- 20 Marks
Question
Honson Pic, a UK-based manufacturing company, is planning to build a new processing facility in Ghana. The Chief Executive Officer in a meeting with Management needs to decide whether to cite the facility in Accra or in Kumasi. Market intelligence has no preference for citing the facility either in Kumasi or Accra since information gathered indicate that business activities would largely be same in Kumasi and Accra for the next 10 years.
The following forecast information is relevant for the decision-making process being considered by management.
| Kumasi | Accra | GH¢ | GH¢ |
|---|
Required: i. Calculate Hamson Plc’s income tax liability for each proposed location for the first year. ii. Would you advise Hamson Plc to consider citing the facility in Nsawam, taking into consideration the close proximity of Nsawam to Accra? iii. Discuss three (3) non-tax factors that Hamson UK Plc may consider in the decision-making process to locate the facility either in Kumasi, Accra or elsewhere in the country.
b). With reference to the Income Tax Act, 2015 (Act 896) explain the following: i. Private Ruling issued by the Commissioner-General: (2 marks) ii. Conditions under which a Private Ruling will be binding on the Commissioner-General and on the person to whom the Private Ruling is issued.
Answer
a) Income Tax Liability at both locations: Hrmson Plc. Tax Computation for year 1 Kumasi
| GHC | |
|---|---|
| Gross Sales | 4,500,000 |
| Less: | |
| Production costs | 950,000 |
| 900,000 | |
| Payroll cost | 600,000 |
| 1,500,000 | |
| 2,500,000 | |
| 2,300,000 | |
| 2,300,000 | |
| 2,300,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| 2,000,000 | |
| Chargeable Income | 2,620,000 |
| Tax payable (0.25×0.50) | 327,500 |
I would advise that the facility be cited at Nsawam since the tax incentive for locating at Nsawam overruns two times locating in Accra and 50% less than locating in Kumasi.
b) i. A private ruling is a written Ruling issued by the CG to a person setting out the position of the CG regarding application of the Income Tax Act, 2015 (Act 896) to that person with respect to a transaction proposed or entered into by that person. The private ruling is issued by the CG in response to a written application by that person for the ruling.
ii. A Private Ruling will be binding:
- on the CG with respect to the application of the Act at the time of the ruling; and
- on the person who applied for the ruling, with respect to the transaction to which the ruling relates.
A Private Ruling will be binding on the CG and the applicant as described above, where prior to issuing the ruling, the applicant makes to the CG, a full and true disclosure of all aspects of the transaction relevant to the ruling, and the transaction proceeds in all material aspects as described in the person’s application for the ruling.
- Tags: Corporate Taxation, Income Tax, Location Decision, Non-Tax Factors, Tax computation, Tax Incentives
- Level: Level 2
- Topic: Taxation and Operating Strategies in Business
- Series: FEBRUARY 2018
- Uploader: Salamat Hamid
