STP – Feb 2020 – L2 – Q4 – Business Entity Tax Implications
Advise on tax implications of establishing a company, partnership, or sole proprietorship and identify which offers the least tax exposure for an investor.
As a renowned tax consultant, a potential investor in the real estate sector in Ghana is seeking your expert opinion on the tax implications of establishing a company, a partnership or a sole proprietorship and which form of the business organisations gives the least tax exposure for an investor.
(a). The Chief Executive Officer (CEO) of Dana, a meat processing company based in the United Arab Emirates is exploring the possibility of expanding the operations of the company to Ghana. The CEO intends to establish a cattle farm and an ultra-modern meat processing which would process the meat for export to the Middle East. His initial inquiries revealed that Ghana has tax incentives for investors who seek to establish businesses which produce items for export.
Required: As the preferred tax advisor, provide an opinion on the income tax consequences of establishing a cattle farm indicating whether the location of the farm impacts on the tax incentives available to an investor.
(b). Based on your knowledge of the Free Zone Act, 1995 (Act 504) state and discuss five (5) tax incentives which the investor can obtain if he registers the meat processing factory as a Free Zone Enterprise.
Red flow Ghana Limited is a manufacturing entity in Ghana. Mr. Kurt Wildem, a citizen and resident of Germany owns 90% of the company’s shares. Mrs. Florence Wildem, a citizen and resident of Germany and wife of Mr. Wildem also owns 5% of the shares of the company. Mr. Jogen Wildem, the son of Mr. Kurt Wildem holds the remaining 5% of the shares in the company. As of 1st June 2019, the company had a stated capital of GH¢400,000.00. A report submitted by the management to the Board of Directors indicated that the company needs to acquire a plant valued at GH¢1,000,000.00 to enable the company to increase its production capacity. Mr. Kurt Wildem who is the majority shareholder has offered to finance the purchase of a plant for the company, but his challenge is whether to provide the asset to the company as a loan or as equity.
Required: Advise Mr. Kurt Wildem on i. the income tax treatment of providing the asset to the company as equity contribution. (7 marks) ii. the income tax treatment of providing the asset to the company as a loan. (7 marks) iii. the preferable option for providing the asset to the company in order to derive the maximum tax benefits.
Due to the aggressive stance of the GRA in recent times, the urgency and pace of submission of tax returns to the GRA has more than doubled. The Chief Finance Officer of SKABY BANK Ltd. requires to discuss Skaby’s Tax returns for year 2014 and 2015 by close of day today to enable him engage the Finance committee of the Board with the various tax liabilities arising from the two years’ banking activities and also access the Bank’s tax compliance level.
As Tax Consultant to SKABY BANK Ltd., extracts of the 2014 and 2015 financial statement which read as follows, has been deposited on your table for your necessary action.
SKABY COMMERCIAL BANK
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 DECEMBER 2015
Note
2015 GHC’000
2014 GHC’000
505,055.00
377,000.00
2
(82,200.00)
(51,300.00)
422,855.00
325,700.00
398,444.00
75,555.00
(10,424.00)
(8,200.00)
88,020.00
67,355.00
24,800.00
15,980.00
45,620.00
8,300.00
30,420.00
24,280.00
541,295.00
417,335.00
9,000.00
7,992.00
550,295.00
409,343.00
225,000.00
215,560.00
325,295.00
193,783.00
82,000.00
32,000.00
243,295.00
161,783.00
2015 GHC’000
2014 GHC’000
242,000.00
180,600.00
256,920.00
190,600.00
6,135.00
5,800.00
505,055.00
377,000.00
b) Necessary default certificates of GHC20,000.00 have been received on income included in investment return for year 2015.
Note 2: a) Interest Expense paid
2015 GHC’000
2014 GHC’000
Borrowings
9,900.00
8,900.00
Current and Savings A/c
45,650.00
20,500.00
Time and Other deposits
26,650.00
21,900.00
82,200.00
51,300.00
b) $20%$ of interest expense payments’ mandatory withholding tax deduction has not been made.
