Question Tag: Tax Liability

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  • 20 Marks

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

Notes 2012 GH $\phi$ 2011 GH $\phi$
Interest Income 1 1,522,000 1,834,000
Interest expense (866,000) (1,204,000)
Net Interest Income 656,000 630,000
Fee and Commission Income 342,000 282,000
Other Operating Income 2 69,520 59,630
Operating Income 1,067,520 971,630
Operating expenses 3 (514,200) (482,420)
Charge for bad and doubtful debts 4 (29,000) (41,000)
Operating Profit 524,320 448,210
Other Income 5 54,800 42,300
Profit before tax 579,120 490,510
Tax Paid 6 (202,420) (280,520)
Transfer to Income Surplus 376,700 209,990

Notes

  1. Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
  2. Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
  3. Operating Expenses includes Depreciation
  4. Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
  5. Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
  6. Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

GH $\phi$ GH $\phi$
Loans granted fishermen 28,000 24,050
Loans granted to pineapple growers 32,000 15,000
Dividend income (Net) 20,120 17,000
Govt. Bond Int. income (net) 17,000 28,500
Bad Debts recovered 32,400 14,130
69,520 59,630
Depreciation 80,200 65,600
Specific credit risk provision 9,010 20,600
General Provision for credit risk 19,990 20,400
29,000 41,000
Disposal of used tires and depreciated Vehicles 39,000 17,100
Profit on sale of shares 15,800 25,200
54,800 42,300
Deferred tax liability 102,200 121,000
Corporate tax paid for year 100,220 159,520
202,420 280,520
  1. Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q3 – Sector-Specific Taxation

Compute tax liability for Xornami Insurance Company for 2018 based on trial balance and additional info.

Xornami Insurance Company Limited has been operating a general insurance business in Ghana since 1st January, 2016.

Below is an extract from the Trial Balance as at 31/12/18:

Description GH¢000
Land (Leasehold) 10,000
Building (at cost) 130,000
Motor Vehicles (at cost) 22,000
Furniture & Fittings (at cost) 4,500
Interest received on loans 19,500
Interest on Investment 4,450
Stated Capital 100,000
Gross Premium received 127,600
Claims paid during the year 11,960
Income Tax paid 2,250
Commission paid to Agents 6,172
General Administrative Expenses 40,650
Reinsurance Premium paid 13,250
Reinsurance recoveries 18,540
Premiums returned to clients 19,308

The following additional information are made available to you:
(i) The lease is over a period of 40 years.
(ii) The General Administration Expenses include GH¢15,400 and GH¢2,500 in respect of depreciation and the Lease respectively for the year.
(iii) The company’s reserve for unexpired risk for the year ended 31st December, 2017 was GH¢42,000.
(iv) Assume that the depreciation charged in the financial statements for the year is equal to the depreciation allowances applicable to the company.
(v) Corporate Tax Rate: 25%.

Required:
Compute the tax liability of the company for 2018 year of assessment.

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  • 20 Marks

ATP – Feb 2020 – L2 – Q2 – Employment Income Taxation

Compute tax liabilities for Mr. Tein Escoba for 2018 and 2019 based on income earned in US and Ghana.

Amanfro Plantations Company Limited was incorporated under the company’s Act 1963, Act 179 as a limited liability company on 1st October 2010. The objects of the company is to establish Rubber Plantations at Asempanaye in Western North Region. The company started operations on 1st January 2011. The company has not found its feet since it began operations due to managerial challenges. The board therefore approved the appointment of Mr Tein Escoba, an Agronomist and Rubber Production expert from Brazil as the company’s managing director.

The terms of Mr Tein Escoba’s engagement is that Firestone PLC USA shall be responsible for his salary of US$10,000.00 per month to be paid into his designated bank account in the USA. The Amanfro Plantations Company Limited would, in addition, pay him GH¢8,000.00 per month, with an annual increment of 20% on 1st January each year to meet his cost of stay in Ghana. He was paid a return air ticket costing GH¢9,600 at the end of his eighteen month duty tour to visit his family. He would be responsible for the payment of his taxes on his income due to the US Internal Revenue.

The company employed other management personnel in addition to Mr Tein Escoba. All the management staff of the company were provided with soft furnished accommodation at the project site in order to ensure an effective management of the company. In addition, all the management personnel were allocated chauffeur driven official vehicles with no limit for fuel usage. All other staff of the company were located outside the plantation concession at Asempanaye.

