Corporate Taxation – Page 2

AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses

Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.

Question

Udi Nigeria Limited is a mining company which was established ten years ago. The company makes up its accounts to December 31 of every year. The Managing Director, who is an engineer, while having a chat with his former colleagues in the university during the week, heard for the first time, the concept of tax neutralities. He wondered how tax could be neutral.

On getting to the office the following week, he requested further information on tax neutralities from the accountant, but based on his personal opinion, the accountant’s response was not convincing enough.

The company is in the process of filing its annual returns for the year ended December 31, 2021, to the tax authorities. The Managing Director has directed the Financial Accountant to forward the following reports to you (being the company’s Tax Consultant) in respect of the company’s operational activities for the year:

Operational Results:

Description	N’000
Gross Turnover	125,490
Salaries and Wages	25,900
Depreciation of Mining Equipment	15,400
Transport and Traveling	2,100
Repairs and Maintenance	3,700
Allowance for Bad Debts	6,200
Electricity and Other Utilities	4,660
Legal and Professional Fees	4,850
Certified Exploration Expenditure	4,500
Administrative Expenses	1,450
Development and Processing Expenditure	2,500
Miscellaneous Expenses	3,420
Total Deductibles	74,680
Net Profit	50,810

Additional Information:

Repairs and maintenance included an amount of N1,500,000, being cost of fittings incurred at the operational site.
Capital allowances computed:
- Brought forward: N750,000
- Current year (excluding current year capital expenditure): N12,200,000
- Total: N12,950,000

Required:

As the company’s Tax Consultant, you are to prepare a report to the Managing Director of Udi Nigeria Limited, which will:

a. Show the tax liabilities payable by the company for the relevant assessment year in line with the provisions of Nigerian Minerals and Mining Act 2007 (as amended). (9 Marks)

b. Explain the concept of tax neutralities and its applications to specific policy issues. (6 Marks)

Answer

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Tags: Capital allowances, Corporate Taxation, Mineral Resources, Mining Taxation, Nigerian Tax System, Policy Implications, Tax Compliance, Tax Neutrality
Level: Level 3

Topic: Taxation of Specialized Businesses
Series: NOV 2023

AT – Nov 2023 – L3 – SC – Q5 – Tax Administration and Dispute Resolution

Steps and objectives in handling a tax audit with FIRS and the required documentation.

Question

Zola Nigeria Limited has been in business for several years, preparing its accounts to December 31 of every year. Prior to the last two years, the company had a very good relationship with the Federal Inland Revenue Service (FIRS) as far as prompt filing of annual tax returns and payment of tax liabilities are concerned. The company was, however, fined for late filing of returns in the last financial year ended December 31, 2020.

In compliance with the provisions of the Companies Income Tax Act Cap C21 LFN 2004 (as amended), the company filed its annual returns for the 2022 assessment year (year ended December 31, 2021) within the statutory period. Payment of tax due was also made.

The review done by the tax officials at the FIRS on the tax returns filed by the company necessitated the request for additional relevant documents to authenticate some items of expenditure and capital allowances claimed. The FIRS subsequently wrote a letter to the company for the submission of the documents within two weeks of the receipt of the letter. The receipt of the letter was acknowledged by the company, but it, however, failed to forward the required documents to the tax authorities. A reminder was sent to the company four weeks after the first letter was written, yet it failed to respond to the request made.

The Managing Director of the company has just received a letter from the tax office that a team of tax inspectors will be visiting the company in a fortnight to conduct a tax audit.

The company has approached your firm of chartered accountants to assist with advice on how the company should handle the forthcoming tax audit.

Required:

Your Principal Partner has directed you, as a newly employed Audit Senior, to handle the engagement and expects you to prepare a report for his review before sending the same to the client. The report should address the following:

a. Objectives of tax audits (5 Marks)

b. Stages in a typical tax audit process (4 Marks)

c. Schedule of requirements for FIRS tax audit (6 Marks)

Answer

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Tags: Audit Process, Audit Stages, Corporate Taxation, Dispute Resolution, Financial Reporting, FIRS Requirements, Nigerian Tax System, Tax Audit, Tax Compliance
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2023

AT – Nov 2017 – L3 – Q5 – Tax Administration and Dispute Resolution

Outline objection and appeal procedures for FIRS additional assessment.

