Question Tag: Withholding Tax

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  • 10 Marks

AT – Nov 2024 – L3 – Q5b – Tax Implications of Foreign Acquisition

Evaluate the tax implications of a 70% equity acquisition by a foreign company and the proposed funding option

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:

  1. Baimbil LTD to provide GH¢100 million as debt with 2% interest above the market rate.
  2. Baimbil LTD to provide GH¢100 million as additional equity capital.
  3. 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.

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  • 5 Marks

PT – Nov 2024 – L2 – Q5b – Withholding Tax & VAT Calculation

Compute VAT and direct tax withheld on a taxable supply of medical consumables to a tax withholding agent.

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.

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  • 5 Marks

PT – Nov 2024 – L2 – Q5a – Notification to Commissioner-General for Non-Resident Contracts

Requirements for notifying the Commissioner-General when a resident contracts a non-resident.

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.

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  • 15 Marks

ATAX – May 2016 – L3 – Q5 – Taxation of Companies

Compute the original and revised tax liabilities of Atlas Nigeria Limited, considering tax official adjustments.

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)

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  • 15 Marks

AT – Nov 2016 – L3 – SC – Q5 – Tax Incentives and Reliefs

Identify industries qualifying as Pioneer Industries and compute tax liabilities and withholding tax for Ajanaku Nigeria Limited.

a. **One of the incentives available to industries in Nigeria is contained in the Industrial Development (Income Tax Relief) Act 1971, which grants tax holidays to companies in the industries that meet the conditions for being designated “Pioneer Industries.”

Under the Industrial Development (Income Tax Relief) Act 1971, state any FOUR industries that qualify to be regarded as Pioneer Industries.** (4 Marks)

b. Ajanaku Nigeria Limited was incorporated as a pioneer company on March 15, 2011, with a focus on the manufacture of aluminum roofing sheets. It was granted a Pioneer Certificate with Production Day given as July 1, 2011. Extracts of Audited Financial Statements are as shown below:

Period 6 Months to 31/12/11 Year to 31/12/12 Year to 31/12/13 Six Months to 30/6/14
(Loss) / Profit (3,750) (4,800) 2,250 4,500
After Charging: Depreciation 2,800 2,500 1,700 1,000
Withholding Tax on Rent Included 500 250 – –
Donations to:
Epe Traditional Dance Troupe 10 – – –
Nigerian Red Cross – 100 – –
Borno State General Hospital – – 120 –

Additional Information:

  • Ajanaku Nigeria Limited declared gross dividends of ₦600,000 and ₦1,500,000 for 2013 and 2014, respectively.
  • Withholding tax rates on dividends for the relevant years are 10%.
  • Ignore minimum tax provisions.
  • The company’s initial tax relief period was not extended.

Required:
Compute the tax liabilities for the relevant years of assessment relating to Pioneer Status only, and state the amount of Withholding Tax due from the shareholders. (11 Marks)

a. Four Industries Qualifying as Pioneer Industries:

  1. Agricultural production, including food processing and packaging.
  2. Manufacturing, such as aluminum products and roofing sheets.
  3. Mining and processing of minerals, including petroleum refining.
  4. Telecommunication and information technology.

b. Computation of Tax Liabilities and Withholding Tax for Ajanaku Nigeria Limited:

Step 1: Pioneer Period

  • Pioneer period runs from July 1, 2011, to June 30, 2014.

Step 2: Loss/Profit Exemption During Pioneer Period

  • Losses incurred during the pioneer period are disregarded for tax purposes.
  • Profits during the pioneer period are exempt from tax.

Step 3: Dividend Withholding Tax (WHT):

Year Gross Dividend (₦’000) Withholding Tax Rate (%) WHT Amount (₦’000)
2013 600 10 60
2014 1,500 10 150

Total Withholding Tax Due = ₦60,000 + ₦150,000 = ₦210,000.

Final Tax Liabilities:

  • Since Ajanaku Nigeria Limited’s profits during the pioneer period are exempt from tax, Tax Liability = ₦0.

Withholding Tax Due from Shareholders:

  • Total Withholding Tax on dividends for 2013 and 2014 is ₦210,000.

