Series: AUG 2013

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  • 20 Marks

STP – Aug 2013 – L2 – Q5 – Strategic Indirect Tax Management

Advise Isak Esh Ltd on VAT responsibilities in Ghana.

(a) Isak Esh Ltd registered to do business in Ghana in October 2012. The CEO read in the papers that the Ghana Revenue Authority intends to embark on a mop up exercise before year 2012 will end. The CEO has been briefed by the Chief Finance Officer of Isak Esh Ltd about his company’s inability to have registered with the GRA for VAT purposes. As Chartered Tax Advisor, the CEO has approached you for advice.

Required Please advice Isak Esh Ltd on its VAT responsibility in Ghana.

(b). As tax advisor to Tanko Enterprises Ltd., you receive a note from the Chief Finance Officer as follows: “We have purchased Processing Plant and Machinery from a company registered in Mauritius. The company has agreed not to sell this machinery to any other party in Ghana for the next ten (10) years and therefore is charging us additional fee of $100,000. Should we pay? What are the tax implications of the payment of the price of the machinery and the additional fee in Ghana? “

Required a) Please advice the Chief Finance Officer on Tanko’s tax responsibilities as detailed in the Tax Acts in respect of such transactions.

b) Discuss the duty and VAT payable on the import of machinery into Ghana.

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  • 20 Marks

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

Notes 2012 GH $\phi$ 2011 GH $\phi$
Interest Income 1 1,522,000 1,834,000
Interest expense (866,000) (1,204,000)
Net Interest Income 656,000 630,000
Fee and Commission Income 342,000 282,000
Other Operating Income 2 69,520 59,630
Operating Income 1,067,520 971,630
Operating expenses 3 (514,200) (482,420)
Charge for bad and doubtful debts 4 (29,000) (41,000)
Operating Profit 524,320 448,210
Other Income 5 54,800 42,300
Profit before tax 579,120 490,510
Tax Paid 6 (202,420) (280,520)
Transfer to Income Surplus 376,700 209,990

Notes

  1. Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
  2. Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
  3. Operating Expenses includes Depreciation
  4. Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
  5. Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
  6. Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

GH $\phi$ GH $\phi$
Loans granted fishermen 28,000 24,050
Loans granted to pineapple growers 32,000 15,000
Dividend income (Net) 20,120 17,000
Govt. Bond Int. income (net) 17,000 28,500
Bad Debts recovered 32,400 14,130
69,520 59,630
Depreciation 80,200 65,600
Specific credit risk provision 9,010 20,600
General Provision for credit risk 19,990 20,400
29,000 41,000
Disposal of used tires and depreciated Vehicles 39,000 17,100
Profit on sale of shares 15,800 25,200
54,800 42,300
Deferred tax liability 102,200 121,000
Corporate tax paid for year 100,220 159,520
202,420 280,520
  1. Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

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  • 20 Marks

STP – Aug 2013 – L2 – Q3 – Tax Strategies for New Business Formation

Calculate income tax liability for a new processing facility in Kumasi or Accra.

(a). CinequaNon Plc, a UK entity, is planning to build a new processing facility in Ghana. The Chief Executive in a meeting with Management needs to decide either to cite the facility in Accra or Kumasi. Market intelligence has no preference for citing the facility 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 process being considered by management.

Kumasi GH $\phi$ Accra GH $\phi$
Expected Gross Receipts $2,500,000$ $2,500,000$
Payroll Expenses 200,000 250,000
Production costs including depreciation. 850,000 800,000

The erection of the factory structures and installation of equipment will cost GH $2,000,000 with attributable labour cost of GH $200,000. CinequaNon Inc intends to depreciate the equipment over a ten (10) year period.

Required: Calculate CinequaNon’s income tax liability for each proposed location for the first year.

(b). Would you advice for the facility to be cited in Nsawan taking into consideration the fact that Nsawam, it very close to Accra.

(c). Discuss three (3) non tax factors that CinequaNon UK Plc may consider in the decision process to locate either in Kumasi or in Accra.

(d). As a Chartered Tax Advisor, you receive a note from a client who requires to seek clarification on some tax issues relating to his line of business. The note is as detailed below.

Facts:

  1. Company X has purchased a teak concession from the Forestry Commission to fell for the logs.
  2. Company Y has contracted to purchase the teak timber from company X.
  3. Company Y pays VAT on the local purchase of teak on invoices issued by Company X.
  4. Company Y exports 100% of the teak to Company Z Overseas Plc., registered and operating in the Netherlands.

Query: Can company Y claim refund of such input VAT from the VAT authorities since company Y does not have any other business other than exporting of teak.

Required: As a Chartered Tax Advisor, kindly respond to the concerns raised by the client.

