Exempt supply: The supply of goods and services specified in the First Schedule is an exempt supply and not subject to the tax. Some supplies specified in the First Schedule are “commercial rental establishment”, “dwelling”, “estate developer”, “education services”, “financial services”, “medical services”, and “medical supplies. A supply of goods or services is not an exempt supply if that supply is subject to tax at the rate of zero percent under section 36, Zero-rated supply 36.

A zero rated supply is taxable at a zero rate if the supply is specified in the Second Schedule. Some supplies specified in the Second schedule are “Exports from this country, “Foreign-going aircraft”, “Free zone”, “Free zone enterprise”, “Conveyance”, Where a taxable person has applied the rate of zero percent to a supply under this section, the taxable person is required to obtain and retain the documentary proof that is acceptable to the Commissioner-General and that substantiates the person’s entitlement to apply the zero rate to the supply.

Surface rental is revenue charged by government per square kilometre in respect of acreage of block given to a contractor for petroleum operations. It is paid at each anniversary. The amount paid depends on the stage of production. It is lower at exploration stage, it increases at development and production. The contractors pay these monies into the petroleum holding fund.

It is the interest of government that allows the state to a share of the oil produced without making a contribution towards exploration and development cost. The State, however, contributes towards production cost being its proportionate representation in the petroleum operations.

Royalty Rate = 5%
Computation of Royalty is 5% of Revenue
5% x 5,000,000= 250,000
Royalty payable by AB Ltd is GH¢250,000.00

Explanations:

• The capital allowance was added to cost which eventually decreased the chargeable income is appropriate per the law.
• Penalty is an infraction which should be not be an allowable deduction. From the question, it came to light that it was part of the cost of operation.
• Loss is carried over for five years both under the old law and the new Act. Loss recorded in 2010 would have expired in 2015 if it was not entirely deducted.
  

An improvement is any type of renovation that will extend the “useful life” of the property. The theory here is that it will add value to the property for years to come and not just in the current tax year. Improvements are generally considered adding something that was not previously there, upgrading something that was existing or adapting the asset to a new use. Improvements are usually more intensive than repairs and usually involve greater cost.
Examples of Improvements: adding an addition, adding central air conditioning, installing a security system, installing brand new carpet, replacing an entire roof etc.

A repair is maintenance that is necessary to keep the property in working condition. They are those that “do not add significant value to the property or extend its life.” They are reasonable in amount and are necessary to keep the property in habitable condition. Repairs are generally considered restoring an item to its previous good condition.
Examples of Repairs: refinishing a wood floor, repainting a room, repairing a roof, repairing existing plumbing, repairing existing appliances, replacing a doorknob, etc.                 (2 marks for Explanation)

Expenditure incurred whose benefits go beyond one accounting period qualifies to be capitalised and capital allowance granted provided it relates to depreciable assets in line with the third schedule under Act 896 Act 2015. The Act 896, however, provides a novel treatment of repairs and or improvement under section 12.

The provision of the requirement of section 12 of the Income Tax Act 896 is furnished as below.

• Repairs and improvement as expenditure in a tax provision of Act 2015 (Act 896) allows a person (Tax Payer) to deduct that expense relating to repairs and improvement of a depreciable asset of that person to the extent that it is wholly exclusively and necessarily incurred by the person in the production of the income for which deduction is required to be made against.
  The above means that it will be an allowable deduction for tax purposes irrespective of the fact that it may be of a capital expenditure.   (3 marks)
• The provision of the tax law allows for a deduction for a year of assessment with respect to a depreciable asset in a particular pool of a depreciable asset of a person. Such expenditures are, however, capitalized on some conditions.

Conditions on which repairs and or improvement is capitalised.
a) The expense does not exceed five percent (5%) of the written down value of the pool at the end of the year and
b) Is allowed in the order in which the expense was incurred
The excess of “a” above the 5% of the expenditure shall not be allowed to be deducted but added to the pool of that depreciable asset that relates to the repairs and improvement and granted capital allowance alongside any addition of that pool as a capital expenditure.                    (5 marks)

                                                                                                          (4 marks)

                                                                                                          (2 marks)

Conclusion:
Analysis:
The amount of GH¢167,500 constitutes income which should be added to business income and capital allowance of GH¢13,000.00 is claimable for 2015 year of assessment.   (1 mark)

Goodwill is an asset that qualifies as a capital expenditure for accounting purposes only. Capital allowance is not granted in respect of assets as such but on depreciable assets as defined by tax provisions. In accordance with section 133 of Act 896 Act 2015 on Interpretation, goodwill shall not be granted capital allowance.
Conclusion:
The expenditure of GH¢10,000 incurred by Sakote ltd cannot enjoy capital allowance as it is not depreciable assets.

A taxable person registered for VAT, is required to claim input VAT on the acquisition of goods and services which are business related and also required to pay output VAT on goods and services. In effect, the net is claimable or payable (i.e. input tax-output tax). If the input tax exceeds the output tax, it is claimable and if the output tax exceeds the input tax, it is payable.    (2 marks)

If the input tax paid by the registered person is denied, the supply of the goods and services by the taxable person is a supply of goods and services other than in the course or furtherance of a taxable activity.     (1 mark)

Conclusion:
Eddie Enterprise ltd was denied the claim of VAT paid on the importation of a vehicle. The proposed sale of the vehicle shall be deemed as sale that will not attract output VAT in accordance with section 25 of Act, 2013 Act 870 as amended.  (2 marks)

Input VAT paid for goods and services are claimable by a VAT registered trader and by the same token, is (trader) required to account for output VAT when it parts with ownership of the assets.   (1 mark)

Under section 48(4) (b) of Act 2013 Act 870, input tax deduction shall not be made after the expiration of a period of six months after the date the deduction accrues.
The taxpayer’s right to claim is extinct under the above situation, if it is not exercised at the right time that is after 6 months.  (2 marks)

Conclusion:
For failure to claim the input tax within 6 months, Bossman ltd has lost the right to claim but must charge and account for VAT on the sale of the assets accordingly as the failure to claim is not a denial of claim.   (2 marks)

Cost incurred from hedging was GH¢150,000. The allowable ceiling on the cost incurred is GH¢125,000. The excess of (GH¢150,000-125,000) GH¢25,000 will be carried over for five years. The financial cost carried forward shall be allowed in five years following. It is granted in the order in which they occur.

