
Land acquisition 550
Retainership fee 750
Total 4,200

Required:
As the company‘s tax consultant, you are to prepare a report to the management of Sunchi Limited taking into consideration the following:
a. Resident and non-resident companies (4 Marks)
b. Circumstances under which profit of a non-resident company will be liable to tax in Nigeria. (10 Marks)
c. Relationship between a:

  • Nigeria branch and the parent company (3 Marks)
  • Nigeria subsidiary and the parent company (3 Marks)
    d. Overseas branch of a Nigerian company (3 Marks)
    e. Overseas subsidiary of a Nigerian company (3 Marks)
    f. Advise on, if any, the companies income tax payable by the two business operations in Nigeria. (14 Marks)

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  • 30 Marks

AT – May 2024 – L3 – SA – Q1 – Tax Administration and Dispute Resolution

Provide professional tax advice for the management of Soft Farm and Agro-Allied Ltd, focusing on deductible interest, adjusted profit, and tax liabilities.

Soft Farm and Agro-Allied Limited, a subsidiary of Emperor Agro Incorporated, Italy, was incorporated in Nigeria in January 2018. Soft Farm and Agro-Allied Limited produces palm kernel for domestic use and export to the European market. The Managing Director of the company has just received a letter from the head office (parent company) about an impending visit due to poor business performance (below the group’s return on investment benchmark of 25%) since the business commenced, despite financial and technical support from the parent company.

In January 2022, the parent company granted a loan of N100 million to Soft Farm and Agro-Allied Limited for business expansion.

The Board has scheduled a special meeting for next month to consider the financial report of Soft Farm and Agro-Allied Limited for the year ended December 31, 2022, and to review past financial reports and tax assessments. As the newly engaged Tax Consultant to the company, you have been invited to participate in the meeting to provide a professional opinion on tax-related issues.

The Financial Accountant has been directed by the Managing Director to provide you with financial statements for all periods under review, books of accounts, returns filed with tax authorities, and other supporting documents.

From your preliminary review of the financial report for the year ended December 31, 2022, you noted an item that requires further discussion with management. This issue relates to interest paid on a loan obtained from the parent company.

Extract from Financial Statements for the Year Ended December 31, 2022

Item N’000
Gross turnover:
– Domestic sales 147,500
– Export sales 200,100
– Other operating income 3,300
Total Gross Turnover 350,900
Deduct:
– Staff salary 122,600
– Ground rent paid to State government 3,200
– Motor running expenses 1,750
– Audit and accountancy fees 1,000
– Repairs and maintenance 5,800
– Depreciation of assets 38,240
– Rent paid 1,850
– Power and lighting 5,400
– Legal cost 5,000
– Rates (water) 2,100
– Allowance for doubtful debts 10,500
– Donations 4,000
– Interest and other finance costs paid 15,600
– Income tax provision 23,400
– General expenses 5,900
Total Deductions 246,340
Net Profit 104,560

Additional Information:

  1. Export Sales:
    20% of export sales were made to the parent company at the prevailing international market price.
  2. Other Operating Income:
    Description N’000
    Dividend received (net) 2,700
    Profit from disposal of non-current asset 600
    Total 3,300
  3. Repairs and Maintenance:
    Description N’000
    Repairs of plantation equipment 1,200
    Repairs to premises (non-industrial building) 900
    Expansion to warehouse (industrial building) 3,700
    Total 5,800
  4. Rent Paid:
    This amount is for accommodation for the newly employed General Manager, whose basic salary is N4,800,000.
  5. Legal Cost:
    Description N’000
    Cost of income tax appeal 850
    Cost of debt collection 1,300
    Cost of acquiring new lease 1,700
    Renewal of old lease 1,150
    Total 5,000
  6. Allowance for Doubtful Debts:
    Description N’000
    Specific provisions 5,230
    General provisions 7,870
    Bad debts recovered (2,600)
    Total 10,500
  7. Donations:
    Recipient N’000
    Palm Oil Research Institute 1,400
    National Library 600
    Cocoa Research Institute of Nigeria 1,000
    Women Society of the host community 1,000
    Total 4,000
  8. Interest and Other Finance Costs Paid:
    In January 2022, the company obtained a loan facility of N100 million from the parent company for business expansion at a competitive interest rate of 12% per annum. The loan duration is 10 years, with interest payable for the first three years, and principal and interest repayments due from the fourth year onward. The balance in the financial statements includes other finance costs and bank charges paid to domestic banks on various accounts.
  9. General Expenses:
    Description N’000
    Wedding gift to staff 350
    Fine imposed on company driver for traffic offense 150
    Haulage expenses 3,200
    Transport and travelling 2,200
    Total 5,900
  10. Schedule of Prior Years’ Turnover and Assessable Profits:
    Year Ended December 31 Turnover (N’000) Assessable Profit (N’000)
    2018 154,400 78,750
    2019 198,600 95,120
    2020 310,300 142,800
    2021 314,900 166,900
  11. Schedule of Qualifying Capital Expenditure Incurred:
    Date of Acquisition Asset Type Amount (N’000)
    August 31, 2017 Plantation equipment 4,600
    August 31, 2017 Industrial building 12,000
    August 31, 2017 Non-industrial building 9,000
    January 1, 2018 Motor vehicles (3) 8,400
    January 1, 2018 Furniture and fittings (10) 1,500
    February 14, 2021 Motor vehicles (2) 5,600
    June 12, 2022 Furniture and fittings (10) 2,000
    July 8, 2022 Research and development 7,000

