- 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.
Question
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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