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  • 30 Marks

ATAX – May 2017 – L3 – Q1 – Overview of Advanced Taxation

Explain tax concepts and calculate Companies Income Tax due for Rex Pharmaceuticals.

You are the Tax Controller of Rex Pharmaceuticals (Nigeria) Limited having its Head Office in Ketu, Epe Local Government of Lagos State.

In the past three years, the company had been subjected to taxes by different Revenue Authorities within Lagos State and indeed, the entire country.

Apart from the Companies Income Tax, the issue of Withholding Tax is an area where the company’s management is very much concerned. The Managing Director is worried that this multiplicity of taxes is taking its toll on the company’s financials.

The company is already facing myriads of problems ranging from outrageous cost of capital which had led to increase in cost of production and attendant decrease in profit. The company’s goods are becoming uncompetitive, compared to imported goods. The long-term effect is either reduction in workforce or relocation to a more favorable economic climate.

The Managing Director summoned you to his office and among the issues raised at the meeting were:

(i) as a corporate body, the company ought not to be subjected to multiplicity of taxes beyond the Companies Income Tax;
(ii) the jurisdiction of the tiers of Government in imposition and collection of taxes;
(iii) the Withholding Tax;
(iv) the Pay As You Earn as it affects the staff; and
(v) the Capital Gains Tax.

You have also been informed of the following:

  1. The company’s technical agreement with the foreign Head Office and the need to remit funds;
  2. The Non-Executive Directors;
  3. The Non-Resident directors are to receive N2,500,000;
  4. Centralization of staff PAYE deductions;
  5. Dividend payment to shareholders in different parts of the country. Those resident in Kogi are to receive N375,000;
  6. Land for a factory in Abuja purchased from Alhaji Garuba Maito who resides in Kano;
  7. Rex Pharmaceuticals received N4,500,000 as Net dividend from an associated company Laiketop Limited for the year ended September 30, 2014. In the Audited Financial Statements of Rex Pharmaceuticals for the year ended December 31, 2015, a dividend of N9,500,000 was proposed. Out of this amount, N3,500,000 was from dividend received from Laiketop Limited while the balance was from a Total Profit of N22,500,000 from other trading activities;
  8. At present, out of the thirty employees in Abuja, five are resident in Suleja, Niger State.

Required:

(a) Explain briefly the following:
i. Capital Gains Tax
ii. Withholding Tax
iii. Double Taxation Treaty
iv. Multiple Taxation (12 Marks)

(b) Discuss measures put in place by the government to reduce cases of multiple taxation. (6 Marks)

(c) State the arms of government empowered by the Constitution to legislate on tax matters. (6 Marks)

(d) Determine the Companies Income Tax due from Rex Pharmaceuticals Limited for the year ended December 31, 2015. (6 Marks)

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  • 11 Marks

ATAX – Nov 2016 – L3 – Q5b – Tax Incentives and Reliefs

Calculates tax liabilities for a pioneer company and withholding tax on dividends during the pioneer period.

Ajanaku Nigeria Limited was incorporated as a pioneer company on March 15, 2011, focusing on aluminum roofing sheets. It received a Pioneer Certificate with Production Day as July 1, 2011. Extracts from its Audited Financial Statements are as follows:

Gross dividends declared:

  • 2013: N600,000
  • 2014: N1,500,000

Withholding tax rate on dividends for these years is 10%. Ignore Minimum Tax provisions. The initial tax relief period was not extended.

You are required to:

  • Compute the tax liabilities for the relevant years of assessment relating to Pioneer Status only.
  • State the amount of Withholding Tax due from the shareholders. (11 Marks)

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  • 20 Marks

AT – May 2024 – L3 – SB – Q3 – Double Taxation Reliefs and Credits

Calculation of double taxation relief and tax liabilities for Lagode Nigeria, including implications of double taxation treaties.

Lagode Nigeria Limited, based in Lagos, Nigeria, commenced operations as a manufacturer of indigenous fabrics in 2013. Products are sold to wholesalers and retailers in Nigeria and to Africans in diaspora, particularly during annual holiday periods. A market survey in 2018 revealed a lack of local Nigerian fabric manufacturers in North America, prompting the company to establish Kuramo Incorp. in Ottawa, Canada, which began operations in January 2020.

