Series: AUGUST 2020

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  • 20 Marks

STP – Aug 2020 – L2 – Q5 – Tax Incentives for Manufacturing

Discuss tax incentives for a chocolate manufacturing plant in Ghana and the impact of factory location on these incentives.

The Swiss-Ghanaian Chamber of Commerce is organising a fair for some Swiss investors who intend to establish a chocolate manufacturing plant in Ghana. The investors intend to manufacture chocolates for the domestic and international markets.

Required
As an expert in strategic tax planning, the Chamber has invited you to speak on the tax incentives available for such investments and whether the location of the factory would have an impact on the tax incentives the investors can enjoy.

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  • 20 Marks

STP – Aug 2020 – L2 – Q4 – Debt vs Equity Financing

Discuss whether debt financing offers more tax benefits than equity financing for companies, with references to Ghanaian tax law.

Some scholars argue that from a strategic tax planning perspective, debt financing provides more tax benefits to companies than equity financing for investors.

Required
With the aid of appropriate authorities, discuss the accuracy or otherwise of the above assertion.

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  • 20 Marks

STP – Aug 2020 – L2 – Q3 – Ownership Change Tax Implications

Discuss income tax implications for Obibini Ghana Limited if an investor acquires 51% of its shares.

Obibini Ghana Limited is a wholly owned Ghanaian real estate company. The basis period of the company ends on 31st December each year. In order to raise additional capital to expand its activities, the company is looking for an investor who would acquire at least 51% of the shares of the company. The managers of the company are engaged in negotiations with a potential investor and the parties expect the transaction to be completed on 31st January 2020. The financial statements of the company revealed that the company made a loss of GH₵2,500,000 for the period ended 31st December 2019. The company also had financial cost of GH₵100,000.00
The company also has a parcel of land located at Abokobi which the company purchased three years ago at the cost of GH₵100,000.00. The current value of the land is GH₵500,000.00

Required
The managers of the Obibini Ghana are seeking your opinion on the following:
i. the income tax implications for the company if an investor acquires 51% of the company’s shares.

ii. The tax planning opportunities available which could reduce the income tax exposure of company if an investor acquires 51% of the company’s shares.

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  • 20 Marks

STP – Aug 2020 – L2 – Q2 – Corporate Restructuring

Restructure Mr. Kofi Opoku’s companies to reduce tax exposure and provide cheaper financing for Speed Transport Ghana Limited.

Mr. Kofi Opoku is the direct shareholder of Unique Farms Ghana Limited and Speed Transport Ghana Limited. Unique Farms is engaged in tree crop farming and the company harvested the tree crops for the first time in 2019. In April, 2020, he received a copy of the audited financial statements of the two companies.
An analysis of the audited financial statements of the companies revealed the Unique Farms Ghana Limited is more profitable of the two companies. Speed Transport Ghana Limited however requires a lot of money for its operating activities and it mostly resorts to borrowing from financial institutions to meet its expenditure requirements. The high borrowing costs was affecting the profitability of the company.
Mr. Opoku also noticed that tax exposure on his investments is not ideal. Mr. Kofi Opoku has been informed that you are an expert in strategic tax planning.

Required
You are required to help Mr. Kofi Opoku restructure his companies in a manner that would provide a cheaper financing option for Speed Transport Ghana Limited and reduce his overall tax exposure on the investments.

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  • 20 Marks

STP – Aug 2020 – L2 – Q1 – Tax Planning vs. Tax Avoidance

Discuss distinction between tax planning and tax avoidance under Ghanaian tax law with examples and references.

The Council of the Chartered Institute of Taxation, Ghana (CITG) has invited you to speak at a Continuous Development Program (CPD) on the topic “The distinction between tax planning schemes and tax avoidance arrangements under Ghanaian tax laws”.
In the letter of invitation, the Council indicated that you are to submit a detailed write-up of your presentation.

Required
With the aid of appropriate examples and specific references to Ghanaian tax law provisions, write in sufficient detail, the content of your presentation.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q5 – Petroleum Taxation

Compute capital allowances, crude oil distribution, income tax, and government revenue for Sapele Petroleum and Mahogany Production in 2019.

Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated are joint venture partners who have 45% and 35% interest respectively in the Upstream Fields in Ghana. They commenced exploration in 2011 and discovered hydrocarbons in commercial quantities in 2013.

