- 20 Marks
OGMT – Feb 2020 – L1 – Q5 – Tax Liability Computation
Compute Gold Resources Ltd.'s tax liabilities for 2018, including mineral royalty, income tax, and withholding tax.
Question
Gold Resources Ltd. is a mining company operating in the Sparrows Mine and Dove Mines in Ghana. Sparrows Mine shares a processing plant with Dove Mines, and both mines commenced commercial production in 2018. At the close of business on December 31, 2018, Gold Resources Ltd. acquired 20% exploration and production rights in the Eagle Mine which is a production mine for GH₵25,000,000.
The highlights of 2018 revenue and expenditure disclosed in tax returns filed by Gold Resources Ltd. include the following:
| Revenue | GH₵ |
|---|---|
| Gross income from its operations in 2018 | 300,000,000 |
| Hedging Income | 3,000,000 |
| Interest Income | 1,000,000 |
| Consideration realised from the sale of assets | 800,000 |
| Gross Dividend from a resident company in which it has 30% voting rights | 200,000 |
| Total Revenue | 305,000,000 |
Expenses include the following:
| Expenses | GH₵ |
|---|---|
| Reconnaissance & Prospecting Cost (Sparrows Mine) | 45,000,000 |
| Reconnaissance & Prospecting Cost (Dove Mines) | 35,000,000 |
| Depreciation | 12,000,000 |
| Exploration & Production Rights (Eagle Mine) | 25,000,000 |
| Expenses on Hedging transactions | 5,000,000 |
| Cost of the assets sold | 300,000 |
| Administrative Expenses | 10,000,000 |
| Profit before tax | 120,000,000 |
Required: Compute the tax liability for each tax type that Gold Resources Ltd will be liable to pay in 2018.
Additional Information:
| Item | Rate |
|---|---|
| Income Tax Rate for companies | 25% |
| Mineral Income Tax Rate | 35% |
| Mineral Royalty Rate | 5% |
| Capital Allowance Rate | 20% on straight line basis |
| Dividend Withholding Tax Rate | 8% |
| Interest Withholding Tax Rate | 8% |
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