Question

Papa Ejima Limited, a manufacturing company, filed tax returns for the 2014 Assessment Year. The Federal Inland Revenue Service (FIRS) issued additional assessments totaling N360,000 for Value Added Tax (VAT) and N3,050,000 for Withholding Tax (WHT). The Managing Director disputes this assessment, asserting the accuracy of the company’s tax filings.

The records of the company for the Accounting Year ended December 31, 2013 showed:

Description	Amount (N)
Revenue	187,500,000
Cost of sales	(102,500,000)
Gross Profit	85,000,000
Other income	31,250,000
Operating expenses	(57,250,000)
Interest and similar charges	(3,200,000)
Profit before tax	55,800,000
Taxation	(6,250,000)
Profit after tax	49,550,000
Dividend	(38,500,000)
Retained profit for the year	11,050,000

Other relevant information includes:

Revenue:
- Export sales: N58,500,000
- Local sales: N129,000,000
Cost of sales:
- Opening inventory (VAT inclusive): N22,800,000
- Closing stock (VAT inclusive): N37,150,000
- Purchase of raw material: N90,600,000
- Freight charges: N18,700,000
- Other direct materials: N27,550,000
Other income:
- Foreign exchange gain: N4,800,000
- Profit on sale of Non-current assets (sales proceeds is N21.5m): N8,850,000
- Management fees from subsidiary companies: N17,600,000
Operating expenses:
- Office rent: N18,000,000
- Audit fees: N4,000,000
- Consultancy fees to ZXY Ltd: N11,000,000
- Directors’ fees: N7,500,000
- Other expenses: N16,750,000
Additional details:
- The company purchased Non-Current Assets (VAT inclusive): N84,000,000
- VAT remitted to FIRS during the year: N1,976,235
- WHT remitted to FIRS during the year: N6,650,000

Required:
As the tax consultant for the company, prepare a memo to advise the Managing Director on the appropriate objection and appeal procedures available to the company under the tax regulations.

(Total 15 Marks)

Answer

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Tags: Corporate Taxation, FIRS, Objection Procedures, Tax Appeal, Tax Dispute, VAT, WHT
Level: Level 3

Topic: Tax Administration and Dispute Resolution
Series: NOV 2017

TAX – Nov 2015 – L2 – Q5b – Companies Income Tax (CIT)

This question requires the computation of Adebola Nigeria Limited's tax liabilities and withholding tax payable for 2013 and 2014.

Question

Adebola Nigeria Limited has been trading for many years. The company makes up its accounts to 31 December annually. The extracts from its Statement of Comprehensive Income for the years ended 31 December 2013 and 2014 (as adjusted for tax purposes) are as follows:

Year ended 31 December	2014 (₦)	2013 (₦)
Profit for the year	14,000,000	10,000,000
Bank interest received (gross)	2,400,000	1,600,000
Debenture interest received (gross)	800,000	800,000
Dividend received from Adesemowo Ltd. (Net)	720,000	720,000
Dividend paid to shareholders (gross)	6,000,000	4,000,000

Required:
i. Compute the company’s tax liabilities for the relevant years of assessment. Ignore capital allowances. (5 Marks)
ii. Determine the net withholding tax payable or receivable by Adebola Nigeria Limited, arising from dividends paid and received by it. (4 Marks)

Answer

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Tags: Assessment, Corporate Taxation, Dividend income, Interest Income, Tax liabilities, Withholding Tax
Level: Level 2

Topic: Companies Income Tax (CIT), Withholding Tax (WHT)
Series: NOV 2015

AT – MAR 2024 – L3 – Q4 – Business Income – Corporate Income Tax | Capital Allowance

Covers capital allowance computation, tax rules on long-term contracts, and chargeable income calculation.

