ATP – Aug 2015 – L2 – Q3 – Income Tax Computation

Advise on tax implications of loans from Zenith Bank and Bank of America for Zabta Company.

Question

(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.

Answer

(a). Borrowing from Zenith Bank (Ghana) Limited:

The interest and the commitment fee on the loan qualifies as a deductible expense under Section 14 of the Internal Revenue Act, 2000 (Act 592) as amended in determining the company’s chargeable income.

The commitment fee will attract a Value Added Tax of 15% and National Health Insurance Levy of 2.5% in accordance with the provisions of the Value Added Tax Act, 2013 (Act 870). The interest and the commitment fee to be paid to Zenith Bank (Ghana) Limited is not subject to withholding tax because the bank is exempt from withholding tax under Section 83 of the Internal Revenue Act, 2000 (Act 592) as amended.

Borrowing from Bank of America:

In effecting payment for the interest and commitment fee to Bank of America, Zabta Company Limited is required to withhold tax at the rate of 8% as provided under Section 85 and Part V of the First Schedule to the Internal Revenue Act, 2000 (Act 592) as amended.

(b). Vice-President of the Republic of Ghana

The Internal Revenue Act, 2000 (Act 592) as amended exempts from tax under section 10(1)(a), the salary, allowances, pension and gratuity of the President. There is no provision in the Internal Revenue Act, 2000 (Act 592) which exempt the income of the Vice-President of the Republic of Ghana from payment of income tax. Thus, incomes accruing in, derived from, brought into, or received in Ghana, including salary and allowances by the Vice-President are liable to income tax.

Chapter ll (dealing with capital gains tax) of the Internal Revenue Act, 2000 (Act 592), as amended does not grant any specific exemption to the Vice-President on the realisation of a chargeable asset. The Vice-President is thus liable to capital gains accruing to or derived by him on the realisation of a chargeable asset under Act 592 at the rate of 15%, except where the capital gain is exempt under Section 101 of Act 592 as amended.

Chapter lll (dealing with gift tax) of the Internal Revenue Act, 2000 (Act 592), as amended does not grant any specific exemption to the Vice-President on receipt of taxable gift. The Vice-President is thus liable to payment tax on taxable gifts received by him at the rate of 15%, except where the taxable gift s exempt under Section 105(2) of Act 592 as amended.

Tags: Borrowing, Ghana tax laws, Interest Deduction, VAT, Withholding Tax
Level: Level 2

Topic: Income Tax Computation
Series: AUG 2015

Uploader: Samuel Duah