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  • 21 Marks

STP – Aug 2013 – L2 – Q2 – Taxation of Specialized Business Sectors

Tax obligations for a foreign oil company supplying gas turbine parts and maintenance in Ghana.

Due to the recent oil discovery in Ghana, many oil related companies continue to seek tax advice on doing oil related business in Ghana. As the Tax Partner for XYZ Consult, you receive a note from the Chief of Finance (Tax), Mauuwli Inc. Bubai as follows: “Mauuwli Inc. intends to supply parts of Gas turbines in Ghana. In addition, we shall provide maintenance services on these turbines. This is the business we do in Saudi and will do all the time across nations as the opportunity opens up to us. In view of this, we want to be 100% tax compliant in your country as there is no tax for my company in Saudi. We want to know whether as foreign company ordinarily resident in Dubai, we will be subject to the following taxes:

  • Corporate tax (4 Marks)
  • Withholding tax(WHT) and at what rate (8 Marks)
  • Valued Added Tax(VAT) and National Health Insurance Levy (NHIL) (3 marks)
  • Employee taxes” (4 marks)

Required As Tax Partner for XYZ Consult, provide your answer to the Chief of Finance, Mauuwli Inc., as requested for.

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  • 20 Marks

STP – Aug 2013 – L2 – Q1 – Taxation of Capital Transactions

Tax implications of purchasing equity in a mining company.

(a) The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the tax implications of the purchase of equity in a mining company.

(b). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the grant of capital allowance on a leased asset.

(c). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the VAT implications of the lease payments.

(d). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the tax implications of the sale of class 3 mining asset.

(e). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the grant of capital allowance on the use of a machinery by a mining company.

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  • 20 Marks

STP – Aug 2013 – L2 – Q5 – Strategic Indirect Tax Management

Advise Isak Esh Ltd on VAT responsibilities in Ghana.

(a) Isak Esh Ltd registered to do business in Ghana in October 2012. The CEO read in the papers that the Ghana Revenue Authority intends to embark on a mop up exercise before year 2012 will end. The CEO has been briefed by the Chief Finance Officer of Isak Esh Ltd about his company’s inability to have registered with the GRA for VAT purposes. As Chartered Tax Advisor, the CEO has approached you for advice.

Required Please advice Isak Esh Ltd on its VAT responsibility in Ghana.

(b). As tax advisor to Tanko Enterprises Ltd., you receive a note from the Chief Finance Officer as follows: “We have purchased Processing Plant and Machinery from a company registered in Mauritius. The company has agreed not to sell this machinery to any other party in Ghana for the next ten (10) years and therefore is charging us additional fee of $100,000. Should we pay? What are the tax implications of the payment of the price of the machinery and the additional fee in Ghana? “

Required a) Please advice the Chief Finance Officer on Tanko’s tax responsibilities as detailed in the Tax Acts in respect of such transactions.

b) Discuss the duty and VAT payable on the import of machinery into Ghana.

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  • 20 Marks

STP – Aug 2013 – L2 – Q4 – Taxation of Specialized Business Sectors

Advise on tax liabilities for TecAxxes Bank Ltd for 2011 and 2012.

You have been recently employed as the Tax Accountant for TecAxxes Bank Ltd. You have agreed with management to consult the Bank’s Tax Advisers on the 2012 financial statements with a view to submitting the tax returns by end of August 2013. The Bank’s auditors have put together TecAxxes draft financial statement from which you have made extracts as below: TecAxxes Bank Ltd Income Statement for the year ended December 2012 and 2011

Notes 2012 GH $\phi$ 2011 GH $\phi$
Interest Income 1 1,522,000 1,834,000
Interest expense (866,000) (1,204,000)
Net Interest Income 656,000 630,000
Fee and Commission Income 342,000 282,000
Other Operating Income 2 69,520 59,630
Operating Income 1,067,520 971,630
Operating expenses 3 (514,200) (482,420)
Charge for bad and doubtful debts 4 (29,000) (41,000)
Operating Profit 524,320 448,210
Other Income 5 54,800 42,300
Profit before tax 579,120 490,510
Tax Paid 6 (202,420) (280,520)
Transfer to Income Surplus 376,700 209,990

Notes

  1. Interest Income includes income earned from: Loans granted fishermen Loans granted to pineapple growers
  2. Other Operating Income Dividend income (Net) Govt. Bond Int. income (net) Bad Debts recovered
  3. Operating Expenses includes Depreciation
  4. Charge for Bad and doubtful debts Specific credit risk provision General Provision for credit risk
  5. Other Income Disposal of used tires and depreciated Vehicles Profit on sale of shares
  6. Tax paid is made up as follows: Deferred tax liability Corporate tax paid for year Total

