Loan Secured:                                  USD 1,500,000
Interest on the loan                              GH¢300,000
Foreign Exchange loss                        GH¢105,000
Exchange Rate GH¢5.73 to USD 1

Equity:
Share Capital                            GH¢ 150,000
Retained Earnings                    GH¢ 300,000
Total Equity                              GH¢ 450,000

Safe Harbour Rule is Debt: Equity Ratio 3: 1 respectively
Translation of loan into Ghanaian Cedis
USD 1,500,000 x 5.73 =GH¢8,595,000

Allowable debt = 3 times equity
3* 450,000= 1,350,000

Tax implication

• Interest of 8% shall be imposed on 300,000 (8% *300,000) = GH¢ 24,000
• Interest allowable is (300,000-252,879.58) = GH¢ 47120.42
• Foreign Exchange allowable (105,000-88,507.85)= GH¢ 16,492.15
  (6 marks evenly spread using ticks)

The proposed investment will help in the following:
Tax Rebate
Investment in the shoe manufacturing in Accra will create for the entity a tax payment at the rate of 25%
On the other hand, Juice manufacturing in Nsawam will create a tax paying responsibility at the rate of 12.50 % with a rebate of 50% from the corporate tax at the rate of 25% based on the location.                        (2 marks)

Locational Incentive
Accra /Tema corporate tax rate is 25%
Regional capitals tax payable is at the rate of 18.75% with a rebate of 25%
Any other area 12.50% with a rebate of 50%                                                     (1 mark)

Capital allowance
The cost it intends to incur in the following depreciable assets shall rank for capital allowance for the entity.
                                                    GH¢
Building                                 7,200,000
Plant and Machinery              11,700,000
Furniture and fittings              180,000
Computers                               180,000
The above constitute depreciable assets and shall be granted capital allowance:
Building falls under pool 4 and shall be granted capital allowance at the rate of 10% straight line method.
Plant and Machinery fall under pool 2 which will be granted capital allowance at the rate of 30% reducing balance method.
Furniture and fittings shall fall under pool 3 and be granted capital allowance at the rate of 20% reducing balance method
Computer falls under pool 1 and capital allowance at the rate of 40% on reducing balance method.
The essence of capital allowance is to reduce the chargeable income and consequent tax payable.        (3 marks)

Fresh graduate incentive
The recruitment of fresh graduates will also generate benefit to the entity as follows:

Loss carry forward
The losses projected to be incurred as follows
2018                         36,000
2019                         32,400
2020                        18,000
The above losses shall be carried forward for 5 years and shall be deducted in the order in which they occur. Each year’s loss shall be carried forward for five years against income in line with section 17 of Act 2015 (Act896).               (1 mark)

Thin capitalization Issues
The borrowing of 100,000,000 against equity of 36,000,000, has no tax implication. The safe harbour rule is Debt equity ratio of 3: 1.

Equity of 3 time is GH¢108,000,000 (3*36,000,000), which is higher than the amount of loan to be secured from a related party. The interest on the loan shall all be allowable deduction to the extent that the interest is at a commercial rate.
If the debt equity ratio is more than 3: 1, the interest on the excess of the loan above 3:1 ratio shall be disallowed for tax purpose.                                     (1 mark)

A treaty is an international agreement concluded between states in written form and governed by international law, whether embodied in a single instrument or in two or more related instruments and whatever its particular designation
International taxation is the taxation of transaction of transactions across borders. This places a burden on taxpayers involved in international transactions.
Tax treaties are arrangements aimed at reducing the tax payers of taxpayers and crafting a common path between and among countries with tax treaties. Example of tax treaties is double taxation.

Objectives of tax treaty

• It is designed to achieve the following five goals
• It allows the allocation of tax between treaty partners
• It creates fiscal certainty which encourages investment across countries in the treaty areas
• It is to eliminate international tax evasion and aggressive tax avoidance
• It is aimed at reducing tax burden
• It deepens international relations

• The foreigner is required to bring into the country cash of 1 million United States Dollars in cash or goods and services relevant to the investment. Trading includes the purchasing and selling of imported goods and services.
• Additionally, they must employ 20 skilled Ghanaians
• Trading does not include portfolio investment and exports

The free zone enterprises are required to export all their produce or products. However, the law allows the free zone enterprises to obtain permission to sell up to 30% in the local market that is in Ghana.
When that happens, they are required to pay the following taxes:

• Pay duties on the products or produces as duty was not paid at the time of importation
• Pay all VAT on those goods
• Pay National Health Insurance levies and
• Pay all Get/funds on the goods
• Chargeable income of the goods sold locally shall be subject to corporate tax at the rate of 25%

• Introduction
  An NGO is a charitable organization that is exempt from tax on its NGO activities. When an exempt entity engages in business activities, that business activities shall be subject to tax.
• Income from Benefactor of GH¢ 10,000,000
  Following from the above, the support from the Benefactor based in Ghana is not a business activity after all NGOs run their activities based on funds from Benefactors and like-minded persons.
• Transport business income of GH¢ 10,000,000
  Transport business is income from business for which Kankoka shall be subject to tax. Therefore, the income of GH¢10,000,000 from the transport business shall be subject to tax using the marginal tax rate of 25%.
• Income from Government Afforestation
  The funds from Government on afforestation is income that is meant for a dedicated purpose. This income is therefore exempt from tax in the hands of Kankoka.
• Tax computation:
                                                                             GH¢
  Income from Transport business                10,000,000
  Tax charged @ 25%                                    2,500,000
  The assumption is that the income of GH¢10,000,000 has taken into account all cost associated with the transport business
  (5 points for 5 marks)

Tax is charged on income from employment, business and investment in the case of a resident person, on world-wide income but for non-resident on income derived from and accrued in Ghana.

Lydia Waakye, being an income earner shall be required to pay taxes on income. However, as an individual aged 16 years and running an enterprise, she is an incapacitated person (not fit and proper) and therefore, the tax affairs must be managed by her trustee.

She cannot pay tax on her income, the trustee will pay tax on her behalf until she is able to pay at an adult age
(3 points well explained for 3 marks)

Rate of Royalty 5%

Revenue = 10,000,500 – 10,500
= 9,990,000

Royalty Payable:
5% * 9,990,000 = 499,500

GH¢ 499,500

Hope Firm
Box 22
Accra
Date

FINANCIAL CONTROLLER
MMABIA UNIVERSITY
ACCRA
Sir,
REQUEST FOR CLARIFICATION ON THE TAX STATUS OF PRIVATE UNIVERSITY

• Introduction
  Reference your letter on the above issue dated 12th June, 2019, I furnish below the tax implication of profit made by privately-owned universities.
• Issue
  The tax provisions (Act 2017, Act 956) state that privately-owned universities shall be exempt from tax when they plough back a hundred percent of their profit-after tax into the business
• Implication of the provision
  With the way the law is crafted, it requires the Privately-owned universities to pay the taxes unless they are able to provide proof of ploughing back their profits.
• Sharing information with others
  Our clarification is in response to your request and it shall not be shared with others.
• Conclusion
  On the strength of the above, it is our hope that your company shall act accordingly so as to remain in compliance with the tax laws.            Thanks

Jojo Small                                                                                                  (5 points @ 2 marks each = 10 marks)