Note 3: Fees and Commission Income
2015 GHC’000
2014 GHC’000
Commission on letters of credit
3,200.00
2,650.00
Commission on Turnover
39,050.00
34,000.00
Processing fees
5,000.00
4,500.00
Commission of foreign services
2,200.00
3,060.00
Other fees and Commissions
48,994.00
31,345.00
98,444.00
75,555.00
Note 4: Other Income
2015 GHC’000
2014 GHC’000
Dividend Income
2,000.00
Bad Debt recovery
3,000.00
Profit on sale of property
2,200.00
Rental Income
2,470.00
2,200.00
Other Income
3,100.00
8,300.00
8,300.00
Note 5 a). Operating Expenses Include
2015 GHC’000
2014 GHC’000
Advertising
2,000.00
2,000.00
Rental of premises
45,000.00
40,450.00
Directors fees
2,100.00
3,000.00
Depreciation
16,000.00
15,000.00
Amortization
6,000.00
2,500.00
Donation to MD on death of mother
62,500.00
Purchase of computers
50,000.00
2,000.00
Goodwill paid
20,000.00
25,000.00
b). Tax on rental of premises has not been accrued or paid to the GRA.
Note 6: Income Tax
2015 GHC’000
2014 GHC’000
Balance b/f
200.00
Paid for year
65,000.00
20,000.00
Deferred Tax
17,000.00
10,000.00
Total
82,000.00
30,200.00
Note 7: Extracts from the Property, Plant and Equipment schedule is as below
2015
Land & Building GHC’000
Equipment Further GHC’000
Computers GHC’000
Motor Vehicles GHC’000
Total GHC’000
Cost as at 1 January 2015
50,000.00
53,000.00
32,000.00
57,000.00
192,000.00
Additions for year
2,500.00
12,200.00
7,500.00
2,550.00
24,750.00
Disposals
–
(250.00)
(350.00)
(2,300.00)
(2,900.00)
Write-off
–
(200.00)
(45.00)
–
(245.00)
At 31 December 2015
52,500.00
64,750.00
39,105.00
57,250.00
213,605.00
Note 8 Extracts from the Intangible Assets (GOODWILL) Register is as below
2015 GHC’000
2014 GHC’000
Cost as at 1 January 2015
7,500.00
Acquisition
10,500.00
7,500.00
Bal at year end 2015
18,000.00
7,500.00
Management policy for writing off goodwill is 10 years.
Required
Kindly present to the Chief Finance Office tax information on;
a) Corporate tax computation for year 2015 and 2014,
(10 marks)
b) Capital Allowance computation for year 2015 and 2014,
(8 marks)
c) Skabi’s Tax Position for year 2015 and 2014,
(2 marks)
d) Withholding taxes payable by Skabi to the GRA.
(2 marks)
Berchem Plc UK (Berchem) is a foreign company that provides engineering services to Gritty Electricals Company Ltd (GEC) here in Ghana. Koranten Systems (Koranten) serves as a country representative for Berchem in Ghana and assists Berchem to execute their service contracts. Koranten Systems provides labour and local material support to Berchem when needed on the contract, whereas Berchem provides the prefinancing, expertise and specialized equipment for the execution of work. As compensation, Koranten is paid commission in cash and equipment.
Berchem won its first contract with GECin January 2014. To date, no VAT was ever charged on invoices billed to GEC by Berchem. GEC also failed to withhold taxes on payments made to Berchem. Both GEC and Berchem had the general belief that these taxes were not stated as part of the signed contracts and therefore were not applicable in respect of the contracts. Berchem again saw the VAT charge as rendering pricing of the projects uncompetitive.
Consultants to GEC have recently advised GEC to start withholding taxes from payments made to Berchem as required by the Income Tax Act, since Berchem has been providing service in Ghana for “at least 2 years”.
