Except as otherwise provided in Value Added Tax Act, 2013 (Act 870), as amended, a person who is engaged in a taxable activity and is not registered for tax purposes shall register if:

• At the end of any period of twelve month or less months, the person made, during that period, taxable supplies exceeding two hundred thousand Ghana cedis; or
• At the end of any month, there are reasonable grounds to expect that that person will make taxable supplies in the next twelve or less months exceeding two hundred thousand Ghana cedis.

Despite the above provisions, a person shall register if:

• At the end of any period of three months, the person made, during that period, taxable supplies exceeding, fifty thousand Ghana cedis; and
• There are reasonable grounds to expect that the total value of the taxable supplies made by that person during that period and to be made during the next consecutive nine months will exceed two hundred thousand Ghana Cedis.

All things being equal, and assuming there are no reasonable grounds to estimate future sales, during the first three months of April to June, sales was GH¢29,500 x 3 = GH¢88,500. This is more that GH¢50,000 for the first three months. Registration is due before the end of the month following the month in which the limit is exceeded, so Mr Patapaa should register by 31st July or within 30 days.

If Mr Patapaa continued to trade after 31st July, which he did, without registering for VAT, he would still have to pay for the VAT due from the time he should have registered.

A person who fails to apply for registration is liable to a penalty of not more than two times the amount of tax on taxable supplies payable from the time the person is required to apply for registration until the person files an application for registration with the Commissioner-General.

The matter is one of professional judgement and the Accountant would be expected to act honestly and with integrity. If Patapaa refuses to register for VAT, the Accountant would be obliged to report the company to the Ghana Revenue Authority. The Accountant should cease to act for Mr Patapaa and need to provide reasons for unable to work for him.

• A promoter of public entertainment,
• An auctioneer, or
• A national, regional, local or other authority or body, which carries on any taxable activity shall apply for registration
  (Any 2 points)

Research and development expenditure should be expensed if even it is of a capital nature. However, when the Research and development expenditure is added to a cost of an asset, it should be capitalized and capital allowance granted if it meets the base rule.

• Simple tax laws: When the laws are simple, it allows for compliance as taxpayers are able to interpret it well.
• Simplified procedures: Procedures to be followed to pay tax should be simplified to ensure that tax payers spend less time to complete them.
• Tax Amnesty: where taxpayers are allowed not to pay interest and penalty on non-disclosure of income and in some cases, taxes are forgiven, it allows for tax compliance.
• Penalty and sanctions: Penalty should be imposed with severe sanction to ensure compliance.
• Provision of Tax payers’ service: Services in the form of tax education, provision of assistance to help in filing shall be helpful in the voluntary tax compliance.                (Any 3 points)
  

i) Incorporation:

• A company that is incorporated in Ghana through the Registrar General shall be required to pay a stamp duty on the shares introduced as stated capital at the rate of 0.5% on the value of the equity, and pay corporate taxes when profits are made.
• Additionally, anytime dividend is declared, the shareholders, in this case the Smith Company Ltd shall be subject to dividend withholding taxes at the rate of 8% in line with section 115 of Act 896 and the first schedule of the same Act.
• Again, it shall be responsible for the deduction of Pay As You Earn (PAYE) from the employment income of its employees on their behalf and other withholding taxes to the Ghana Revenue Authority (GRA) in respect of payment for goods, services and works at the rates of 3%, 7.5% and 5% respectively, for payment to resident persons and 20% in respect of non-resident person on only goods, services and management and technical services if any subject to double taxation agreement.
  (2 points for 2 marks)
  Permanent Establishment (Branch)
• It will register as an external company and pay corporate taxes on its profits. It will be subject to a branch profit tax at the rate of 8% in line with section 60 of Act 896 and Regulation 21 of LI 2244 of 2016. The branch shall pay tax on the gross amount of earned repatriated profits.
• Additionally, it shall pay PAYE to GRA on behalf of its employees and pay other withholding taxes in respect of goods, services and works at the rates of 3%, 7.5% and 5% respectively. Non-resident at the rate of 20% including payment of management and technical services if any.
• In conclusion, if both of them engage in the same business, they shall have the same tax exposure except that with branch profit tax, it is paid whether profits have been repatriated or not but with the dividend, it becomes payable when it is declared by the company.
• Stamp duty is not payable by a branch.            (2 points for 2 marks)

