- 20 Marks
Question
(a). State and explain four (4) non-tax factors which influence the decision of an entrepreneur as to where to establish a business.
(b). A Ghanaian entrepreneur is looking for an ideal location to establish an orange juice processing facility. The initial feasibility studies conducted by consultants for the entrepreneur indicate that Tema, Takoradi and Nsawam have comparable economic conditions which will make an investment in any of these cities financially prudent. With reference to the provisions of the Income Tax Act, 2015 (Act 896) discuss the tax implications of establishing a manufacturing entity in Tema, Takoradi and Nsawam and advise the entrepreneur on the most tax efficient location to establish the entity.
Answer
(a). Non-Tax Factors Influencing Business Location
- Proximity to Raw Materials: Access to raw materials reduces transportation costs and ensures a steady supply, critical for manufacturing or processing businesses.
- Proximity to the Market: Being close to the target market minimizes distribution costs and enhances customer accessibility, boosting sales potential.
- Availability of Skilled Labour: A location with a pool of skilled workers ensures efficient operations and reduces training costs for specialized roles.
- Availability of Infrastructure: Reliable infrastructure such as roads, electricity, and water supports operational efficiency and business scalability.
(b). Tax Implications for Establishing a Manufacturing Entity
The location incentives available to manufacturing entities in Ghana under the First Schedule to the Income Tax Act, 2015 (Act 896) are as follows:
| LOCATION | RATE OF INCOME TAX |
|---|---|
| Accra and Tema | 25% |
| Regional Capitals | 25% rebate on tax rate [18.75%] |
| Outside Regional Capitals | 50% rebate on tax rate [12.5%] |
Thus, the tax rate for establishing the factory in Tema will be 25%. The tax rate for establishing the factory in Takoradi will be 18.75%. The tax rate for establishing the factory in Nsawam will be 12.5%.
Nsawam is therefore the most efficient location to establish the entity based on the tax rates.
- Tags: Income Tax Act, Location Incentives, Manufacturing, Tax Incentives
- Level: Level 2
- Topic: Tax Incentives
- Series: AUG 2018
- Uploader: Samuel Duah