Required:
On behalf of Berchem Plc, The Chief Executive of Koranten requests you to provide tax advisory service on the new development. Koranten requests for a documented Tax expert advice to submit to Berchem in respect of
a) Whether Berchem Plc is tax resident in Ghana,
b) The relevance, the basis and application of VAT, withholding, and corporate taxes on the business dealings between Berchem and GEC.
Due to the recent oil discovery in Ghana, many oil related companies continue to seek tax advice on doing oil related business in Ghana. As the Tax Partner for XYZ Consult, you receive a note from the Chief of Finance (Tax), Mauuwli Inc. Bubai as follows: “Mauuwli Inc. intends to supply parts of Gas turbines in Ghana. In addition, we shall provide maintenance services on these turbines. This is the business we do in Saudi and will do all the time across nations as the opportunity opens up to us. In view of this, we want to be 100% tax compliant in your country as there is no tax for my company in Saudi. We want to know whether as foreign company ordinarily resident in Dubai, we will be subject to the following taxes:
Corporate tax (4 Marks)
Withholding tax(WHT) and at what rate (8 Marks)
Valued Added Tax(VAT) and National Health Insurance Levy (NHIL) (3 marks)
Employee taxes” (4 marks)
Required As Tax Partner for XYZ Consult, provide your answer to the Chief of Finance, Mauuwli Inc., as requested for.
Broadway International Contractors (BIC) won the bid to construct the George Bush highway for five years but was ill advised about the tax responsibilities in respect of the construction work.
The GRA conducted a tax audit on completion of the project and noted several weaknesses in BICs tax compliance requirements.
As Tax Consultant you have been approached by BIC to advise as appropriate on the tax effects of the work. In particular Broadway International Contractors would wish to receive advice on their
a) Basic VAT responsibilities (8 marks)
b) Basic corporate tax responsibilities (8 marks)
c) Expatriate Payroll liability (4 marks)
d) Withholding tax liability on payments receivable from the Ministry of Highways and payment for services? (2 marks)
ABC Mines Ltd. is a mining company operating in the Underground Mine. Commercial production commenced in the Underground Mine in 2019. ABC Mines Ltd also has mineral rights in the Surface Mine which is yet to commence commercial production. In 2019, ABC Mines Ltd. disposed of its mineral rights in Surface Mine.
The highlights of 2019 revenue and expenditure disclosed in tax returns filed by ABC Mines Ltd. are as follows:
Revenue
GHe
Gross income from its operations in 2019
450,000,000
Realised sum from disposal of mineral rights in Surface Mine
100,000,000
Hedging Income
40,000,000
Total Revenue
590,000,000
Expenses include but not limited to the following:
General and Administration Expenses (Surface Mine)
20,000,000
Interest Expense (Underground Mine)
20,000,000
Profit before tax
200,000,000
You are required to compute the liability for each tax type that ABC Mines Ltd will pay in the 2019 year of assessment. State the underlying assumptions of your computations.
Additional Information:
Minerals produced in the Underground Mine worth GHS40,000,000 was destroyed in the leased area. An amount of GHS35,000,000 was paid as insurance claims to ABC Mines Ltd in respect of the minerals destroyed.