The operating results for both locations for the year ended December 31, 2022, are as follows:

Description Lagos, Nigeria (N’000) Ottawa, Canada (N’000)
Gross turnover 180,200 330,800
Less: Expenses
– Cost of materials 72,100 162,320
– Wages and salaries 18,050 42,120
– Finance costs 1,400 3,150
– Miscellaneous 4,600 5,270
– Depreciation 5,760 8,750
– Share of head office expenses 25,600 16,040
– Foreign tax paid – 18,900
Total expenses 127,510 256,550
Net profit 52,690 74,250

Additional Information:

  1. Ottawa branch is a wholly owned Nigerian company.
  2. Miscellaneous expenses are allowable for tax purposes.
  3. Capital allowances agreed with Nigerian tax authorities:
    Location Capital Allowance (N’000)
    Lagos operations 6,800
    Ottawa operations 9,900
  4. The exchange rate for Canadian operations is fair.
  5. No double taxation agreement exists between Nigeria and Canada.

Required:
In accordance with the provisions of the Companies Income Tax Act Cap. C21 LFN 2004 (as amended), you are to: a. Compute the double taxation relief (if any) available to the Nigerian company

(9 Marks)
b. Advise on the tax liabilities of the Nigerian company for the relevant assessment year (9 Marks)
c. Comment on the implications of double taxation agreements on withholding tax deductions by a company resident in a country:
(i) With no double taxation agreement with Nigeria

(1 Mark)
(ii) With double taxation treaty with Nigeria (1 Mark)
Total: 20 Marks

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  • 30 Marks

AT – May 2018 – L3 – SA – Q1 – Taxation of Corporations

Discuss multiple taxation, jurisdiction, withholding tax, and penalties related to Rex Pharmaceuticals.

You are the tax controller of Rex Pharmaceuticals (Nigeria) Limited, having its head office at Ketu in Epe local government of Lagos State.

In the past three years, the company had been subjected to an array of taxes by different revenue authorities within Lagos State and indeed the entire country.

Apart from the Companies Income Tax, Withholding Tax is another tax that the company‟s management is concerned about. The Managing Director is very much worried that this multiplicity of taxes is taking its toll on the company‟s financials.

The company is already facing myriads of problems ranging from high cost of capital which led to increase in cost of production and attendant reduction in profit. The company‟s goods are becoming uncompetitive compared with imported similar goods. The long term effect is either reduction in work force or relocation to a more favourable economic environment. The Managing Director has invited you to his office to discuss the following issues:

(i) Whether as a corporate body, the company ought to be subjected to myriads of taxes beyond the corporate tax;

(ii) The jurisdiction of the tiers of government in the imposition and collection of taxes;

(iii) Withholding Tax;

(iv) Pay-As-You-Earn (PAYE) as it affects the staff; and

(v) Capital Gains Tax.

You have also been provided with the following information:

  • The company‟s technical agreement with the foreign head office and the need to remit funds;
  • Non-resident directors are to receive N2,500,000;
  • Staff P.A.Y.E has been centralised;
  • Dividend has been paid to shareholders in different parts of the country, and those resident in Kogi State of Nigeria, received N375,000;
  • Land for a factory in Abuja was purchased from Alhaji Garuba Maito who resides in Kano;
  • The company received N4,500,000 as net dividend from an associated company, Laiketop Limited, for the year ended September 30, 2014;
  • In the audited financial statements of Rex Pharmaceuticals for the year ended December 31, 2015, a dividend of N9,500,000 was proposed. Out of this amount, N3,500,000 was from dividend received from Laiketop Limited while the balance was from a Total Profit of N22,500,000 from other trading activities; and
  • Out of the thirty employees in Abuja, five are resident in Suleja, Niger State.

