Topic: Tax planning

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  • 5 Marks

AT – Nov 2024 – L3 – Q3c – Automatic Stabilizers vs Discretionary Fiscal Policies

Explain the difference between automatic stabilizers and discretionary fiscal policies with examples.

Some commentators in Ghana have argued that economic policymakers should allow automatic stabilizers to shape and direct the destiny of the economy rather than discretionary fiscal policies since the latter has failed woefully.

Required:
Distinguish between automatic stabilizers and discretionary fiscal policies as economic tools. Illustrate with examples.

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  • 12 Marks

AT – Nov 2024 – L3 – Q3a – Tax Planning and Objection to Tax Assessment

Advise Poyooyo LTD on provisions in tax laws to challenge a disputed tax liability.

The Directors of Poyooyo LTD have heard of the Maxims of Tax Planning, which outline strategies for minimizing tax liabilities legally.

In a recent visit by the Domestic Tax Revenue Division of the Ghana Revenue Authority (GRA), the Large Taxpayers Office (LTO) in Accra conducted a tax audit on the company, resulting in tax assessments raised against Poyooyo LTD for settlement.

Management of the company, in their last meeting with the directors, presented the outcome of the tax audit and strongly argued that the assessment was erroneous. They claimed that the liabilities raised were based on legitimate tax planning strategies the company employed.

They believe that the company is in full compliance with the tax laws and should not be required to settle the tax liabilities assessed. However, payment of the liability would significantly impact the company’s cash flow and disrupt its operations.

Poyooyo LTD has approached your tax consulting firm for assistance and guidance.

Required:

Advise Poyooyo LTD on the provisions of the tax laws that could be taken advantage of to avert the payment of the liability.

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  • 4 Marks

TX – May 2019 – L3 – Q1b – Tax planning

Analyze the tax implications for an individual and employer on SSNIT and Provident Fund contributions.

Kofiga Kwame is 64 years old and has never worked as a salaried staff. He intends to take up an appointment with a Civil Society Organization called “We Care” because of his stance on anti-corruption. He approaches you to advise on his willingness to contribute towards Social Security and National Insurance Trust (SSNIT) of 5.5% and also 10% towards Voluntary Provident Fund (Tier 3) with an approved fund manager. It is hoped that his prospective employer would contribute 13% and 6.5% towards SSNIT and Tier 3 respectively to enhance his benefits when he retires from active employment at age 70.

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  • 5 Marks

TX – May 2019 – L3 – Q1d – Tax Planning

Discuss circumstances under which government should run state enterprises as business entities to increase revenue.

Some political analysts have often made the claim that governments over the world should create enabling environments for private businesses to flourish, including granting tax incentives as a way of creating jobs for the unemployed youth, and that governments should not directly engage in business. They sum this up often with the statement that “Government has no business doing business.” Others, however, hold a contrary view on this matter, making this an endless debate.

Required:

Under what circumstance would you encourage the running of state enterprises as business entities by the government to increase revenue as against the imposition of new taxes for the same purpose?
(5 marks)

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  • 4 Marks

TX – May 2019 – L3 – Q1e – International Taxation

Evaluate the negative consequences of public debt on the economy of Ghana.

Public debt is an important source of revenue for a government to finance public spending where taxation capacity may be limited, or when the alternative would be to print money and compromise macroeconomic stability. There are, however, negative consequences of high public debt on the economy.

Required:

Evaluate FOUR (4) of such negative consequences of public debt on the economy of Ghana.
(4 marks)

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  • 13 Marks

TX – May 2019 – L3 – Q2a – Taxable Income Calculation and Obligations

Calculate the taxable income and assess the tax obligations for a secondment and other income.

Agyemang Boateng has been working with Intellect Consult Limited (ICL) since 2010. At the beginning of January 2016, he was seconded to Accra Metropolitan Assembly (AMA) for a period of six months to be part of a team to spearhead a restructuring exercise and the review of the system of internal controls at the Revenue department of AMA.