Yentua Limited is a company registered in Ghana under the Companies Act 1963, Act 179 on 15th September 2017. It started operations on 1st October, 2017. The company buys metal scraps both from internal and external sources and sells to the iron rod manufacturers in Tema. The company was not registered with the Ghana Revenue Authority and therefore has never submitted any tax returns on its operations. The activities of the company came to light when a team of Revenue Officers from the Enforcement unit of the Ghana Revenue Authority met the Managing Director and his staff in full operation. The team educated the Managing Director and his management team on importance of payment of taxes and registering with the Ghana Revenue Authority and submitting the tax returns to the Authorities regularly. The Managing Director then presented Tax Credit Certificates (TCC) totalling GH¢ 134,000 and receipts for duties paid on imported goods as taxes paid and therefore claimed his company was tax compliant. The Managing Director later approached you as a Tax Practitioner to help the company complete its tax returns on its business operations to Ghana Revenue Authority. The extracts from the company’s financial statement presented by the Finance officer for the year ended 30th September 2018 were as follows:
Yentua Limited Income Statement
GH¢
GH¢
Turnover
7,800,000.00
Cost of Sales
(6,929,300.00)
Gross Profit
870,700.00
Administration and General Expenses
(660,000.00)
Net Profit
90,000.00
Note 2: Cost of Sales
GH¢
Local Purchases
4,400,000.00
Imports
1,580,000.00
Freight and Insurance
98,500.00
Import Duties
436,000.00
Cargo Truck
240,000.00
Repairs and Maintenance
52,000.00
Depreciation – Truck
48,000.00
Fuel and Lubricants
24,000.00
Transport and Handling
50,800.00
Total
6,929,300.00
Note 3: Administration and General Expenses
GH¢
Salaries and Allowances
285,000.00
Directors Remuneration
64,000.00
Consultancy Fees
90,000.00
Printing and Stationery
10,500.00
Rent (Office Building)
60,000.00
Rent (Residential)
36,000.00
Equipment Rentals
79,000.00
Utilities
35,500.00
Total
660,000.00
Required:
Determine the tax liabilities due from the company in respect of direct taxes for 2018 year of assessment, including any relevant penalties that are applicable. Corporate Tax rate applicable to the company is 25%.
Menuaa Manufacturing Limited (MML) produces iron rods for sale in both the domestic and foreign markets. The company is registered with the Ghana Revenue Authority for Value Added Tax (VAT). The company’s transactions during the month of October 2018 were as follows:
Transactions
GH¢
Sales (VAT Inclusive)
756,000
Exports to Sierra Leone
120,000
Relief Supplies
48,000
Purchase of Rolling Equipment
55,500
Hotel Expenses for Staff at a workshop on the new amendment on the VAT law. (VAT Inclusive)
4,500
Stationery purchased for Administration work
15,600
Iron Ingot imported (CIF)
141,750
Local Purchases
50,000
Unless otherwise stated Sales and Purchases are all Value Added Tax exclusive. National Health Insurance and GET Fund Levies are also exclusive except where it has been specifically stated.
Required:
a. You are required to calculate the NHIL and GET fund levies, VAT payable, if any, and Withholding Tax for October 2018.
Mr Eric Antwi, retired from the Public Service of Ghana on 3rd December 2017 and started trading as Eric Antwi Enterprise on 1st January, 2018. He is single parent with two children at the University of Ghana. He submitted his Income and Expenditure Statement for the year ended 31st December 2018 to you as the head of the Small Tax Payers Office. Incomes and Expenses accrue evenly throughout the year in 2018.
Mr Antwi presented a withholding tax receipts for GH¢1,176.00 to you requesting that the amount should be refunded to him.
GH¢
GH¢
Total Receipts
204,200
Interest on personal savings account
2,200
Total Pension Received
18,000
Interest on Investment of his Pension in treasury bills
1,200
Accountancy Charges
2,800
Desk Top Computer purchased
5,500
PAYE paid
2,460
Social Security Fund paid
1,200
Rent (Shop)
7,200
Staff Salary (net)
14,400
Stationery
840
Toyota Pick Up purchased for the business use
80,000
Vehicle running expenses including fuel
15,000
Travelling and Transport
3,600
Net Profit
92,600
Total
225,600
225,600
You are required:
a) Determine the tax payable by Mr Eric Antwi for 2018 Year of Assessment.
b) Support your computations with relevant explanations.
c) Compute all other taxes that are due and payable by Mr Antwi. (Ignore penalties and private use elements).
Tosese Limited is a company registered in Ghana under the Companies Act 1963, Act 179 and has been in operation for several years. The company has been noted by the Tax Authorities for being non tax compliant and no returns were submitted and paid for direct taxes in the 2015 year of assessment. However, after much Tax Education with the support of his Tax Practitioner, the Finance Manager presented the financial statement to the GRA.