Mr Tein Escoba prior to his taking up the appointment in Ghana was paid US$10,000.00 to enable him relocate the wife and his two children in Mackiney, Texas USA. The cost of his transportation from Rio de Jenairo to the project site in Ghana was borne by him at a total cost of US$7,500.00. Mr Tein Escoba started work on 1st January, 2018 with the company. He paid a total tax liability of US$26,400.00 for each year on his income earned for the years 2018 and 2019 in the USA, for which he provided the relevant receipts to support the payment. He did not pay any other taxes in Ghana when a tax audit was carried out at the company. He realised the anomaly for his failure to pay tax on his earnings in Ghana and has approached you as a Tax Practitioner to help him file his returns, since assuming work in Ghana.

The average exchange rates of the cedi to the dollar for 2018 and 2019 respectively were GH¢4.8 and GH¢5.5.
There is no Double Taxation Agreement between Ghana and the USA.

Required:
Compute the tax liabilities of Mr Tein Escoba for the 2018 and 2019 years of assessment.

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  • 20 Marks

ATP – Feb 2017 – L3 – Q5 – Corporate Tax Computation

Compute chargeable income and tax liability for Ashie Mart Limited for 2015.

The Income Statement of Ashie Mart Limited, a supermarket in Accra for the year ended 31st December submitted to Commissioner of Domestic Tax Revenue Division of Ghana Revenue Authority on 30th April 2016.

GH¢ GH¢
Gross Operation Profit
Profit on Sale of Assets
Less General Administration Expenses
Salaries and Wages 540,000
Rent 30,000
Insurance 34,000
Acquisition 16,000
Painting of Premise 36,000
Loans to Staff written off 18,000
Advertisement (Note 1) 24,000
Staff Welfare (Note 2) 52,000
Travelling and Transport 40,000
Donations and Subscription (Note 3) 32,000
Bad Debts (Note 4) 19,000
Depreciation 42,000
(885,300)
Net Profit

The following notes relate to the Accounts:

Note 1 Advertisement GH¢
a. Cost of Neon Sign 10,200
b. Media Advert 14,300
24,500

Note 2 Staff Welfare GH¢
a. Refund of Staff Medical Bills 25,000
b. Safety Wear Acquired for staff 8,600
c. Canteen Equipment 16,900
50,500

Note 3 Donations and Subscriptions GH¢
a. Donation to the Ghana Heart Foundation 20,000
b. Goods given gratis to Customs Officials 6,000
c. Subscription to Ghana Manufactures Association 6,000
32,000

Note 4 Bad Debts GH¢
a. General Provision 12,000
b. Specific Provision 7,500
19,500

Note 5: The Capital Allowance as agreed with the Ghana Revenue Authority for the year is GH¢ 6,500.
Note 6: The company had during the year paid a total of GH¢ 2,600.

Required:
Compute the Chargeable income and Tax liability of Ashie Mart Limited for the 2014 Year of Assessment. (20 Marks)

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  • 20 Marks

ATP – Aug 2017 – L2 – Q5 – Sector-Specific Taxation

Compute Nkrabea Insurance’s 2016 tax liability, including premium income and capital allowances.

Question:
Nkrabea Insurance Company Limited commenced operating in Ghana on 1st January, 2016.
Below is an extract from the Trial Balance as at 31/12/16.

GH¢000
Building (at cost) 1,950
Motor Vehicle (at cost) 630
F & F (at cost) 420
Interest received on loans 183
Interest in Investment 225
Stated Capital 3,600
Gross Premium received 2,760
Claims paid during the year 960
Income Tax paid 210
Commission to Agent 72
General Administrative Expenses 1,050
Reinsurance Premium paid 162
Reinsurance recoveries 540
Premiums returned to clients 57
Notes:
(i) Reserve is calculated at 40% of Net Premium Income
(ii) Assets were acquired on 1st January, 2016
(iii) The General Administration Expenses include GH¢600,000 in respect of depreciation charged for the year.
(iv) The applicable, rates for capital allowance are as follows:

Pool 1 40%
Pool 2 30%
Pool 3 20%
Pool 4 10%
Required:
Compute the tax liability of the company for 2016 year of assessment.
Corporate Tax Rate: 25%

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  • 20 Marks

ATP – Aug 2017 – L2 – Q4 – Income Tax Computation

Compute tax credit relief for Mr Brefo Nimo based on dividend income from the Netherlands.

Mr Brefo Nimo returned to Ghana after staying in the Netherlands for over 20 years and took up an appointment with Amanfro Limited as the Director of Finance. His gross monthly basic salary for 2016 year of assessment was GH¢10,000.00. He contributed 5.5% to Social Security and National Insurance Trust (SSNIT). Mr Brefo Nimo has investments in the Netherlands, from which he earned a gross dividend of 2,000 Euros in 2016, from which 350 Euros was withheld as dividend tax and the balance remitted to him in Ghana. A double taxation Agreement exists between Ghana and the Netherlands.
The rate of Exchange is GH¢5.2 to 1.00 Euro.

