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STP – Aug 2013 – L2 – Q3 – Tax Strategies for New Business Formation
Calculate income tax liability for a new processing facility in Kumasi or Accra.
Question
(a). CinequaNon Plc, a UK entity, is planning to build a new processing facility in Ghana. The Chief Executive in a meeting with Management needs to decide either to cite the facility in Accra or Kumasi. Market intelligence has no preference for citing the facility in Kumasi or Accra since information gathered indicate that business activities would largely be same in Kumasi and Accra for the next 10 years.
The following forecast information is relevant for the decision process being considered by management.
| Kumasi GH $\phi$ | Accra GH $\phi$ | |
|---|---|---|
| Expected Gross Receipts | $2,500,000$ | $2,500,000$ |
| Payroll Expenses | 200,000 | 250,000 |
| Production costs including depreciation. | 850,000 | 800,000 |
The erection of the factory structures and installation of equipment will cost GH $2,000,000 with attributable labour cost of GH $200,000. CinequaNon Inc intends to depreciate the equipment over a ten (10) year period.
Required: Calculate CinequaNon’s income tax liability for each proposed location for the first year.
(b). Would you advice for the facility to be cited in Nsawan taking into consideration the fact that Nsawam, it very close to Accra.
(c). Discuss three (3) non tax factors that CinequaNon UK Plc may consider in the decision process to locate either in Kumasi or in Accra.
(d). As a Chartered Tax Advisor, you receive a note from a client who requires to seek clarification on some tax issues relating to his line of business. The note is as detailed below.
Facts:
- Company X has purchased a teak concession from the Forestry Commission to fell for the logs.
- Company Y has contracted to purchase the teak timber from company X.
- Company Y pays VAT on the local purchase of teak on invoices issued by Company X.
- Company Y exports 100% of the teak to Company Z Overseas Plc., registered and operating in the Netherlands.
Query: Can company Y claim refund of such input VAT from the VAT authorities since company Y does not have any other business other than exporting of teak.
Required: As a Chartered Tax Advisor, kindly respond to the concerns raised by the client.
Find Related Questions by Tags, levels, etc.
- Tags: Export, Teak Timber, VAT Refund
- Level: Level 2
- Topic: Strategic Indirect Tax Management
- Series: AUG 2013
