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  • 5 Marks

TF – May 2018 – L3 – Q5b – Minerals and mining

Computation of corporate tax payable for AB Ltd in the mining sector.

AB Ltd is a mining company operating at Kyebi in the Eastern Region. The following data is relevant for the last quarter of 2017 year of assessment:


The following additional information is relevant:
i) Royalty has not been computed and paid on the above yet.
ii) Depreciation of an amount of GH¢1,000,000 was part of the cost of operation above.
iii) Proceeds from sale of depreciable assets amounting to GH¢500,000 were added to
revenue above.
iv) Capital allowance agreed with the Mining Unit of Ghana Revenue Authority was agreed
to be GH¢800,000.
Required:
Compute the taxes payable by AB Ltd to Ghana Revenue Authority and comment on any
TWO items as to why you allowed or disallowed it in the tax computation. (5 marks)

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  • 20 Marks

AT – May 2021 – L3 – Q4 – Minerals and mining

Compute the capital allowance and chargeable income for Kanawu Mine Resources Ltd for 2020.

Kanawu Mine Resources Limited was incorporated on 1 January 2017 to mine gold and diamonds at Prestea in the Western region of Ghana. Various reconnaissance and prospecting activities took place from 2017 to 2019. Actual production started on 1 January 2020.

The following were the cost and revenue relative to reconnaissance and prospecting activities and costs from 2017 to 2019:

Activities 2017 (GH¢) 2018 (GH¢) 2019 (GH¢)
Analyzing historical exploration data 250,000 – –
Purchase of motor vehicles 1,000,000 – –
Exploratory drilling and sampling – 2,500,000 –
Purchase of surveying infrastructure 500,000 – –
Construction of office building – 3,700,000 –
Conducting market and finance studies – – 300,000
Renting of office space 400,000 – –
Sinking shafts and underground drifts – – 5,400,000
Purchase of land – 460,000 –
Permanent excavations – 400,000 3,000,000
Constructing roads and tunnels – 2,200,000 1,100,000
Purchase of drilling machines – 700,000 900,000
Purchase of office equipment 50,000 550,000 120,000
Legal fees for acquisition of lease – 130,000 –
Purchase of software – 230,000 –
Removal of overburden and waste rock – – 470,000
Acquisition of rights to explore 300,000 – –
Protocols to chiefs of Prestea 10,000 5,000 23,000
Topographical and geophysical studies 25,000 56,000 –
Geological and geochemical studies 35,000 300,000 –
Sale of surveying software – – (130,000)
Trenching and sampling expenses – 400,000 100,000
Sale of drilling equipment – – (50,000)
Revenue from pre-production gold – – (500,000)

The following transactions took place from 1 January 2020 to 31 December 2020:

  1. The company received compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
  2. Mining and processing cost, including wages and salaries incurred during the year, was GH¢120,345,000.
  3. Sales of gold and diamonds: GH¢378,532,900.
  4. Ground rent paid to the Administrator of Stool Lands: GH¢321,500.
  5. Further research and development studies at the cost of GH¢374,300.
  6. Royalties paid to the government: GH¢11,355,987.
  7. Acquisition of a new mineral right: GH¢5,000,000.
  8. Bonus payment for the new mineral right: GH¢300,000.
  9. Legal and other professional fees for the acquisition of the new mineral right: GH¢121,800.
  10. Stope preparation and development cost: GH¢1,021,700.
  11. Business operating permits: GH¢5,563,200 (includes GH¢400,000 provision for 2021).
  12. General and administrative expenses: GH¢190,467,100 (includes GH¢421,600 for a new iron gate).
  13. Selling and distribution costs: GH¢172,554,700.
  14. Finance charge, including interest on loans and bank charges: GH¢211,500,000.

Required:
a) Compute the capital allowance claimable in 2020.
b) Compute the chargeable income and tax payable for the 2020 year of assessment.
c) Comment on the tax treatment of royalty payments and the acquisition of new mineral rights.

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  • 2 Marks

AT – Nov 2020 – L3 – Q4c – Minerals and mining

Why mining companies enter into development agreements in Ghana and the conditions that must be met before the agreement is granted.

Mining companies enter into several agreements. Why do mining companies enter into development agreements in Ghana and what are the conditions to meet before the agreement is granted?

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  • 12 Marks

AT – Nov 2020 – L3 – Q4a – Business income, Corporate income tax

Compute the tax payable by Kaka Ltd for the 2019 year of assessment, including capital allowances, fresh graduate incentives, and royalties.

