- 20 Marks
Question
a) Three pharmacy students, Abanga, Banzey and Chambas who completed the Tamale Technical University have teamed up to undertake a business venture in the pharmaceutical sector under a Trading Name Nmani Pharmacy. They agreed to share profit and losses in the ratio 3:2:1 for Abanga, Banzey and Chambas respectively. The details provided below relate to the business financial performance for the year 2023.
| Details | GH¢ |
|---|---|
| Sales | 663,400 |
| Cost of goods sold: | |
| Opening inventory | 150,000 |
| Purchases | 300,000 |
| 450,000 | |
| Closing inventory | (120,000) |
| 330,000 | |
| Gross profit | 333,400 |
| Less expenses: | |
| Staff cost | 102,000 |
| Business promotions | 58,100 |
| Depreciation | 98,200 |
| Electricity and water | 53,000 |
| Expired drugs | 12,100 |
| Donation | 78,000 |
| Rent and rates | 15,000 |
| Sundry expenses | 50,000 |
| Vehicle running cost | 63,000 |
| (529,400) | |
| Net profit | 134,000 |
| Tax paid | (15,200) |
| Net profit after tax | 118,800 |
Additional Information:
- Staff cost includes monthly stipend allocations to the aged parents of the partners totaling GH¢18,000.
- All three Partners are taking care of their aged parents who are more than 60 years.
- Business promotions include lunch expenses of the partners amounting to GH¢21,200.
- Donations include funeral donation made during the funeral of the mother of the Vice Chancellor of the Tamale Technical University amounting to GH¢20,000.
- Sundry expenses include fine amounting to GH¢32,000 imposed by the Food and Drugs Authority for failure to remove some expired drugs from shelves.
- The Partners received Withholding Tax Certificates indicating an amount of GH¢15,200 from the Binabaani European Hospital for medical consumables supplied to the hospital.
- Capital allowance has been agreed with the Ghana Revenue Authority at GH¢104,200.
Required: i) Compute the chargeable income for Nmani Pharmacy for the 2023 Year of Assessment.
(ii) Compute the net tax payable by each partner for the year 2023.
(b) In line with the provisions of the Income Tax Act, 2015 (Act 896), partnership and limited liability companies in Ghana are taxed in accordance with their residency status in a year of assessment.
Required: State the criteria for the determination of the residency status of partnership and limited liability companies.
(c) All over the world, countries have introduced policies to guarantee income for their hard-working workforce who may go on retirement to enable them to live meaningful lives after retirement. Ghana’s pension system aims to provide personal financial security for employees in their retirement years.
Required: Describe the current pension system in Ghana.
Answer
a)
NMANI PHARMACY COMPUTATION OF CHARGEABLE INCOME YEAR OF ASSESSMENT 2023 BASIS PERIOD 2023
| Description | GH¢ | GH¢ |
|---|---|---|
| Net Profit before tax | 134,000 | |
| Adjustments for: | ||
| Depreciation | 98,200 | |
| Staff costs | 18,000 | |
| Business Promotion | 21,200 | |
| Donation | 20,000 | |
| Sundry Expenses – Fines | 32,000 | |
| 189,400 | ||
| 323,400 | ||
| Capital Allowance | (104,200) | |
| Net Tax payable | 219,200 |
(b)
- A partnership is resident in the country for a year of assessment if any of the partners resided in the country at any time during that year.
- A company is resident in the country for a year of assessment if:
- that company is incorporated under the Companies Act, 2019 (Act 992); or
- the management and control of the affairs of that company are exercised in the country at any time during that year. (c)
Current pension system in Ghana Pension is an arrangement by government to ensure retired persons are guaranteed a reasonable income whilst on retirement. Ghana operates a three-tier pension system which is made up of the following:
- First tier which is mandatory at 13.5%
- Second tier which is also mandatory at 5%
- Third tier which non-mandatory
- The employer is required to withhold 5.5% of employees monthly basic salary and remit by the 14th day of the following month.
- The employer is enjoined to contribute 13% of employees monthly basic salary and remit same by the 14th of the following month.
- 13.5% of the total amount of contribution by the employee and the employer must be remitted to SSNIT
- 5% of the total amount of contribution by the employee and the employer must be remitted to appointed fund manager that is in good standing with National Pensions Regulatory Authority
- SSNIT is required to remit 2.5% of the employees basic out of the 13.5% received monthly to NHI Authority.
- Contribution by the employee and the employer towards tiers 1 and 2 are allowable deduction before taxation.
- According to an approval by NPRA, employees and employer makes monthly contribution towards provident fund.
- Contribution by the employee and the employer towards tier 3 are allowable deduction before taxation up to a maximum of 16.5% of basic salary.
- Employees can only access the contribution towards tier 3 after retirement to avoid tax on the withdrawal.
- Topic: Pension System
- Series: MAR 2025
- Uploader: Salamat Hamid