The fiscal terms of the agreement between the joint venture partners and the Government of Ghana include Bonus of US$ 150 million, Royalty of 5%, Initial (Carried) Interest of 15%, Additional Participating Interest of 5%, Corporate Tax rate of 35% and Capital Allowance on straight line basis at a rate of 20%. Mahogany Production is the operator of the Upstream Fields. Production commenced in the Upstream Fields in 2019. Information available on the oil and gas exploration and production operations in the Upstream Fields are as follows:

Up to 31/12/2017 US$
Exploration Costs 250,000,000.00
Development Costs 2,000,000,000.00
Bonus 150,000,000.00

As at 31/12/2018 US$
Exploration Costs 100,000,000.00
Development Costs 1,500,000,000.00
Interest on loan for installation of equipment & facilities 100,000,000.00

NB. The loan was contracted by the operator on behalf of the parties that hold interest in the Upstream Fields

As at 31/12/2019 US$
Exploration Costs 40,000,000.00
Development Costs 400,000,000.00
Average production cost per barrel 15.00
Average Price of crude oil per barrel 40.00
2019 Production 50,000,000 barrels

You are required to compute the following, and also state the assumptions underlying your computations:
i. Capital allowance entitlements of Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated.
ii. Distribution of crude oil.
iii. 2019 income tax liability of Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated in accordance with the provisions of the Income Tax Act, 2015 (Act 896).
iv. Total revenue that will accrue to Government of Ghana.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q4 – Taxation of Mining Entities

Compute tax liabilities for ABC Mines Ltd for 2019, including royalty, withholding, income, and capital gains taxes.

ABC Mines Ltd. is a mining company operating in the Underground Mine. Commercial production commenced in the Underground Mine in 2019. ABC Mines Ltd also has mineral rights in the Surface Mine which is yet to commence commercial production. In 2019, ABC Mines Ltd. disposed of its mineral rights in Surface Mine.

The highlights of 2019 revenue and expenditure disclosed in tax returns filed by ABC Mines Ltd. are as follows:

Revenue GHe
Gross income from its operations in 2019 450,000,000
Realised sum from disposal of mineral rights in Surface Mine 100,000,000
Hedging Income 40,000,000
Total Revenue 590,000,000

Expenses include but not limited to the following:

Expenses GHe
Reconnaissance & Prospecting Cost (Underground Mine) 100,000,000
Reconnaissance & Prospecting Cost (Surface Mine) 50,000,000
Depreciation 20,000,000
Expenses on Hedging transactions 10,000,000
Operating Expenses (Underground Mine) 80,000,000
General and Administration Expenses (Surface Mine) 20,000,000
Interest Expense (Underground Mine) 20,000,000
Profit before tax 200,000,000

You are required to compute the liability for each tax type that ABC Mines Ltd will pay in the 2019 year of assessment. State the underlying assumptions of your computations.

Additional Information:
Minerals produced in the Underground Mine worth GHS40,000,000 was destroyed in the leased area. An amount of GHS35,000,000 was paid as insurance claims to ABC Mines Ltd in respect of the minerals destroyed.

Tax Rates Rate
Income Tax Rate for Companies 25%
Mineral Income Tax Rate 35%
Mineral Royalty Rate 5%
Interest Withholding Tax Rate 8%
Capital Allowance Rate 20% on straight line basis
Capital Gains Tax Rate 15%

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q3 – Disposal of Petroleum Rights

Explain direct and indirect disposal of petroleum rights under the Income Tax Act.

(a). Write short notes on Direct and Indirect disposal of petroleum rights as provided for under the Income Tax Act, 2015 (Act 896).

(b). Write short notes on Pricing of Crude Oil.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q2 – Ring Fencing

Explain Ring Fencing and its provisions under the Income Tax Act for mining operations.

(a). Explain briefly the concept of Ring Fencing and state how it is provided for in respect of Minerals and Mining Operations under the Income Tax Act, 2015 (Act 896).

(b). Write short notes on Additional Participating Interest and Additional Oil Entitlement.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q1 – Petroleum Holding Fund

Explain the Petroleum Holding Fund and its disbursement process.

(a). Write short notes on Petroleum Holding Fund (PHF) and how funds are disbursed from the PHF.

(b). The petroleum industry has three different but related operations and/or activities. Mention the three operations and explain the activities involved in each operation.