Terms of the AMA engagement:

ICL was to be paid a one-off settlement of GH¢10,000 at the completion of the engagement as well as reimbursement of monthly operational expenses incurred based on submission of the relevant invoices.

Agyemang’s only entitlements from AMA were the following monthly allowances:

Inconvenience Allowance: GH¢300
Extra Duties Allowance: GH¢200
Agyemang’s secondment to AMA did not in any way affect his salary and other entitlements from his employer, ICL, as these continued to accrue to him during the period of the secondment.

Agyemang’s earnings and entitlements from ICL for the year of assessment ended 31 December 2016 are as follows:

Basic Salary: GH¢46,000
Bonus: GH¢9,500
Fuel allowance: GH¢1,750
Entertainment allowance: GH¢7,500
Additional Information:

Agyemang stays in a fully furnished ICL bungalow at East Legon in Accra. ICL charges him a rent of GH¢150 per month.
Agyemang makes use of ICL’s company vehicle, driver, and fuel for official use only.
On 1 January 2016, Agyemang successfully applied for a GH¢10,000 loan from his employer, ICL. His employer charged him interest of 2% per annum on the loan. During this period, Bank of Ghana policy rate was 15%. The loan was repayable within ten months.
On 1 October 2016, Agyemang commenced part-time lecturing in Accounting at a local private Senior High School. He was paid monthly for his services, and the total amount received for the three months ended 31 December 2016 was GH¢5,000 gross.
Agyemang’s other non-employment-related income received during the year ended 31 December 2016 were:

Net royalties received for his Accounting textbook: GH¢21,250
Gross local company dividends (Unquoted Company shares): GH¢13,000
Interest on Bank deposits from local financial institutions: GH¢10,000
Gross lottery winnings: GH¢12,000
Required:

i) Calculate Agyemang’s taxable income for the year ended 31 December 2016. (10 marks)

ii) State AMA’s tax obligation when making the disbursement of GH¢10,000 to ICL. (1 mark)

iii) What are the tax implications to Agyemang with respect to the following:

Part-time lecturing
Royalty
Dividends
Interest on bank deposit (2 marks)
iv) What is the tax implication of the loan taken by Agyemang? (1 mark)

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  • 7 Marks

TX – May 2019 – L3 – Q3B – Tax planning

Discuss the tax implications of finance lease arrangements, particularly concerning the eligibility for capital allowance under the Income Tax Act 2015 (Act 896).

b) At a tax seminar organised by The Institute of Chartered Accountants (Ghana) in December 2016, the issue of tax implications for finance lease arrangement dominated the discussion. The facilitator said that both the lessor and the lessee shall be denied capital allowance under the tax law.

The facilitator intimated that capital allowance is granted to persons who acquire assets and own them and use such to generate business income. Both the lessor and the lessee, consequently do not qualify for capital allowance under the Income Tax Act (Act 896), 2015 and its regulations, he added.

Required:
As a tax advisor, submit a response to the above based on the tax provisions. The response is to be published in the Institute’s Journal. (7 marks)

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  • 4 Marks

TX – May 2019 – L3 – Q3C – Tax Planning

Discuss the tax benefits associated with investing in farming and agro-processing businesses in Ghana.

c) Your senior brother has stayed in the United Kingdom for more than 20 years and would like to return to Ghana and establish a business. He is confused as to which area to invest to maximise the benefits from tax planning.

He has been told that you are undertaking a course in Taxation and would like to have your explanation and the tax benefits, if any, from investing in the following areas:

i) Farming (2 marks)
ii) Agro-Processing Business (2 marks)

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  • 5 Marks

TF – May 2018 – L3 – Q1b – Tax planning

Explain five goals of government spending as a fiscal policy instrument.

One of the factors that helps determine the country’s economic direction is fiscal policy. Government uses fiscal policy to influence the economy by adjusting revenue and spending levels.

Required:
Identify and explain FIVE goals of government spending as a fiscal policy instrument.
(10 marks)

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  • 6 Marks

TF – May 2018 – L3 – Q3b – Tax planning

Briefly explain tax holiday, tax exemptions, tax reliefs, and tax rebates.

