a) Bubandushe is a Non-Governmental Organisation (NGO) located in Accra with operational area in the Northern Regions of Ghana. The NGO buys rice from a super market in Accra and transports it to Northern Regions for distribution to widows and orphans.
Its main source of funding is from a benefactor based in the Netherlands, who has been supporting the project since its inception.
In support of its operations, it engaged Chartered Accountants from the Institute of Chartered Accountants (Ghana) as employees. Their role is basically to organize training programmes for Government Institutions on budget preparation using advanced financial models for a fee. This additional source of income equally supports the operations of this NGO.
Ghana Revenue Authority (GRA) has written to this NGO to regularize its operations with it for tax purposes. The Management of the NGO has argued that it is exempt from tax on its income. The management has written to you to offer professional help on the matter.
Required:
i) Determine whether the NGO is required under the tax laws to pay tax and if yes what type of taxes. (6 marks)
View Solution
NGOs are treated as charitable organization subject to approval by the Commissioner-General. The Commissioner-General shall, before approving it as such shall ensure that the entity operates as a charitable institution which is of a public nature or as a religious institution of a public nature or a body of persons formed for the purpose of promoting social activities or sporting activities.
It should not engage in the following activities:
- Party political activity, supporting a political party or using its platform to engage in party politics.
- Conferring a private benefit on the promoters.
Issues
- The NGO buys rice and transports it to the Northern Regions for distributions to widows and orphans.
- It engaged chartered accountants to run training programmes on budget using financial models for fees from which the NGO is run.
Conclusions
- Under section 97(4), the income of a charitable organization, which in this case is Bubandushe is exempt from tax but its business income is taxable under section 97(5).
- The NGO is exempt from tax on its core activities. However, the purchase of rice for distribution if it is above two thousand Ghana cedis (GH¢2,000.00) shall be subject to withholding tax at the rate of 3% on the gross value on payment to the suppliers.
- Additionally, the training programme for which fee is charged shall be subject to tax at the corporate tax rate of 25% on the income from the training after cost associated with the business income is deducted.
The types of taxes are:
*Corporate tax on its business income
*Withholding taxes on payment to third parties (Any 6 points for 6 marks)
ii) On what basis are NGOs liable to tax or exempt? (2 marks)
View Solution
The income accruing to or derived by a charitable organization is exempt from tax but when the same organization engages in business activities and makes business income, it shall be subject to tax.
b) Askona is run as a Trust for Maame Kukua, a Ghanaian based in the USA. Askona is based in the USA and represents a lot of people in trust arrangements. Under the arrangement, Maame Kukua who is currently living in the USA has acquired a transporter vehicle for Askona to use it for the benefit of her two children -Yaaya Mensah and Nana Yaw Mensah who are both resident in Ghana.
In January 2019, Askona made a distribution to Yaaya Mensah and Nana Yaw Mensah in Ghana via Western Union Money Transfer. Maame Kukua has asked you, a young Tax Expert in Ghana to advise on the taxability or otherwise of the above transaction in Ghana.
Required:
Advise on whether a distribution by a non-resident trust such as Askona is taxable and how? (4 marks)
View Solution
- Under section 56 of Act 896, a Trust is taxed separately from the beneficiaries. When a trust makes a distribution, the following shall be considered before it is considered taxable or otherwise.
- A distribution by a resident trust to its resident beneficiaries is exempt from tax. On the other hand, when the distribution is done by a non-resident trust to its resident beneficiaries, the said distribution shall be subject to tax in Ghana. On the basis of the above, the distribution by Askona is taxable in the hands of Yaaya Mensah and Nana Yaw Mensah.