GH $\phi$ GH $\phi$
Loans granted fishermen 28,000 24,050
Loans granted to pineapple growers 32,000 15,000
Dividend income (Net) 20,120 17,000
Govt. Bond Int. income (net) 17,000 28,500
Bad Debts recovered 32,400 14,130
69,520 59,630
Depreciation 80,200 65,600
Specific credit risk provision 9,010 20,600
General Provision for credit risk 19,990 20,400
29,000 41,000
Disposal of used tires and depreciated Vehicles 39,000 17,100
Profit on sale of shares 15,800 25,200
54,800 42,300
Deferred tax liability 102,200 121,000
Corporate tax paid for year 100,220 159,520
202,420 280,520
  1. Agreed capital allowance for the year is GH $62,500 (2010: GH $75,000).

Required Please, as the newly appointed Tax Accountant for TecAxxes Bank Ltd, advice the Managing Director on the tax liabilities arising from this position statement presented to you for the two years.

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  • 20 Marks

STP – Aug 2013 – L2 – Q3 – Tax Strategies for New Business Formation

Calculate income tax liability for a new processing facility in Kumasi or Accra.

(a). CinequaNon Plc, a UK entity, is planning to build a new processing facility in Ghana. The Chief Executive in a meeting with Management needs to decide either to cite the facility in Accra or Kumasi. Market intelligence has no preference for citing the facility 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 process being considered by management.

Kumasi GH $\phi$ Accra GH $\phi$
Expected Gross Receipts $2,500,000$ $2,500,000$
Payroll Expenses 200,000 250,000
Production costs including depreciation. 850,000 800,000

The erection of the factory structures and installation of equipment will cost GH $2,000,000 with attributable labour cost of GH $200,000. CinequaNon Inc intends to depreciate the equipment over a ten (10) year period.

Required: Calculate CinequaNon’s income tax liability for each proposed location for the first year.

(b). Would you advice for the facility to be cited in Nsawan taking into consideration the fact that Nsawam, it very close to Accra.

(c). Discuss three (3) non tax factors that CinequaNon UK Plc may consider in the decision process to locate either in Kumasi or in Accra.

(d). As a Chartered Tax Advisor, you receive a note from a client who requires to seek clarification on some tax issues relating to his line of business. The note is as detailed below.

Facts:

  1. Company X has purchased a teak concession from the Forestry Commission to fell for the logs.
  2. Company Y has contracted to purchase the teak timber from company X.
  3. Company Y pays VAT on the local purchase of teak on invoices issued by Company X.
  4. Company Y exports 100% of the teak to Company Z Overseas Plc., registered and operating in the Netherlands.

Query: Can company Y claim refund of such input VAT from the VAT authorities since company Y does not have any other business other than exporting of teak.

Required: As a Chartered Tax Advisor, kindly respond to the concerns raised by the client.

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  • 21 Marks

STP – Aug 2013 – L2 – Q2 – Taxation of Specialized Business Sectors

Tax obligations for a foreign oil company supplying gas turbine parts and maintenance in Ghana.

Due to the recent oil discovery in Ghana, many oil related companies continue to seek tax advice on doing oil related business in Ghana. As the Tax Partner for XYZ Consult, you receive a note from the Chief of Finance (Tax), Mauuwli Inc. Bubai as follows: “Mauuwli Inc. intends to supply parts of Gas turbines in Ghana. In addition, we shall provide maintenance services on these turbines. This is the business we do in Saudi and will do all the time across nations as the opportunity opens up to us. In view of this, we want to be 100% tax compliant in your country as there is no tax for my company in Saudi. We want to know whether as foreign company ordinarily resident in Dubai, we will be subject to the following taxes:

  • Corporate tax (4 Marks)
  • Withholding tax(WHT) and at what rate (8 Marks)
  • Valued Added Tax(VAT) and National Health Insurance Levy (NHIL) (3 marks)
  • Employee taxes” (4 marks)

Required As Tax Partner for XYZ Consult, provide your answer to the Chief of Finance, Mauuwli Inc., as requested for.

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  • 20 Marks

STP – Aug 2013 – L2 – Q1 – Taxation of Capital Transactions

Tax implications of purchasing equity in a mining company.

(a) The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the tax implications of the purchase of equity in a mining company.

(b). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the grant of capital allowance on a leased asset.

(c). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the VAT implications of the lease payments.

(d). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the tax implications of the sale of class 3 mining asset.

(e). The Board of Kwaamens Ltd has approached you as their preferred Tax Consultant for advice on the grant of capital allowance on the use of a machinery by a mining company.

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