The summarised Income Statement for the year ended 31st December 2015 showed the following.
Tosese Limited Income Statement
Description
GH¢
Turnover
5,640,000.00
Direct Costs
4,840,000.00
Gross Profit
800,000.00
Administration and General Expenses
560,000.00
Profit before Tax
240,000.00
Taxation
60,000.00
Profit after Tax
180,000.00
Net Profit Transferred to Income Surplus
180,000.00
Income Surplus Account
Description
GH¢
Balance brought forward
1,575,000.00
Add Profit for the year
180,000.00
Balance carried forward
1,755,000.00
The details of the notes are shown below. Note 1. The company is registered for VAT and has not been submitting its returns regularly. The turnover per the VAT Returns submitted to the Commissioner-General during the period under review was GH¢5,080,000.00
Note 2. Direct Costs
Description
GH¢
Imports
3,684,000.00
Freight and Insurance
368,400.00
Import Duties
736,800.00
Transport
50,800.00
Total
4,840,000.00
Note 3. Administration and General Expenses included
Description
GH¢
Consultancy Fees
25,000.00
Printing and Stationery
84,000.00
Rent (Commercial Property)
61,280.00
Equipment Rentals
15,000.00
Directors Fees
60,000.00
Note 4. The Company since incorporation has never declared and paid any dividend to its four shareholders even though the company has consistently been declaring profit. The Commissioner-General has therefore decided to invoke Section 59 (8) of the Income Tax Act, 2015 Act 896 by notice in writing to apply 40% of the balance on the Income Surplus Account to Dividend Tax.
Required: You are to determine the tax liability due from the company in respect of direct and Indirect Taxes for 2015 year of assessment, including any relevant penalties that are applicable. Ignore Corporate Tax. Total 20 Marks.
(a). Mr. Tanko Alhassan is the Head of Customer Service Department of Saabhot Company Limited. The following information is extracted from his Tax Return for 2014 year of assessment.
GH¢
Basic salary (2014)
144,000.00
Responsibility allowance
3,600.00
Professional allowance
2,500.00
House-Help allowance
2,800.00
Entertainment allowance
4,500.00
Mr. Tanko Alhassan was paid a bonus of GH¢45,800.00 by his employer on 27th February 2015 in respect of his performance for the year 2014. He uses his own private car for official duties for which he was given a monthly reimbursable fuel allowance of GH¢1,000.00. He is a divorcee with two children who attends Christ the King Junior High School in Accra. As part of the company’s policy to support brilliant children, each of Mr. Tanko Alhassan’s children are on an annual educational bursary of GH¢3,000.00.
He contributes 5.5% of his salary to the Social Security Scheme and an additional 5% to a Staff Provident Fund Scheme under the National Pensions Act, 2008 (Act 766). His employer, Saabhot Company Limited contributes on his behalf 13% and 5% of his salary to the Social Security Scheme and the Staff Provident Fund Scheme respectively.
You are required to compute the tax liability of Mr. Tanko Alhassan for the 2014 year of assessment.
(b). Under section 72 of the Internal Revenue Act, 2000 (Act 592) as amended, persons are generally required to furnish Returns of Income to the Ghana Revenue Authority. Except as may be required by the Commissioner-General by notice in writing that a person files a return, the Internal Revenue Act, 2000 (Act 592) as amended, provides exception from filing of Return of Income.
You are required to indicate only three circumstances where the filing of a Return of Income is not required under the Internal Revenue Act, 2000 (Act 592) as amended.