You are required to prepare a memo to the Managing Director explaining the following:

(a) i. Double/Multiple Taxation.
ii. Double Taxation Treaty.
iii. Multiple Taxation in Nigeria.
iv. Measures put in place to reduce cases of multiple taxation in Nigeria.
v. Withholding Tax with respect to (i) to (v).
vi. Penalty for non-deduction/remittance of Withholding Tax. (12 Marks)

(b) The arms of government empowered to legislate on tax matters by the Constitution. (4 Marks)

(c) Relevant tax authority and the Withholding Tax due, if any. (4 Marks)

(d) i. The appropriate description of the income received from Laiketop Limited.
ii. The tax due from other trading activities of Rex Pharmaceuticals.
iii. Amount to be recouped by Rex Pharmaceuticals, if any.
iv. Net amount received by shareholders of Rex Pharmaceuticals.
v. Relevant section of the law to buttress your points in (i) and (ii) above. (10 Marks)

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  • 5 Marks

ATAX – Nov 2018 – L3 – Q3b – International Taxation

Permanent Establishment (PE) under the Nigeria-UK Double Taxation Agreement

b) Double taxation agreements exist among Nigeria and some foreign countries.

Required:
Explain the term “Permanent Establishment” as contained in the double taxation agreement between Nigeria and the United Kingdom.
(5 Marks)

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  • 4 Marks

AT – March 2023 – L3 – Q2c – Tax planning

Advise on which housing option is more tax-efficient for the Managing Director in relation to employment and rental income.

The Management of 6Up Ltd has asked for advice on which of the following options is better for their Managing Director in connection with tax planning:

Option 1:
To rent the Managing Director’s personal house for use by the Managing Director as part of his condition of employment while taking a withholding tax at the rate of 8% on the rental payment.

Option 2:
To rent another place for the Managing Director instead of his own place so he may consider renting out his place of residence.

Required:
Advise on which option is better from the standpoint of tax planning implication for the Managing Director.

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  • 8 Marks

AT – Nov 2019 – L3 – Q4a – Tax administration in Ghana

Determine the tax obligations of an NGO involved in both charitable activities and business operations.

Scenario:

Bubandushe is a Non-Governmental Organisation (NGO) located in Accra with operational areas in the Northern Regions of Ghana. The NGO buys rice from a supermarket in Accra and transports it to the Northern Regions for distribution to widows and orphans. Its main source of funding is from a benefactor based in the Netherlands, who has been supporting the project since its inception.

In support of its operations, it engaged Chartered Accountants from the Institute of Chartered Accountants (Ghana) as employees. Their role is basically to organize training programmes for Government Institutions on budget preparation using advanced financial models for a fee. This additional source of income equally supports the operations of this NGO.

Ghana Revenue Authority (GRA) has written to this NGO to regularize its operations with it for tax purposes. The Management of the NGO has argued that it is exempt from tax on its income. The management has written to you to offer professional help on the matter.

Required:

i) Determine whether the NGO is required under the tax laws to pay tax and if yes, what type of taxes. (6 marks)

ii) On what basis are NGOs liable to tax or exempt? (2 marks)

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  • 12 Marks

AT – Nov 2019 – L3 – Q1a – Tax planning

Analyze the tax implications of a loan arrangement under thin capitalization rules for Kelkadadi Ltd.

The management of Kelkadadi Ltd, a company resident in Ghana since the year of assessment 2007, is a wholly owned subsidiary of Danlerigu Ltd, a company resident in Nigeria. The Finance Manager of Kelkadadi has invited you as a final level three candidate of ICAG and also a Tax Intern with Danlerigu to analyze the transaction below and provide tax implications thereon.

Kelkadadi Ltd contracted a loan of $10 million from Danlerigu Ltd to help it meet its operational activities. The balance standing on the loan account at the beginning of 2018 stood at $5 million and $4.1 million at the end of 2018 year of assessment. The exchange rates are as follows:

  • Year Start (2018) $1 = GH¢5.20
  • Year End (2018) $1 = GH¢5.21

The extract of the financial statement at the beginning of the year 2018 was as follows:

  • Stated Capital: GH¢200,000
  • Retained Earnings: GH¢1,235,000
  • Capital Surplus: GH¢40,000
  • Share Deals: GH¢30,000

Interest on the debt paid during the year amounted to GH¢90,124 and foreign exchange loss on the loan repayment stood at GH¢147,000.

Required:

Write a memo on the possible tax implication(s) on this arrangement to the Finance Manager.

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