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  • 20 Marks

STP – Aug 2020 – L2 – Q5 – Tax Incentives for Manufacturing

Discuss tax incentives for a chocolate manufacturing plant in Ghana and the impact of factory location on these incentives.

The Swiss-Ghanaian Chamber of Commerce is organising a fair for some Swiss investors who intend to establish a chocolate manufacturing plant in Ghana. The investors intend to manufacture chocolates for the domestic and international markets.

Required
As an expert in strategic tax planning, the Chamber has invited you to speak on the tax incentives available for such investments and whether the location of the factory would have an impact on the tax incentives the investors can enjoy.

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  • 20 Marks

STP – Aug 2020 – L2 – Q4 – Debt vs Equity Financing

Discuss whether debt financing offers more tax benefits than equity financing for companies, with references to Ghanaian tax law.

Some scholars argue that from a strategic tax planning perspective, debt financing provides more tax benefits to companies than equity financing for investors.

Required
With the aid of appropriate authorities, discuss the accuracy or otherwise of the above assertion.

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  • 20 Marks

STP – Aug 2020 – L2 – Q3 – Ownership Change Tax Implications

Discuss income tax implications for Obibini Ghana Limited if an investor acquires 51% of its shares.

Obibini Ghana Limited is a wholly owned Ghanaian real estate company. The basis period of the company ends on 31st December each year. In order to raise additional capital to expand its activities, the company is looking for an investor who would acquire at least 51% of the shares of the company. The managers of the company are engaged in negotiations with a potential investor and the parties expect the transaction to be completed on 31st January 2020. The financial statements of the company revealed that the company made a loss of GH₵2,500,000 for the period ended 31st December 2019. The company also had financial cost of GH₵100,000.00
The company also has a parcel of land located at Abokobi which the company purchased three years ago at the cost of GH₵100,000.00. The current value of the land is GH₵500,000.00

Required
The managers of the Obibini Ghana are seeking your opinion on the following:
i. the income tax implications for the company if an investor acquires 51% of the company’s shares.

ii. The tax planning opportunities available which could reduce the income tax exposure of company if an investor acquires 51% of the company’s shares.

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  • 20 Marks

STP – Aug 2020 – L2 – Q2 – Corporate Restructuring

Restructure Mr. Kofi Opoku’s companies to reduce tax exposure and provide cheaper financing for Speed Transport Ghana Limited.

Mr. Kofi Opoku is the direct shareholder of Unique Farms Ghana Limited and Speed Transport Ghana Limited. Unique Farms is engaged in tree crop farming and the company harvested the tree crops for the first time in 2019. In April, 2020, he received a copy of the audited financial statements of the two companies.
An analysis of the audited financial statements of the companies revealed the Unique Farms Ghana Limited is more profitable of the two companies. Speed Transport Ghana Limited however requires a lot of money for its operating activities and it mostly resorts to borrowing from financial institutions to meet its expenditure requirements. The high borrowing costs was affecting the profitability of the company.
Mr. Opoku also noticed that tax exposure on his investments is not ideal. Mr. Kofi Opoku has been informed that you are an expert in strategic tax planning.

Required
You are required to help Mr. Kofi Opoku restructure his companies in a manner that would provide a cheaper financing option for Speed Transport Ghana Limited and reduce his overall tax exposure on the investments.

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  • 20 Marks

STP – Aug 2020 – L2 – Q1 – Tax Planning vs. Tax Avoidance

Discuss distinction between tax planning and tax avoidance under Ghanaian tax law with examples and references.

The Council of the Chartered Institute of Taxation, Ghana (CITG) has invited you to speak at a Continuous Development Program (CPD) on the topic “The distinction between tax planning schemes and tax avoidance arrangements under Ghanaian tax laws”.
In the letter of invitation, the Council indicated that you are to submit a detailed write-up of your presentation.

Required
With the aid of appropriate examples and specific references to Ghanaian tax law provisions, write in sufficient detail, the content of your presentation.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q5 – Petroleum Taxation

Compute capital allowances, crude oil distribution, income tax, and government revenue for Sapele Petroleum and Mahogany Production in 2019.

Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated are joint venture partners who have 45% and 35% interest respectively in the Upstream Fields in Ghana. They commenced exploration in 2011 and discovered hydrocarbons in commercial quantities in 2013.