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the most tax-efficient manner possible.

Required:
Briefly explain the following terms with respect to tax planning:
i) Tax holiday
ii) Tax exemptions
iii) Tax relief
iv) Tax rebates/refund
(6 marks)

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  • 2 Marks

AT – Nov 2017 – L3 – Q3d – Tax administration in Ghana, Tax planning

Explaining the tax implications on early withdrawal from the voluntary 3rd tier.

Mango Company Ltd has written to you as a tax advisor to advise on the tax implication of an employee withdrawing from the contribution to the voluntary third (3rd) tier before its 10th anniversary.

Required:
State the tax implication on such withdrawals.

(2 marks)

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  • 4 Marks

AT – Nov 2017 – L3 – Q3b – Tax planning

Explaining the variables that constitute tax planning.

Tax planning is the act of arranging one’s tax affairs in ways that postpone or avoid taxes. By employing effective tax planning variables, one can have more positive cash flows to save and invest or more money to spend.

Required:
Explain what constitutes the variables of tax planning. (4 marks)

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  • 10 Marks

AT – Nov 2017 – L3 – Q3a – Business income – Corporate income tax, Tax planning

Evaluating the tax implications of an ICT hardware manufacturing business versus a mango plantation investment.

Following the government’s commitment to build one factory in each district in Ghana, an investor from Mauritius intends to invest in an ICT-Hardware manufacturing company to be located at Nsawam in the Eastern region of Ghana or start a mango plantation company at Aburi in the Eastern region of Ghana in response to the government’s investment drive.

As part of the investment, he intends to incur the following costs and start operations in 2018 on either proposal (ICT Hardware or Mango plantation):

Item Cost (GH¢)
Building 4,000,000
Plant and Machinery 6,500,000
Furniture and Fittings 100,000
Computers 100,000

Additionally, he intends to recruit fresh graduates from the Islamic University College of Ghana. It is further projected that in the first 3 years (2018, 2019, and 2020), the business will make losses as follows:

  • Year 2018: (GH¢20,000)
  • Year 2019: (GH¢18,000)
  • Year 2020: (GH¢10,000)

The investor hopes to start making profits from 2021 and intends to borrow a loan at 20% interest from his USA associate, amounting to the equivalent of GH¢80,000,000. The equity he intends to start with is GH¢20,000,000.

Required:
As a tax adviser, evaluate the proposed investment by the Mauritius investor and the tax implication on the various activities highlighted in the scenario.

(10 marks)

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  • 5 Marks

AT – Nov 2017 – L3 – Q1d – Tax planning, Anti-avoidance measures

Explaining tax evasion and identifying ways companies evade taxes.

The Presidential Commission on Revenue Mobilization has indicated that tax evasion activities of some companies deny the state of its required revenue for development.

Required:

  1. Explain what tax evasion is, and
  2. Identify THREE ways by which companies evade tax. (5 marks)

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  • 6 Marks

AT – Nov 2017 – L3 – Q1b – Tax planning

Evaluating the use of taxation as a tool of fiscal policy.

Fiscal policy involves the use of government spending, taxation, and borrowing to influence both the pattern of economic activity and also the level and growth of aggregate demand, output, and employment.

Required:
Evaluate how taxation is used as a tool of fiscal policy. (6 marks)

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  • 10 Marks

AT – March 2023 – L3 – Q5b – Tax planning

Discuss the tax-efficient investment opportunities available to Ghanaians in the diaspora under the Income Tax Act, 2016 (Act 896).

Ghana celebrated the “Year of Return with FANFARE” in 2019. The program was said to be a huge success.

The Year of Return Committee has asked you, a tax expert, to give a talk at the Ghana UK Based Achievement (GUBA) program to be held at the Accra International Conference Centre (AICC) on tax benefits for Ghanaians in the diaspora who are interested in doing business in Ghana.