ii) Non-current assets acquired through finance lease

• Non-current assets acquired through finance lease shall be granted capital allowance to the lessee in respect of the capital portion of the lease rental payment.
• Interest portion on the lease rental payment shall be granted as an allowable deduction when it meets the deductibility principles
• Outright acquisition of capital assets shall be granted capital allowance on the amount of the acquisition paid or payable. Both shall be entitled to capital allowance. Under both cases, the base rule for granting capital allowance shall apply.
  (2 points for 2 marks)

iii) Bringing staff from UK to work in Ghana

• Income is subject to tax based on the residence status of the person. A resident persons shall pay tax on their global income (world-wide income) with non-resident persons paying taxes on incurred derived from or accrued in Ghana only.
• The salaries of the expatriate employees shall be subject to tax in Ghana. The tax implication of paying the salary in Ghana and paying half in Ghana has the same effect. They are free to use their salaries after the taxes are paid.
• Following from the above, the employment income of the expatriate employees derived from Ghana shall be subject to tax fully in Ghana. Any part of the salary that is remitted through their foreign accounts should be done after the taxes have been paid. There is no tax benefits in either case.             (2 points for 2 marks)

iv) Acquisition of shares by management

• Any person that acquires shares in an entity becomes a shareholder of that entity. In this case, Smith Company ltd shall become a shareholder. Any dividend that is declared shall be subject to tax at the rate of 8% being a final withholding tax, meaning the shareholder shall not be allowed to pay further tax in respect of the same income.
• On the grant of loans to interested persons, this shall undoubtedly provide additional funding to persons that access them in Ghana. The interest on the loan that shall be paid to the provider of the loan in this case Smith Company ltd shall be subject to withholding tax at the rate of 8% final as it is being paid to a non-resident person.         (2 points for 2 marks)
  

Comments:
Management is likely to invest in Konongo as it has a lower tax rate of 12.5%. The tax saving is (157,500-105,000) GH¢52,500.00 by siting the manufacturing company in Konongo as against Kumasi.
Management is likely to invest in Konongo instead of Kumasi as it offers a lower tax rate and consequently a better value for shareholders.

• Proximity to labour
• Proximity to power supply
• Proximity to Market
• Proximity to Raw Materials                   (Any 2 points)

GRA requirements which have been breached:

• Every employer is to withhold tax from the payment of an amount to be included in ascertaining the income of an employee from the employment. This requirement has been breached by Nora as an employer.
• The amount to be withheld should be remitted to the GRA by the 15th of the month following the month of withholding. This has been breached.
• Kate has also not paid any company tax on the income of the private practise and that is also a breach.      (Any 2 points for 2 marks)

Consequences of the breach:

• The GRA can backdate both the PAYE and the company tax to the date when the business commenced. All the outstanding tax returns would have to be submitted and taxes due paid.
• The GRA can impose penalty and interest of 125% over the statutory rule on the overdue tax amount.                (2 points@ 1.5 marks each = 3 marks)
  

Computation of Assessable Income for the year ended 31 December 2017

                                                                     (Maximum of 30 ticks @ 0.3 marks each = 9 marks)

Assumptions:
1. Loan was from employer. The question gave a hint
2. 16.5% of basic salary exceeds the provident fund contribution, hence the contribution was legitimate for voluntary fund and allowable
3. The travelling allowance was not a medical expense hence taxable
4. The primary employment takes the reliefs
5. Quantification of loan benefit (20%*12000)*1/4 = 600

