a) i) Explain the terms “Provisional Assessment” and “Self Assessment” in tax administration. (6 marks)
View Solution
PROVISIONAL ASSESSMENT:
It is an assessment that emanates from the office of the Commissioner-General which indicates a persons’ tax liability based on Commissioner General’s best judgement. It indicates the chargeable income and the tax charged. It also indicates the manner of objection.
SELF-ASSESSMENT:
This is a mode of assessment where the onus of determining the tax liability and the payment of the tax thereby is on the taxpayer. The taxpayer is expected to furnish the Commissioner with an estimate of the chargeable income and the tax liability at the commencement of his basis period.
ii) Discuss the rationale for the shift from Provisional Assessment to Self Assessment. (8 marks)
View Solution
(i) Under provisional assessment, there is usually a delay in the issuance and service of the notice of assessment. But self-Assessment avoids delay since the assessment is made by the taxpayer.
(ii) Under self assessment, there is trust between the taxpayer and the tax administrator
(iii) There is high frequency of objection under provisional assessment but self assessment minimizes the rate of objection since the taxpayer is involved in the determination of the tax liability.
(iv) There is a high cost of collection under provisional assessment but self-assessment reduces collection cost to the Revenue since the assessment is made by the taxpayer.
(v) Under provisional assessment, officers are much occupied in the issue of notices and have little time to attend to other matters. But self-assessment saves time for the Revenue Officers that can be used in reviewing cases of greater revenue potential.
(iv) Self assessment tends to make taxpayers more conscious of their tax obligations since they are involved in the process.
(vii) Promotes tax compliance and good citizenship
b) ABC Ltd is a company under self-assessment and prepares accounts to 31st March each year. Its estimated chargeable income for the year 2014 was GH¢ 1.2 billion. However, the Company’s Returns which were submitted to the Large Tax Payers Office at the VAT House on 15th April, 2015 showed a chargeable income of GH¢1.8 billion
Compute the penalties payable by the company. (6 marks)
(Note: Rate of Company Tax: 25%)
View Solution
UNDER ESTIMATING ESTIMATED TAX PAYABLE
Chargeable Income (based on Returns) = 1,800,000,000
Estimated Chargeable Income (Self Assessment) = 1,200,000,000
Estimated Chargeable Income = 66.67% of the Actual Income
i.e. (1,200,000,000/1,800,000,000) x100
PENALTY
90% of Tax payable based on Actual Income = 405, 0000,000 (90% of 450,000,000)
Estimated Tax (Self Assessment) = 300,000,000
Difference = 105,000,000
Penalty = 30% of 105, 000,000 = 31,500,000