(a). Zabta Company Limited has been in operation in Ghana for less than two years. The Managing Director is not comfortable with the Head of Finance with regard to the manner in which he handles tax issues of the company and has therefore sought your advice on the tax implications of the following intended transactions by the company: i) Borrowing from Zenith Bank (Ghana) Limited of an amount of GHS2.50 million at an interest rate of 28% per annum and a commitment fee of 1% flat. ii) Borrowing from Bank of America (in the USA) of an amount of US$4.00 million at an interest rate of 9% per annum and a commitment fee of 0.3% flat.
As a newly appointed tax consultant of the company, you are required to advise the Managing Director (in a memorandum) of the tax implications of the above transactions.
(b). You have been recently appointed an Advisor responsible for Finance and Tax at the office of the Chief of Staff of Ghana. The Chief of Staff has requested you for a reasoned write-up of the taxability status of the Vice-President of the Republic of Ghana under the Internal Revenue Act, 2000 (Act 592) as amended.
You are required to explain the taxability status of the Vice-President of the Republic of Ghana under the provisions of the Internal Revenue Act, 2000 (Act 592), as amended with respect to income tax, capital gains tax, and gift tax.
a) The Managing Director of Kantorse LTD is worried about the amount of withholding tax deductions the company suffers when the company receives payment for the supply of goods to some customers. He has heard that some payments could be exempted from withholding taxes.
Required: State FIVE payments that are exempt from withholding taxes.
b) State FIVE responsibilities of a VAT Withholding Agent.
c) The Ghana Revenue Authority (GRA) has implemented an online tax filing system that allows taxpayers to submit their tax returns through the GRA portal. This system is part of the broader digitalization effort aimed at enhancing tax compliance and administration in Ghana.
Required: i) Discuss FOUR benefits of using the GRA online tax filing system for both taxpayers and tax administrators.
ii) Identify TWO challenges that taxpayers may face when using the online tax filing system and recommend possible solutions.
a) The following relates to the Kanto Mining Company (KMC) for the 2023 year of assessment.
GHe’ million
Operating Margin
1,700
Tax paid against 2023 year of assessment
100
Royalty paid
1.64
The following forms part of the tax returns of the company: i) The gross production was 2 million ounces of gold. ii) Revenue from the sale of the gold was GH¢6.8 billion. iii) Financial cost incurred from derivative which was included in the determination of the margin above was GH¢12 million. iv) The company made income from tailings amounting to GH¢14 million. The tailings value was not used in the determination of the margin above. v) The company received a machinery worth GH¢250 million in return for gold sold to affiliate, the market value of the machinery was GH¢270 million. This was not used in the computation of the margin above. vi) Research and development expenditure of GH¢0.7 million was used in arriving at the margin above. vii) Revenue received from the sale of fertilizer was GH¢45 million. This was a one-off transaction with an associated cost of GH¢23 million. These details have been included by the accountant in arriving at the margin above as part of gross revenue and production cost respectively. viii) Loan of GH¢120 million was received with interest of GH¢30 million each year to be liquidated in the next 4 years from an uncontrolled company. Part of the gold was used to pay for the interest repayment through a hedged programme. The quantity of gold was valued at GH¢38 million at the time of exchange and has not been accounted for in the books of account. ix) Shaft sinking and overburdening stripping cost incurred in the development of another field was GH¢67 million and added to production cost. x) Contribution towards community development programme of GH¢46.5 million was added to cost of production. The company provided proof with pictures of the donation with paper headlines on the ceremony. xi) Dividend received from three sources: a mining company at Obuasi, a petroleum upstream company in Takoradi and ceramics company at Datok (Upper East) all in Ghana amounting to GH¢20,000, GH¢30,000 and GH¢40,000 respectively. The total amount has been captured as part of revenue in note (ii) above. xii) Written Down Value carried forward of mining assets was GH¢140 million agreed with the Ghana Revenue Authority. They have granted capital allowance three times.
Required: Compute the tax payable.
b) Maanikuur Company LTD, a self-assessed taxpayer of the Ghana Revenue Authority (GRA), estimated its chargeable income for the assessment year, 2023 to be GH¢30 million.