Required:

As the Tax Consultant to the company, draft a report to the Managing Director of Soft Farm and Agro-Allied Limited, in line with the provisions of the Companies Income Tax Act Cap C21 LFN 2004 (as amended). The report should provide professional advice on the following:

  1. Treatment of Excess Amount of Deductible Interest Paid (6 Marks)
  2. Adjusted Profit of the Company for the Year Ended December 31, 2022 (7 Marks)
  3. Tax Liabilities for All Relevant Assessment Years (17 Marks)

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  • 20 Marks

AT – July 2023 – L3 – Q4 – Business income – Corporate income tax

Computing chargeable income and identifying relevant assumptions for a retail company.

The following relates to the financial records of Konadu Yiadom Company Ltd submitted to the Ghana Revenue Authority for the year ended 31 December 2021. The company is into retail operations.

Notes:

  1. The sales figure includes GH¢21,500 from the sale of old shop fittings which were replaced by new fittings during the year. The profit on the sale of the shop fittings was GH¢3,770.
  2. Following completion of the accounts, the accountant received an invoice dated 14 December 2021 in respect of goods for resale, which were delivered in late December. This invoice was not recorded, and you have been informed that the total amount on the invoice, including VAT, was GH¢15,110. VAT included on the invoice was GH¢440. All levies are inclusive.
  3. In June 2021, the company recognized the need to offer a special after-sales service to its customers. The company hired a new staff member and purchased a machine costing GH¢3,500 for the purpose. The local district assembly provided a grant to aid the purchase of the machine to the tune of GH¢1,250. The company included the cost of the machine in the purchases figure.
  4. Staff cost is the total wages and salaries paid to the staff. GH¢37,000 was paid to fresh graduates employed during the year. They constitute 4% of the total workforce for the year 2021.
  5. Promotion and Advertising is made up of:
    • Managing Director’s wedding reception: GH¢2,800
    • Refreshment during the opening of a new shop: GH¢5,000
    • Sample product to invited guests during the opening of the new shop: GH¢3,510
  6. Interest and Bank Payments are made up of:
    • Interest on loan used to purchase stock for the business: GH¢3,020
    • Overdraft interest on the business account: GH¢7,100
  7. Legal Fees are made up of:
    • Court fine resulting from traffic accident: GH¢3,950
    • Defense of company driver for careless driving: GH¢3,830
    • Litigation on business plot of land (90% chance of success): GH¢5,130
  8. Bad Debts are made up of:
    • Debt collection (Pursuing bad debts): GH¢455
    • Decrease in general bad debts provision: (GH¢1,250)
    • Increase in specific bad debts provision: GH¢1,800
  9. Motor Expenses are made up of:
    • Lease of a delivery van: GH¢11,500
    • Van running expenses: GH¢6,910
  10. Sundry Expenses are made up of:
  • Trade subscriptions: GH¢16,000
  • Support to elect a local Assembly Member: GH¢8,000
  • Provision for replacement of windows in the office: GH¢4,000
  • Gifts to customers during Christmas: GH¢6,000
  • Customer’s claim on defective goods: GH¢27,240
  • Provision for staff redundancy cost: GH¢25,000
  • Cost of investigating cash fraud: GH¢5,600
  • Investigation to acquire a new company: GH¢22,000

Additional Information:
The Ghana Revenue Authority has assessed and granted capital allowance of GH¢57,000 for the 2021 year of assessment.