The fiscal terms of the agreement between the joint venture partners and the Government of Ghana include Bonus of US$ 150 million, Royalty of 5%, Initial (Carried) Interest of 15%, Additional Participating Interest of 5%, Corporate Tax rate of 35% and Capital Allowance on straight line basis at a rate of 20%. Mahogany Production is the operator of the Upstream Fields. Production commenced in the Upstream Fields in 2019. Information available on the oil and gas exploration and production operations in the Upstream Fields are as follows:

Up to 31/12/2017 US$
Exploration Costs 250,000,000.00
Development Costs 2,000,000,000.00
Bonus 150,000,000.00

As at 31/12/2018 US$
Exploration Costs 100,000,000.00
Development Costs 1,500,000,000.00
Interest on loan for installation of equipment & facilities 100,000,000.00

NB. The loan was contracted by the operator on behalf of the parties that hold interest in the Upstream Fields

As at 31/12/2019 US$
Exploration Costs 40,000,000.00
Development Costs 400,000,000.00
Average production cost per barrel 15.00
Average Price of crude oil per barrel 40.00
2019 Production 50,000,000 barrels

You are required to compute the following, and also state the assumptions underlying your computations:
i. Capital allowance entitlements of Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated.
ii. Distribution of crude oil.
iii. 2019 income tax liability of Sapele Petroleum Ghana Ltd and Mahogany Production Incorporated in accordance with the provisions of the Income Tax Act, 2015 (Act 896).
iv. Total revenue that will accrue to Government of Ghana.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q4 – Taxation of Mining Entities

Compute tax liabilities for ABC Mines Ltd for 2019, including royalty, withholding, income, and capital gains taxes.

ABC Mines Ltd. is a mining company operating in the Underground Mine. Commercial production commenced in the Underground Mine in 2019. ABC Mines Ltd also has mineral rights in the Surface Mine which is yet to commence commercial production. In 2019, ABC Mines Ltd. disposed of its mineral rights in Surface Mine.

The highlights of 2019 revenue and expenditure disclosed in tax returns filed by ABC Mines Ltd. are as follows:

Revenue GHe
Gross income from its operations in 2019 450,000,000
Realised sum from disposal of mineral rights in Surface Mine 100,000,000
Hedging Income 40,000,000
Total Revenue 590,000,000

Expenses include but not limited to the following:

Expenses GHe
Reconnaissance & Prospecting Cost (Underground Mine) 100,000,000
Reconnaissance & Prospecting Cost (Surface Mine) 50,000,000
Depreciation 20,000,000
Expenses on Hedging transactions 10,000,000
Operating Expenses (Underground Mine) 80,000,000
General and Administration Expenses (Surface Mine) 20,000,000
Interest Expense (Underground Mine) 20,000,000
Profit before tax 200,000,000

You are required to compute the liability for each tax type that ABC Mines Ltd will pay in the 2019 year of assessment. State the underlying assumptions of your computations.

Additional Information:
Minerals produced in the Underground Mine worth GHS40,000,000 was destroyed in the leased area. An amount of GHS35,000,000 was paid as insurance claims to ABC Mines Ltd in respect of the minerals destroyed.

Tax Rates Rate
Income Tax Rate for Companies 25%
Mineral Income Tax Rate 35%
Mineral Royalty Rate 5%
Interest Withholding Tax Rate 8%
Capital Allowance Rate 20% on straight line basis
Capital Gains Tax Rate 15%

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q3 – Disposal of Petroleum Rights

Explain direct and indirect disposal of petroleum rights under the Income Tax Act.

(a). Write short notes on Direct and Indirect disposal of petroleum rights as provided for under the Income Tax Act, 2015 (Act 896).

(b). Write short notes on Pricing of Crude Oil.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q2 – Ring Fencing

Explain Ring Fencing and its provisions under the Income Tax Act for mining operations.

(a). Explain briefly the concept of Ring Fencing and state how it is provided for in respect of Minerals and Mining Operations under the Income Tax Act, 2015 (Act 896).

(b). Write short notes on Additional Participating Interest and Additional Oil Entitlement.

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  • 20 Marks

OGMT – Aug 2020 – L1 – Q1 – Petroleum Holding Fund

Explain the Petroleum Holding Fund and its disbursement process.

(a). Write short notes on Petroleum Holding Fund (PHF) and how funds are disbursed from the PHF.

(b). The petroleum industry has three different but related operations and/or activities. Mention the three operations and explain the activities involved in each operation.

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