Question

Finstruct Ltd has been awarded an airport terminal project. The project started on 1 January 2022 for a contract sum of GH¢60,000,000. The construction of the airport is to be completed on 31 December 2023.

Finstruct Ltd has a financial year ending on 31 December each year. On 31 December 2022, the accounts appropriate to the airport contract contained the following:

Cost Item	GH¢
Cost of construction materials	25,500,000
Direct wages of construction staff	22,100,000
Hire of special equipment	300,000
Cost of soil test	100,000
Purchase of fuel and lubricants	750,000
Consultancy services	135,000

Additional information:
i) Materials costing GH¢340,000 sent to the site were returned to the company’s warehouse.
ii) Materials sent to the site worth GH¢675,000 were still unused at the construction site as of 31 December 2022.
iii) Finstruct Ltd pays some of its workers the first week of the ensuing month after the end of the current month. GH¢57,000 is still owed for wages as of the close of the year 2022, and this was not included in the accounts.
iv) A bill amounting to GH¢45,000 was submitted late by Finstruct Ltd, and as of 31 December 2022, the bill had not yet been paid. This was not included in the accounts.
v) It is estimated that the cost to complete the project as of 31 December 2022 should be GH¢8,265,180.
vi) The following details are available on assets of Finstruct Ltd:

Required:
a) Compute the capital allowance for Finstruct Ltd for the year 2022. (6 marks)
b) Explain the tax rules on long-term contracts and compute the percentage of contract completion of the project. (4 marks)
c) Compute the chargeable income of Finstruct Ltd for the year ended 31 December 2022. (10 marks)

Answer

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Tags: Capital allowances, chargeable income, Construction Contracts, Corporate Taxation, Long-Term Contracts, Tax computation
Level: Level 3

Topic: Business income - Corporate income tax, Capital allowance
Series: MAR 2024

AT – Dec 2023 – L3 – Q2b – Tax planning

Discussing tax planning opportunities available to sole proprietorships that are not available to limited liability companies.

Question

Tax planning opportunities are available to all persons. All business units may not have the same tax planning opportunities, hence the need to carefully select a business unit that may provide the intended benefits to the owner or owners.

Required:
Discuss FOUR (4) tax planning opportunities available to sole proprietorships which may not be available to limited liability companies.

Answer

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Tags: Corporate Taxation, Personal reliefs, Sole Proprietorship, Tax Benefits, Tax Planning
Level: Level 3

Topic: Tax planning
Series: DEC 2023

AT – Nov 2015 – L3 – Q2a – Capital allowance

Explaining the conditions under which the Ghana Revenue Authority grants capital allowances.

Question

Capital allowance is an incentive granted to all persons in business and investment. They are, however, granted upon fulfillment of certain conditions.

Required:
Explain fully the conditions under which GRA may grant Capital Allowance to a person.

Answer

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Tags: Capital Allowance, Corporate Taxation, Depreciable assets, Tax Incentives
Level: Level 3

Topic: Capital allowance
Series: NOV 2015

AT – Nov 2015 – L3 – Q1a – Taxation and Fiscal Policy

Explaining tax loss carryover provisions and determining the applicability for LOBILO Limited.

Question

The Chief Executive Officer of LOBILO Limited, producers of Alata Local Soap for the Ghanaian market, returned from a Tax Seminar organized by The Institute of Chartered Accountants, Ghana (ICAG) and called you, the Tax Manager of LOBILO, into his office and stated:
“LOBILO Company Limited has been shortchanged over the years on account of tax losses.” He said that carryover of losses as an incentive was discussed at length at the Tax Seminar. He further added that LOBILO Limited has not carried over its tax losses as provided for in the tax laws. He states, “Tax Manager, please act now by writing to the Ghana Revenue Authority to recognize the tax losses of LOBILO, since the losses are within the five years in order to help reduce the taxes of the Company now that the Company is making profits,” he ended.