• Charitable Organisation
  The organisation must be in possession of an unexpired written approval issued by the Commissioner-General in accordance with the section 97 of the Act.
  (Refer also to the Practice Note of the Commissioner-General on Charitable Organisations).
• A scheme or course of study
  A scheme of scholarship for an academic, technical, professional or other course of study should be backed by a written attestation issued by the Minister for Education, confirming the scheme or course of study as a worthwhile cause for the purpose of section 100 of the Act.
• Rural or Urban Development
  An activity or event carried out for the purpose of the development of an urban or rural area should be backed by a written attestation issued by the Minister for Local Government, confirming the activity as a worthwhile cause for the purpose of section 100 of the Act.
• Sports development or promotion
  An activity or event carried out for the purpose of sports development or promotion should be backed by a written attestation issued by the Minister for Youth and Sports, confirming the activity as a worthwhile cause for the purpose of section 100 of the Act.
• Other worthwhile cause approved by Commissioner-General.                        (Any 3 points)
  

long-term contract means a contract:

• for manufacture, installation or construction or, in relation to each, the performance of related services; and
• which is not completed within 12 months of the date on which work under the contract commences.
  

• Amounts to be included or deducted in calculating the person’s income that relate to a long-term contract are taken into account on the basis of the percentage of the contract completed during each basis period.
• The percentage of completion is determined by comparing the total expenses allocated to the contract and incurred before the end of a basis period with the estimated total contract expenses as determined at the time of commencement of the contract.
• The Commissioner-General may allow any unrelieved loss to be carried back and treated as an unrelieved loss of an earlier basis period. The amount carried back is limited to the profit (if any) from the contract for the basis period to which the loss is carried back.
• The above rule applies where a long-term contract is completed and the person has an unrelieved loss attributable to that contract for the basis period in which the contract ended or any earlier basis period.
• An unrelieved loss of a business for a basis period is attributable to a long-term contract to the extent that there is a loss from the contract for the period.
• A profit or a loss from a long-term contract for a basis period is determined by comparing amounts included in income under the contract with deductions under the contract for that period.               ( Any 4 points)
  

• Assess and collect taxes, interest and penalties on taxes due to the Republic with optimum efficiency;
• Pay the amounts collected into the Consolidated Fund unless otherwise provided by this Act and other Acts;
• Promote tax compliance and tax education.
• Combat tax fraud and evasion and co-operate to that effect with other competent law enforcement agencies and revenue agencies in other countries;
• Advise District Assemblies on the assessment and collection of their revenue;
• Prepare and publish reports and statistics related to its revenue collection.
• Make recommendations to the Minister of Finance and Economic Planning on revenue collection policy; and perform any other function in relation to revenue as directed by the MOFEP assigned to it under any other enactment.       (Any 4 points)
  

As part of the functions of the Commissioner-General, he may issue a ruling upon application by a taxpayer.
A class ruling is a ruling issued by the Commissioner-General to a specified class of Taxpayers. It becomes applicable to persons within the class. Eg. Real Estate Developers requesting for a ruling.     (2 marks)

Relevance/Effects

• It sets out the position of the Commissioner-General regarding the application of tax laws with respect to an arrangement proposed or entered into by the class of Taxpayers.
• Class ruling binds the Commissioner-General to the extent that the Taxpayers in the class make full and true disclosure of all aspects of the arrangement.
• It does not bind the taxpayers in question.               (Any 2 points for 2 marks)
  

• More inflows from foreign sources to support our development as a country.
• The private sector can borrow within to expand their businesses as they have no competition from government.
• Government can carry out its project successfully as loans from foreign sources can be acquire in large chunk.
• Government can use the loans from foreign sources to support local firms that otherwise will not be able to acquire in view of collateral and or credit rating.
• Borrowing from foreign sources allow locals to have money to spend to boost the economy.                 (Any 4 points)
  

• It sees to the redistribution of income by taxing the rich more than the poor to provide services for the benefit of both.
• It prevents dumping of products from other countries to make our environment safe. Taxation can be used to rid our society of unwanted goods which create more social cost than good.
• Imposes heavier taxes from the consumption of certain harmful products (sin tax) to help conserve energies of our productive workforce.
• The provision of social amenities for the benefit of all.