Required:
a) Compute the Tax Credit Relief that will be granted to Mr Brefo Nimo.

b) Compute the tax liability of Mr Brefo Nimo for 2016 Year of assessment.

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  • 12 Marks

AT – Nov 2024 – L3 – Q3a – Tax Planning and Objection to Tax Assessment

Advise Poyooyo LTD on provisions in tax laws to challenge a disputed tax liability.

The Directors of Poyooyo LTD have heard of the Maxims of Tax Planning, which outline strategies for minimizing tax liabilities legally.

In a recent visit by the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA), the Large Taxpayers Office (LTO) in Accra conducted a tax audit on the company, resulting in tax assessments raised against Poyooyo LTD for settlement.

Management of the company, in their last meeting with the directors, presented the outcome of the tax audit and strongly argued that the assessment was erroneous. They claimed that the liabilities raised were based on legitimate tax planning strategies the company employed.

They believe that the company is in full compliance with the tax laws and should not be required to settle the tax liabilities assessed. However, payment of the liability would significantly impact the company’s cash flow and disrupt its operations.

Poyooyo LTD has approached your tax consulting firm for assistance and guidance.

Required:

Advise Poyooyo LTD on the provisions of the tax laws that could be taken advantage of to avert the payment of the liability.

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  • 10 Marks

PT – Nov 2024 – L2 – Q3b – Capital Gains Tax and Asset Realization

Tax computation on asset realization and understanding taxable capital assets.

b) Kwamoso LTD sold the following assets to Mr. Badu on 18 May, 2023 for GH¢450,000 to settle a tax liability. Kwamoso LTD is not listed on the Ghana Stock Exchange.

Below are details of the assets:

Name of Asset Cost (GH¢) Net Book Value (GH¢) Market Value (18 May 2023) (GH¢) Market Value (31 Dec 2023) (GH¢)
Truck vehicle 750,000 480,000 320,000 350,000
Generator 60,000 29,400 8,400 8,000
Laptops 48,000 17,200 8,000 7,200

Required:

i) Compute the consideration received in respect of each asset realised.

ii) What constitutes capital assets in the context of capital gains tax in Ghana?

iii) Under what circumstance would there be a loss in the realization of a liability?

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  • 9 Marks

PT – Nov 2024 – L2 – Q2d – Withholding VAT Computation

Compute GETFund Levy, NHIL, COVID-19 Levy, output VAT, withholding VAT, and tax payable for a firm under the VAT scheme

N&L Associates, an accounting firm, issued an invoice to a withholding VAT agent for GH¢250,000 (including VAT, GETFund Levy, NHIL, and COVID-19 Levy) for assurance services provided to a client in March 2024. These were the only services provided by the firm during the period, and payments are to be made within the same period.

Required:

i) Calculate the portion of the GETFund Levy, NHIL, and COVID-19 Levy that the agent must compute for the payment of the services rendered. (3 marks)
ii) Determine the output VAT to be reported on the accounting firm’s monthly VAT return. 
iii) Compute the withholding VAT to be withheld if N&L Associates are VAT withholding agents. 
iv) Calculate the tax payable by the accounting firm if the total input tax for the period amounts to GH¢7,200.

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  • 10 Marks

AT – Nov 2014 – L3 – SC – Q6a – Double Taxation Reliefs and Credits

Identify double taxation relief and compute the tax liability for a Nigerian company with foreign operations.

Sunproof International Inc. has been in the tyre manufacturing business in Nigeria and Sierra Leone for over ten years.

The Company’s operating results for the year ended 31 December 2012 were as follows:

Particulars N
Income from Nigeria 75,000,000
Income from Sierra Leone 33,000,000
Overheads 60,000,000
Depreciation – Nigeria 6,750,000
Depreciation – Sierra Leone 1,125,000
Donations to Island Club 375,000
Foreign tax suffered 6,300,000

Other information:

  1. Net profit attributable to the Company in Sierra Leone was N7,725,000.
  2. Capital allowances agreed with Tax Officials for operations in Nigeria and Sierra Leone were N5,310,000 and N2,175,000 respectively.
  3. Assume the Company is a wholly Nigerian company.

Required:
i. Identify the Double Taxation Relief available to the Company. (4 Marks)
ii. Compute the tax liability of the Company for the relevant Year of Assessment.

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  • 8 Marks

PT – Nov 2019 – L2 – Q1b – Tax Administration

Describes the essential elements included in a tax assessment notice issued by the Commissioner-General.

b) The only tool for communicating a tax liability to a taxpayer is through a notice of assessment.

Required: What are the elements of a notice of tax assessment?
(8 marks)

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