You are required to:
Explain clearly the provision of tax laws on carryover of losses and to what extent do you agree with the position of the Chief Executive Officer of LOBILO Company Limited.

Answer

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Tags: Corporate Taxation, Ghana tax law, Tax incentive, Tax loss carryover
Level: Level 3

Topic: Tax administration in Ghana
Series: NOV 2015

AT – May 2017 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discuss the tax implications of acquiring either 15% or 25% of shares in another resident company and recommend the best option for tax benefits.

Question

a) CJA Ltd is a resident company engaged in Real Estate Business. As part of efforts to diversify its operations, it plans to acquire interest in Don-bill Ltd, another resident company. At the last AGM held on 4th March 2017, some Shareholders were of the view that CJA should acquire 15% of the shares of Don-bill Ltd.

The Managing Director of CJA was of the view that the Company should rather invest and acquire 25% shares to give it enormous influence in Don-bill Ltd.

Your firm has been identified to give a professional advice on the two proposals to help in decision making.

Required:
What is the tax implication on the two proposals and which proposal will you advise CJA Ltd to adopt to leverage on the tax benefits.
(10 marks)

Answer

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Tags: Corporate Taxation, Dividend tax, Investment decisions, Resident companies, Share Acquisition, Tax Benefits
Level: Level 3

Series: MAY 2017

AT – March 2023 – L3 – Q3a – International taxation

Evaluate the taxation of global income of Ghanaian businesses in accordance with the Income Tax Act, 2015 (Act 896).

Question

In an ICAG taxation lecture, the class captain said he read an article from the internet that states, “Ghanaian business entities which conduct businesses across the globe are subject to tax in Ghana.”

This statement ignited a debate in the class. Your class lecturer walked into the classroom to witness this argument and decided to show interest in the topic. He has asked that the class should take up the issue as a class assignment.

Required:
Evaluate this statement in the light of the Income Tax Act, 2015 (Act 896).

Answer

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Tags: Corporate Taxation, Global income, Tax residency
Level: Level 3

Topic: International taxation
Series: MAR 2023

AT – Nov 2016 – L3 – Q4a – Tax administration in Ghana

Discuss the tax benefits that Pearl House Ltd stands to gain by operating in a Free Zone.

Question

a) Pearl House Ltd is a company incorporated in Ghana and contemplates applying for a license to operate within the Free Zone environment from the Free Zone Board as opposed to an earlier decision to run a Micro Finance Business. Management has been at a crossroads on the decision to make.

Required:
As a Tax Consultant, the Management of Pearl House Ltd has approached you to join them at a breakfast meeting and convince them on the tax benefits, if any, that Pearl House Ltd stands to gain from operating in the Free Zone environment. (10 marks)

Answer

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Tags: Business operations, Corporate Taxation, Free Zone, Tax Benefits
Level: Level 3

Topic: Tax administration in Ghana
Series: NOV 2016

AT – Nov 2016 – L3 – Q3a – Business income – Corporate income tax

Analyze the treatment of interest and foreign exchange loss under thin capitalization rules.

Question

a) The current level of government borrowing has become a topical issue for discussion, causing observers to wonder whether borrowing is good or bad. In the light of this, you are required to:

Below is the capital structure of Nyameke Ghana Limited for the 2014 year of assessment:

	GH¢
Equity	20,000,000
Loans	80,000,000
Total	100,000,000

The loans were taken by Nyameke Limited from the parent company based in Nigeria. During the year under review, the subsidiary paid GH¢700,000 as interest on the loan and also incurred an exchange loss of GH¢500,000 on the repayment of a loan taken earlier from the parent company.

Required:
Determine how the above transaction will be treated for tax purposes. (6 marks)

Answer

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Tags: Corporate Taxation, Foreign Exchange Loss, Interest Deductibility, Thin Capitalization
Level: Level 3

Topic: Business income - Corporate income tax
Series: NOV 2016

Question Tag: Corporate Taxation

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AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses

Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.