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:

Description Amount (GH¢)
Revenue 10,200,000
Cost 4,000,000
Profit 6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:

  1. Depreciation, depletion, and amortization: GH¢2,000,000.
  2. Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
  3. Contribution towards a worthwhile cause is GH¢10,000. This was in support of a hole-in-heart child, duly acknowledged by the Ghana Health Service.
  4. Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

  • An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
  • Capital allowance (written down value brought forward) on the assets as of 31 December 2018 was GH¢4,000,000.
  • 10 fresh graduates were recruited in the 2019 year of assessment; 4 of them completed universities in the USA, while the others completed the University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. The total workforce for 2019 was 60 employees.

Required: i) Compute the tax payable by Kaka Ltd.
(10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.
(2 marks)

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  • 20 Marks

AT – Nov 2015 – L3 – Q5 – Business income – Corporate income tax

Analyzing withholding tax, taxable gifts, upstream petroleum taxation, carried interest, and mining license factors.

a) Songe Enterprise Limited is a dealer in rice. It buys its rice from the Rice Masters, a wholesaler, and sells to retailers. It has not over the years deducted withholding tax on payments to its suppliers, and its management is contemplating doing so to avoid any possible sanctions from the Ghana Revenue Authority. It has received a letter from the Ghana Revenue Authority to conduct a tax audit on its activities. Ahead of the tax audit, the management has invited you as a Tax Consultant to conduct a tax health check on its operations and put things right.

Required:
Advise the company on the withholding tax situation on payment to its suppliers.
(6 marks)

b) What constitutes taxable gifts under Direct Tax?
(3 marks)

c) Should a contractor in the upstream petroleum sector be subject to tax by the Ghana Revenue Authority in a situation where its products are exported to its Parent Company without evidence of sale (technically called “export without sale”)?
(4 marks)

d) Carried interest is part of the income stream by the Host Government. What is the basis for the ownership of carried interest under petroleum upstream operations and the mining and mineral operations?
(4 marks)

e) CJA Ltd has been incorporated and intends to go into mining operations. You have been approached as a Tax Consultant on the key considerations for the issuance of a mining license.

Required:
What are the factors to be considered by the Minerals Commission before a license is recommended for issuance?
(3 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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  • 5 Marks

TF – May 2018 – L3 – Q5b – Minerals and mining

Computation of corporate tax payable for AB Ltd in the mining sector.

AB Ltd is a mining company operating at Kyebi in the Eastern Region. The following data is relevant for the last quarter of 2017 year of assessment:


The following additional information is relevant:
i) Royalty has not been computed and paid on the above yet.
ii) Depreciation of an amount of GH¢1,000,000 was part of the cost of operation above.
iii) Proceeds from sale of depreciable assets amounting to GH¢500,000 were added to
revenue above.
iv) Capital allowance agreed with the Mining Unit of Ghana Revenue Authority was agreed
to be GH¢800,000.
Required:
Compute the taxes payable by AB Ltd to Ghana Revenue Authority and comment on any
TWO items as to why you allowed or disallowed it in the tax computation. (5 marks)

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  • 20 Marks

AT – May 2021 – L3 – Q4 – Minerals and mining

Compute the capital allowance and chargeable income for Kanawu Mine Resources Ltd for 2020.

Kanawu Mine Resources Limited was incorporated on 1 January 2017 to mine gold and diamonds at Prestea in the Western region of Ghana. Various reconnaissance and prospecting activities took place from 2017 to 2019. Actual production started on 1 January 2020.

The following were the cost and revenue relative to reconnaissance and prospecting activities and costs from 2017 to 2019:

Activities 2017 (GH¢) 2018 (GH¢) 2019 (GH¢)
Analyzing historical exploration data 250,000 – –
Purchase of motor vehicles 1,000,000 – –
Exploratory drilling and sampling – 2,500,000 –
Purchase of surveying infrastructure 500,000 – –
Construction of office building – 3,700,000 –
Conducting market and finance studies – – 300,000
Renting of office space 400,000 – –
Sinking shafts and underground drifts – – 5,400,000
Purchase of land – 460,000 –
Permanent excavations – 400,000 3,000,000
Constructing roads and tunnels – 2,200,000 1,100,000
Purchase of drilling machines – 700,000 900,000
Purchase of office equipment 50,000 550,000 120,000
Legal fees for acquisition of lease – 130,000 –
Purchase of software – 230,000 –
Removal of overburden and waste rock – – 470,000
Acquisition of rights to explore 300,000 – –
Protocols to chiefs of Prestea 10,000 5,000 23,000
Topographical and geophysical studies 25,000 56,000 –
Geological and geochemical studies 35,000 300,000 –
Sale of surveying software – – (130,000)
Trenching and sampling expenses – 400,000 100,000
Sale of drilling equipment – – (50,000)
Revenue from pre-production gold – – (500,000)

The following transactions took place from 1 January 2020 to 31 December 2020:

  1. The company received compensation of GH¢3,500,000 from their insurers for destruction of some gold mined.
  2. Mining and processing cost, including wages and salaries incurred during the year, was GH¢120,345,000.
  3. Sales of gold and diamonds: GH¢378,532,900.
  4. Ground rent paid to the Administrator of Stool Lands: GH¢321,500.
  5. Further research and development studies at the cost of GH¢374,300.
  6. Royalties paid to the government: GH¢11,355,987.
  7. Acquisition of a new mineral right: GH¢5,000,000.
  8. Bonus payment for the new mineral right: GH¢300,000.
  9. Legal and other professional fees for the acquisition of the new mineral right: GH¢121,800.
  10. Stope preparation and development cost: GH¢1,021,700.
  11. Business operating permits: GH¢5,563,200 (includes GH¢400,000 provision for 2021).
  12. General and administrative expenses: GH¢190,467,100 (includes GH¢421,600 for a new iron gate).
  13. Selling and distribution costs: GH¢172,554,700.
  14. Finance charge, including interest on loans and bank charges: GH¢211,500,000.

Required:
a) Compute the capital allowance claimable in 2020.
b) Compute the chargeable income and tax payable for the 2020 year of assessment.
c) Comment on the tax treatment of royalty payments and the acquisition of new mineral rights.

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  • 2 Marks

AT – Nov 2020 – L3 – Q4c – Minerals and mining

Why mining companies enter into development agreements in Ghana and the conditions that must be met before the agreement is granted.

Mining companies enter into several agreements. Why do mining companies enter into development agreements in Ghana and what are the conditions to meet before the agreement is granted?

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  • 12 Marks

AT – Nov 2020 – L3 – Q4a – Business income, Corporate income tax

Compute the tax payable by Kaka Ltd for the 2019 year of assessment, including capital allowances, fresh graduate incentives, and royalties.

Kaka Ltd is a mining company that has been operating in Ghana for some time now. The following relates to Kaka Ltd’s 2019 year of assessment:

Description Amount (GH¢)
Revenue 10,200,000
Cost 4,000,000
Profit 6,200,000

The following additional information is relevant and has been adjusted in arriving at the profit stated above:

  1. Depreciation, depletion, and amortization: GH¢2,000,000.
  2. Cost incurred in overburden stripping and shaft sinking during production to improve access amounted to GH¢800,000.
  3. Contribution towards a worthwhile cause is GH¢10,000. This was in support of a hole-in-heart child, duly acknowledged by the Ghana Health Service.
  4. Royalty of GH¢80,000 was paid without recourse to the revenue from production.

Additional information:

  • An asset (Capital Asset) acquired in 2016 for GH¢1,000,000 was sold for GH¢200,000 in 2019.
  • Capital allowance (written down value brought forward) on the assets as of 31 December 2018 was GH¢4,000,000.
  • 10 fresh graduates were recruited in the 2019 year of assessment; 4 of them completed universities in the USA, while the others completed the University for Development Studies in Ghana. They were paid GH¢120,000 as salaries. The total workforce for 2019 was 60 employees.

Required: i) Compute the tax payable by Kaka Ltd.
(10 marks)

ii) The mining company indicated that it had an idle cash of GH¢100,000. If it adds it to its working capital, an additional income of GH¢10,000 would accrue but with an option to purchase Treasury Bills, the interest would remain at GH¢10,000.

Required:
Advise Management on the tax implication of the proposed investment.
(2 marks)

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  • 20 Marks

AT – Nov 2015 – L3 – Q5 – Business income – Corporate income tax

Analyzing withholding tax, taxable gifts, upstream petroleum taxation, carried interest, and mining license factors.

a) Songe Enterprise Limited is a dealer in rice. It buys its rice from the Rice Masters, a wholesaler, and sells to retailers. It has not over the years deducted withholding tax on payments to its suppliers, and its management is contemplating doing so to avoid any possible sanctions from the Ghana Revenue Authority. It has received a letter from the Ghana Revenue Authority to conduct a tax audit on its activities. Ahead of the tax audit, the management has invited you as a Tax Consultant to conduct a tax health check on its operations and put things right.

Required:
Advise the company on the withholding tax situation on payment to its suppliers.
(6 marks)

b) What constitutes taxable gifts under Direct Tax?
(3 marks)

c) Should a contractor in the upstream petroleum sector be subject to tax by the Ghana Revenue Authority in a situation where its products are exported to its Parent Company without evidence of sale (technically called “export without sale”)?
(4 marks)

d) Carried interest is part of the income stream by the Host Government. What is the basis for the ownership of carried interest under petroleum upstream operations and the mining and mineral operations?
(4 marks)

e) CJA Ltd has been incorporated and intends to go into mining operations. You have been approached as a Tax Consultant on the key considerations for the issuance of a mining license.

Required:
What are the factors to be considered by the Minerals Commission before a license is recommended for issuance?
(3 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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