Required:
Discuss the tax-efficient investment opportunities available to Ghanaians in the diaspora under the Income Tax Act, 2016 (Act 896). (10 marks)

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  • 4 Marks

AT – March 2023 – L3 – Q2c – Tax planning

Advise on which housing option is more tax-efficient for the Managing Director in relation to employment and rental income.

The Management of 6Up Ltd has asked for advice on which of the following options is better for their Managing Director in connection with tax planning:

Option 1:
To rent the Managing Director’s personal house for use by the Managing Director as part of his condition of employment while taking a withholding tax at the rate of 8% on the rental payment.

Option 2:
To rent another place for the Managing Director instead of his own place so he may consider renting out his place of residence.

Required:
Advise on which option is better from the standpoint of tax planning implication for the Managing Director.

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  • 10 Marks

AT – Nov 2023 – L3 – Q5c – Tax planning

Explain the residual deduction rule and state four conditions under which repairs and improvements are considered allowable deductions.

Repairs and improvements are not mutually exclusive in tax administration because one leads to the other, and one cannot happen without the other. The Commissioner-General ensures that certain conditions are met before an amount of repairs and improvements is taken as an allowable deduction under the deductibility principles in tax administration.

You are the Tax Manager for Akwaaba and Associates, a firm of tax consultants. The Finance Manager of APC Ltd, a client of your firm, is contemplating how to treat major repair works being undertaken on their warehouse.

Required:
Write a memo to the Finance Manager of APC Ltd explaining what constitutes the residual deduction rule and state FOUR (4) conditions under which repairs and improvements are considered allowable deductions. (10 marks)

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  • 12 Marks

AT – Nov 2023 – L3 – Q2b – Tax planning

Assess the tax implications of the setup, location, and planned interventions for the establishment of Gigani Ltd.

Some investors have invited you for comments on a business they intend to establish in four years’ time. Your comments are critical to the investors in making a choice on the establishment of one of the two entities, that is:

  • Manufacturing company or
  • Free zone company.

The investors intend to name the entity Gigani Ltd and establish it in Ghana. The following relates to the projected business of Gigani Ltd:

  1. The shareholders plan to establish Gigani Ltd in either Accra/Tema, Ashanti Regional capital, or Kasoa in the Central Region. It is anticipated that irrespective of the location, Gigani Ltd would generate the same amount of profit in year 1 and grow by 5% each year, all things being equal.

Its first year’s financial performance is projected as follows:

Location Profit (GH¢)
Accra/Tema 10,000,000
Ashanti Regional Capital 10,000,000
Kasoa, Central Region 10,000,000
  1. Additional interventions on what the investors intend to do in the future when Gigani Ltd is established are as follows:
  • Establish the business with four resident shareholders.
  • Start with share capital of GH¢2 million from the contribution of the shareholders.
  • Raise a debt from two main sources: GH¢10 million from a financial institution in Ghana and GH¢20 million from shareholders with interest at 4% above the market rate.
  • Transfer an amount of GH¢2 million from retained earnings to share capital to increase the worth of the shareholders after the second year.
  • Recruit fresh graduates each year from the University of Ghana and Massachusetts Institute of Technology in Boston, USA for the next 5 years until it meets its staff requirement yet to be decided.

Required:
You are required to assess the tax implications of the: i) Set-up.
ii) Location.
iii) Interventions to be introduced.
(12 marks)

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  • 6 Marks

AT – Nov 2023 – L3 – Q1c – Tax planning

Advise on tax strategies to reduce advertising and marketing costs while creating value for shareholders.

Zantem Ltd has equity of GH¢10,000,000 while Bonty Ltd has equity of GH¢12,000,000. The two companies are in competition for the same market space. This has increased their advertising and marketing costs. The Ghana Revenue Authority (GRA) has threatened to disallow a portion of their advertising and marketing costs, which appear astronomically high.

The Management of the two companies have invited you, a tax expert, to be part of a discussion to look at the possible ways the two companies can eliminate or reduce any tax exposure to their shareholders with the potential threat from the GRA.

Required:
Advise the Management on the tax strategy(ies) to adopt to reduce their cost while creating value for their shareholders. (6 marks)

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