AT – Nov 2023 – L3 – SC – Q5 – Tax Administration and Dispute Resolution

Steps and objectives in handling a tax audit with FIRS and the required documentation.

AT – Nov 2017 – L3 – Q5 – Tax Administration and Dispute Resolution

Outline objection and appeal procedures for FIRS additional assessment.

TAX – Nov 2015 – L2 – Q5b – Companies Income Tax (CIT)

This question requires the computation of Adebola Nigeria Limited's tax liabilities and withholding tax payable for 2013 and 2014.

AT – MAR 2024 – L3 – Q4 – Business Income – Corporate Income Tax | Capital Allowance

Covers capital allowance computation, tax rules on long-term contracts, and chargeable income calculation.

AT – Dec 2023 – L3 – Q2b – Tax planning

Discussing tax planning opportunities available to sole proprietorships that are not available to limited liability companies.

AT – Nov 2015 – L3 – Q2a – Capital allowance

Explaining the conditions under which the Ghana Revenue Authority grants capital allowances.

AT – Nov 2015 – L3 – Q1a – Taxation and Fiscal Policy

Explaining tax loss carryover provisions and determining the applicability for LOBILO Limited.

AT – May 2017 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discuss the tax implications of acquiring either 15% or 25% of shares in another resident company and recommend the best option for tax benefits.

AT – March 2023 – L3 – Q3a – International taxation

Evaluate the taxation of global income of Ghanaian businesses in accordance with the Income Tax Act, 2015 (Act 896).

AT – Nov 2016 – L3 – Q4a – Tax administration in Ghana

Discuss the tax benefits that Pearl House Ltd stands to gain by operating in a Free Zone.

AT – Nov 2016 – L3 – Q3a – Business income – Corporate income tax

Analyze the treatment of interest and foreign exchange loss under thin capitalization rules.

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AT – Nov 2023 – L3 – SC – Q7 – Taxation of Specialized Businesses

Calculation of tax liabilities under the Mining Act and an explanation of tax neutralities with applications to policy issues.

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AT – Nov 2023 – L3 – SC – Q5 – Tax Administration and Dispute Resolution

Steps and objectives in handling a tax audit with FIRS and the required documentation.

You're reporting an error for "AT – Nov 2023 – L3 – SC – Q5 – Tax Administration and Dispute Resolution"

AT – Nov 2017 – L3 – Q5 – Tax Administration and Dispute Resolution

Outline objection and appeal procedures for FIRS additional assessment.

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TAX – Nov 2015 – L2 – Q5b – Companies Income Tax (CIT)

This question requires the computation of Adebola Nigeria Limited's tax liabilities and withholding tax payable for 2013 and 2014.

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AT – MAR 2024 – L3 – Q4 – Business Income – Corporate Income Tax | Capital Allowance

Covers capital allowance computation, tax rules on long-term contracts, and chargeable income calculation.

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AT – Dec 2023 – L3 – Q2b – Tax planning

Discussing tax planning opportunities available to sole proprietorships that are not available to limited liability companies.

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AT – Nov 2015 – L3 – Q2a – Capital allowance

Explaining the conditions under which the Ghana Revenue Authority grants capital allowances.

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AT – Nov 2015 – L3 – Q1a – Taxation and Fiscal Policy

Explaining tax loss carryover provisions and determining the applicability for LOBILO Limited.

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AT – May 2017 – L3 – Q3a – Mergers, amalgamation, and reorganization

Discuss the tax implications of acquiring either 15% or 25% of shares in another resident company and recommend the best option for tax benefits.

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AT – March 2023 – L3 – Q3a – International taxation

Evaluate the taxation of global income of Ghanaian businesses in accordance with the Income Tax Act, 2015 (Act 896).

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AT – Nov 2016 – L3 – Q4a – Tax administration in Ghana

Discuss the tax benefits that Pearl House Ltd stands to gain by operating in a Free Zone.

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AT – Nov 2016 – L3 – Q3a – Business income – Corporate income tax

Analyze the treatment of interest and foreign exchange loss under thin capitalization rules.

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