Required:
You are required to compute the chargeable income for Konadu Yiadom Company Ltd for the 2021 year of assessment. Indicate clearly all necessary assumptions.

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  • 4 Marks

AT – Nov 2017 – L3 – Q3c – Business income – Corporate income tax

Identifying tax exposure on transfer from income surplus to stated capital.

In order to increase its stated capital, XYZ Ltd transferred an amount from its income surplus account. As a tax advisor, identify the types of taxes XYZ Ltd is exposed to on the above arrangement.

(4 marks)

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  • 4 Marks

AT – Nov 2017 – L3 – Q3b – Tax planning

Explaining the variables that constitute tax planning.

Tax planning is the act of arranging one’s tax affairs in ways that postpone or avoid taxes. By employing effective tax planning variables, one can have more positive cash flows to save and invest or more money to spend.

Required:
Explain what constitutes the variables of tax planning. (4 marks)

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  • 10 Marks

AT – Nov 2017 – L3 – Q3a – Business income – Corporate income tax, Tax planning

Evaluating the tax implications of an ICT hardware manufacturing business versus a mango plantation investment.

Following the government’s commitment to build one factory in each district in Ghana, an investor from Mauritius intends to invest in an ICT-Hardware manufacturing company to be located at Nsawam in the Eastern region of Ghana or start a mango plantation company at Aburi in the Eastern region of Ghana in response to the government’s investment drive.

As part of the investment, he intends to incur the following costs and start operations in 2018 on either proposal (ICT Hardware or Mango plantation):

Item Cost (GH¢)
Building 4,000,000
Plant and Machinery 6,500,000
Furniture and Fittings 100,000
Computers 100,000

Additionally, he intends to recruit fresh graduates from the Islamic University College of Ghana. It is further projected that in the first 3 years (2018, 2019, and 2020), the business will make losses as follows:

  • Year 2018: (GH¢20,000)
  • Year 2019: (GH¢18,000)
  • Year 2020: (GH¢10,000)

The investor hopes to start making profits from 2021 and intends to borrow a loan at 20% interest from his USA associate, amounting to the equivalent of GH¢80,000,000. The equity he intends to start with is GH¢20,000,000.

Required:
As a tax adviser, evaluate the proposed investment by the Mauritius investor and the tax implication on the various activities highlighted in the scenario.

(10 marks)

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  • 5 Marks

AT – Nov 2017 – L3 – Q1d – Tax planning, Anti-avoidance measures

Explaining tax evasion and identifying ways companies evade taxes.

The Presidential Commission on Revenue Mobilization has indicated that tax evasion activities of some companies deny the state of its required revenue for development.

Required:

  1. Explain what tax evasion is, and
  2. Identify THREE ways by which companies evade tax. (5 marks)

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  • 5 Marks

AT – May 2017 – L3 – Q5b – Business income – Corporate income tax

Calculate the royalty payable and compute the corporate tax payable by a mining company based on provided financial data.

b) AB Ltd is a mining company and has the following set of data relating to the 2016 year of assessment:

Item Amount (GH¢)
Revenue 5,000,000
Cost of operation 3,000,000
Chargeable income 2,000,000

From the above, the following came to light:

  • Capital allowance of GH¢500,000 was added to the cost.
  • Penalty of GH¢100,000 was imposed by the Minerals Commission for failure to follow standard operating guidelines.
  • Loss from operation amounting to GH¢50,000 recorded in 2010 was added to the cost above.
  • According to the accountant, the company is entitled to carryover its losses.

Required:

i) Calculate the Royalty payable, if any. (2.5 marks)

ii) Compute the corporate tax payable by AB Ltd. (2.5 marks)
(Total: 5 marks)

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  • 10 Marks

AT – May 2017 – L3 – Q3b – Business income – Corporate income tax

Compute allowable financial cost on hedged transactions and provide management advice on the tax implications.

b) XYZ Ltd runs a business with a basis period from January to December each year. The following information is relevant to its business operations for 2016 year of assessment:

Item Amount (GH¢)
Chargeable Income from business operations 40,000
Financial cost incurred on hedged transactions 150,000
Financial gain from hedged transactions 60,000

Required:

i) Compute the financial cost to be allowed in 2016 year of assessment. (6 marks)

ii) Advise management on the above results. (4 marks)
(Total: 10 marks)

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  • 20 Marks

AT – March 2023 – L3 – Q4 – Minerals and mining

Compute the taxes payable by Crystal Mining Ltd and advise on tax payment timelines and consequences of non-compliance.