The company commissioned a new Plant in April 2023 and realised that its production capacity has improved hence revised its estimated chargeable income to GH¢50 million in May 2023 and notified the GRA accordingly. Withholding taxes of GH¢150,000 was paid in May 2023.
In November 2023, the Directors were advised by the company’s External Auditors to adjust their chargeable income to avoid an imposition of a penalty by GRA. This was adhered to and subsequently the estimate was further revised to GH¢75 million and notified GRA. Withholding taxes of GH¢260,000 was paid in November 2023.
The company submitted its 2023 annual tax returns on the due date of 30 April 2024 and posted actual chargeable income of GH¢93.750 million.
The company tax rate is 25% and the Bank of Ghana statutory rate is 20%.
Required: i) Compute the instalment payments for the four quarters in the 2023 year of assessment. (6 marks) ii) Compute penalty payable by Maanikuur Company LTD, if any for 2023. (2 marks)
Baimbil LTD, based in Australia, has decided to acquire a company in Ghana instead of starting a new one.
The shareholders of Borketey LTD, a resident company in Ghana, have decided to sell the company due to cash flow challenges. As a result, Baimbil LTD approached the management of Borketey LTD and engaged a consultancy firm to perform due diligence checks. Following this, Baimbil LTD acquired 70% of the equity of Borketey LTD.
Below is an extract from the books of Borketey LTD for the 2023 year of assessment:
Description
Amount (GH¢)
Share Capital
1,000,000
Retained Earnings
(500,000)
Shared Deals
50,000
Bad Debts (Sold to MN LTD, now bankrupt)
1,000,000
Proposed Financing by Baimbil LTD:
The following proposals have been tabled for consideration after the acquisition:
Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
Baimbil LTD to provide GH¢100 million as additional equity capital.
Baimbil LTD to provide collateral for a bank facility of GH¢100 million in Ghana.
Required:
(i) Evaluate the tax implications of the 70% equity acquisition.
(ii) Evaluate the tax implications of the three proposed financing options.
Charley Chemist LTD made a taxable supply of medical consumables amounting to GH¢750,000 exclusive of VAT and levies on 23 November 2023 to the University of Ghana Medical Centre. The University of Ghana Medical Centre is a withholding tax agent for both VAT withholding and Direct Tax withholding.
Required: i) Compute the amount of VAT withheld by the University of Ghana Medical Center. ii) Compute the amount of direct tax withheld by the University of Ghana Medical Centre.
For the purpose of withholding tax, the Income Tax Act, 2016 (Act 896) requires a resident person who enters into a contract with a non-resident person which gives rise to income from Ghana to notify the Commissioner-General within thirty (30) days.
Required:
State the items that must be detailed in the notification to the Commissioner-General.
Atlas Nigeria Limited is into the sale of Mobile Phones, and the company’s year-end is December 31 of each year. The company’s Annual Tax Returns for the year ended December 31, 2012, were submitted in January 2014. Tax officials found a number of irregularities during a routine examination of the Tax Returns. They discovered that trade payables included N940,000 representing VAT for the two months to December 31, 2012. All sales attract VAT. There was no Input VAT during 2012. Tax officials were, however, of the opinion that the income of the company accrued uniformly throughout the 12 months of the year.
The accounts showed Adjusted Profits of N44,062,500, and Capital Allowances totaled N33,025,000. The tax liability arrived at was N4,406,250. The tax officials were not satisfied with the explanations received in connection with the Withholding Tax on the Director’s fee of N1,562,500, as well as Consultancy fee of N812,500. They also decided to write back 2/3 of the following expenses:
Printing and Stationery N168,750
Donations and Subscription N1,320,620
Losses claimed, amounting to N128,025 was disallowed. Included in the adjusted profit figure is N6,962,500 for Depreciation.
REQUIRED:
i. Show the computations resulting in the Original Tax Liability of N4,406,250 (5 marks)
ii. Compute a revised Tax liability based on the findings of the Tax Officials (10 marks)
