- 20 Marks
Question
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)
Answer
a)
Under section 84(2) of the Internal Revenue Act, the supply or use of goods or property of any kind or the supply of any services is subject to withholding tax when the sum of the payment exceeds GHS 500.00 (amended by Act 2010 Act 814).
(1 mark)
However, exemptions exist. Section 84(4)(a) provides that any payment to a resident for goods and services under a contract for the sale of goods that constitute trading stock of both the vendor and purchaser is exempt from withholding tax.
(2 marks)
Conclusion:
Since the rice bought by Songe Enterprise from Rice Masters constitutes trading stock for both the vendor and purchaser, it is exempt from withholding tax.
(3 marks)
b)
Taxable gifts under Direct Tax include:
i. Buildings of permanent or temporary nature.
ii. Land.
iii. Shares, bonds, and other securities.
iv. Money, including foreign currency.
v. Business and business assets.
vi. Any means of transportation (land, air, or sea).
(3 marks for any 3 points)
c)
Petroleum operations, including exploration, development, and production, are subject to taxation. In this case, the contractor is deemed to have sold its products when exported to its affiliates (such as the Parent Company), and the revenue should be realized based on the international market rate ruling on the day the export is made.
(2 marks)
Conclusion:
The contractor’s tax liability depends on whether there is a chargeable income after all allowable deductions as prescribed by tax provisions. If the assessable income exceeds the allowable deductions, tax is payable. Otherwise, no tax will be payable.
(2 marks)
d)
Petroleum operations: In the case of petroleum upstream activities, the Host Government benefits from production through carried interest, contributing only towards production costs. The government does not contribute toward exploration and development costs.
(2 marks)
Mining operations: In mining operations, the government takes a 10% carried interest free of charge, without any financial contribution from the government.
(2 marks)
e)
The following factors are considered by the Minerals Commission before recommending the issuance of a mining license:
i. Evidence of financial and technical resources at the disposal of the applicant.
ii. Proposed amount to be spent on the operations.
iii. Programme of proposed mineral operations.
iv. Applicant’s proposals regarding the employment and training of nationals in the industry.
(1 mark for any 1 point)
- Tags: Carried Interest, Mining operations, Petroleum Operations, Taxable gifts, Withholding Tax
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: NOV 2015
- Uploader: Kwame Aikins