Crystal Mining Ltd is a resident mining company operating in two mining areas in the Eastern and Western parts of Ghana under the name Alpha Ltd and Beta Ltd respectively. Crystal Mining Ltd has a shared processing facility for the two mining areas.

As part of efforts to increase its market share in the sector, it acquired a 40% stake in the operation of Omega Ltd, also a mining company in the Western part of Ghana.

Omega Ltd’s operations are in their early years, hoping to start production in the next three years. Crystal Mining Ltd commenced commercial operations in 2021.

The operational activity of Crystal Mining Ltd for the 2021 year of assessment is as follows:

Description GH¢
Gross Revenue 1,000,000,000
Cost of Operation (300,000,000)
Gross Operating Margin 700,000,000
Operating and Other Costs (340,000,000)
Net Margin 360,000,000
Add: Interest (net of taxes) on current account 1,000,000

Additional Information:

  • Gross Revenue included the sale of an asset worth GH¢2,000,000, whose cost of acquisition was GH¢1,287,000.
  • Gross dividend of GH¢400,000 was received from Axum Ltd, a company resident in Ghana, in which Crystal Mining Ltd holds 40% voting power. Axum Ltd engages in commerce. The dividend was added to the gross revenue above.
  • Revenue from tailings amounting to GH¢1,000,000 was added to the cost of operation.
  • Included in the cost of operation is the excess of financial cost from derivative of GH¢2,000,000 over financial gain from hedged arrangement of GH¢890,000.
  • For the acquisition of a 40% stake in Omega Ltd, Crystal Mining Ltd paid GH¢4,000,000. The amount was added to the cost of operation.
  • Research and development cost amounting to GH¢1,000,000 has been included in operational cost.
  • Depreciation, depletion, and amortization of GH¢6,000,000 were included in the operational cost above.
  • Overburdening stripping and shaft sinking cost of GH¢3,000,000 was added to Gross Revenue as a way of tax planning, according to the accountant. This cost was incurred prior to access to the resource in 2021.
  • Further information:
    • Reconnaissance and prospecting cost up to 2020 in respect of Alpha Ltd amounted to GH¢80,000,000 and was added to the cost of operation.
    • Reconnaissance and prospecting cost up to 2020 in respect of Beta Ltd amounted to GH¢78,000,000 and was added to the cost of operation.
    • Apart from Pay As You Earn (PAYE) from the staff, Crystal Mining Ltd has never paid taxes to the Ghana Government. This is a big concern to the Ministry of Lands and Natural Resources.

Required:
a) Compute the taxes payable by Crystal Mining Ltd and state any assumptions if any. (16 marks)
b) Advise the management of the company on when it must pay its taxes to the Ghana Revenue Authority. (2 marks)
c) What are the sanctions for non-adherence to the obligation of payment of taxes? (2 marks)

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  • 3 Marks

AT – March 2023 – L3 – Q3c – International taxation

Discuss the extent to which foreign companies are liable to tax in Ghana.

“Foreign companies which are non-resident can ply their businesses in Ghana and will not pay taxes in Ghana but rather in their home countries.” This was a statement that was made at a tax forum in Ghana as part of tax planning measures by a young tax graduate, who was asked to share his thoughts on non-resident persons and their tax issues. This created some arguments at the programme.

Required:
To what extent should foreign companies be liable to tax in Ghana?

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  • 4 Marks

AT – March 2023 – L3 – Q2d – Tax administration in Ghana

Discuss the tax implications of a free zone entity exceeding its approved local sales quota.

Koliko Ltd established a free zone entity in Ghana and got approval to sell 20% locally and export the rest from the Minister of Trade. Contrary to the approval, Koliko Ltd decided to export 60% and sell 40% of its produce into the local market.

According to the Board Chairman of the company, this was wrong and that the Ghana Revenue Authority would consider the whole arrangement as artificial since the company departed from the approval by the Ministry of Trade.

Required:
What is the tax implication of the above arrangement?

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