Management should in future be mindful of the implication of cost on derivatives as they are not allowed wholesale but are restricted in accordance with section 16 of Act 896 Act 2015 and its amendment.

Introduction
Investment in a company certainly gives the acquirer some benefits when returns are received. Beyond the benefits in terms of returns, there is room for tax planning when a resident company acquires another resident company. In the case of CJA ltd-a real estate company investing in Don-bill Ltd, there are benefits when dividend is paid in future as it will be an income.  (2 marks)

Tax Provision
Under section 59(3) of Act 896 of Act 2015 as amended, a dividend paid to a resident company by another resident company is exempt from tax where the company that received the dividend controls indirectly or directly, at least twenty-five percent of the voting power of the Company which paid the dividend.     (2 marks)

Tax implication:
The proposal of shareholders:
The shareholders interest in the investment of 15% will inure to the benefit of CJA ltd when dividend is paid in future. Future dividend will be subject to dividend tax at the rate of 8%.      (2 marks)

The proposal of Managing Director of CJA Ltd:
The acquisition of 25% in Don-bill will benefit the Company as any dividend that may be earned in future will not be subject to tax as it is exempt from tax. Both withholding tax and corporate tax will not be applicable to such future dividends.     (2 marks)

Decision/Advise
For benefits to CJA Ltd, it is prudent and aids tax planning to acquire at least 25% as proposed by the Managing Director of CJA Ltd to leverage on the tax benefits.       (2 marks)

GEORGE AMOAKO

DETERMINATION OF CHARGEABLE INCOME FOR 2016 YEAR OF ASSESSMENT

BASIS PERIOD: 1^ST JANUARY, 2016 – 31ST DECEMBER 2016

                                                                                      (10 marks evenly spread using ticks)

Reasons for add back and or deduction:

• Interest on savings accounts and interest on treasury bills: Interest paid to an individual is exempted from tax under Act 2015 Act 896 .
• Gift received: Gifts received that are business related are added to business income in accordance with Act 2015 Act 896 and Act 2016 Act 924 .
• Personal Salary of Mr. Amoako and his tax paid: This is not allowable deduction because the proprietor and the enterprise are one and should not be treated differently.
• Depreciation: Depreciation is not allowable for tax purpose instead capital allowance computed in line with the 3rd Schedule of the Income Tax Act, 2015 Act 896 section 130.
• Computer Purchased: This is Capital in nature and not allowed as an expense in computing the chargeable income under section 9 of Act 2015 Act 896. However, capital allowance is granted in accordance with Third Schedule of Act 2015 Act 896.
• Vehicle Purchased for CEO: this expenditure is for the personal use of Mr. Amoako and should not be allowed as a deduction in accordance with section 9 of the Income Tax Act, 2015 (Act 896). It is not wholly, exclusively and necessarily incurred for the purpose of the business.
• Reliefs: George Amoako will be granted responsibility relief instead of marriage relief in accordance with s.51 of Act 896 in view of the fact that he is not married but has two children.
• Child Education Relief: This will be granted in view of the fact that George has two children attending Universities in Ghana in accordance with section 51 of Act 896.                                (Any 5 points)
  

Public debt is defined as how much a country owes to lenders outside of itself. These can include individuals, businesses, and even other governments. The term “public debt” is used interchangeably with the term sovereign debt. Public debt is the accumulation of annual budget deficits. It’s the result of years of Government spending more than they take in via tax revenues. Public debt includes Treasury bills, notes, and bonds, which are typically bought by large investors.

In the short run, public debt is a good way for countries to get extra funds to invest in their economic growth. Public debt is a safe way for foreigners to invest in a country’s growth by buying government bonds.

When Public Debt is used as an Alternative to Taxation

• Public borrowing has an important advantage over taxation. Taxation beyond a certain limit tends to affect economic activity adversely owing to its disincentive effect. There is no such danger in public borrowing. It does not have any unfavorable repercussions on economic activity by being disincentive, partly because of its voluntary nature and partly because of expectation of return and repayment.
• Public debts enable governments to facilitate growth take-offs by investing in a critical mass of infrastructural projects and social sectors of the economy where taxation capacity may be limited. Public Debt for financing fruitful investment produces supplementary, creative capability in the financial system which or else would not have been achievable.
• Public Debt also facilitates tax smoothing and counter-cyclical fiscal policies, essential for reducing output volatility; and it permits an equitable alignment of benefits and costs for long-gestation projects by shifting taxation away from current generations.
• Public debt is a safe way for foreigners to invest in a country’s growth by buying government bonds. This is much safer than foreign direct investment. That’s when foreigners purchase a percentage interest in the country’s companies, businesses or real estate. It’s also less risky than investing in the country’s public companies via its stock market. Public debt is attractive to risk-averse investors since it is backed by the government itself.
• When used correctly, public debt improves the standard of living in a country whilst Taxation increase the cost of living of citizens. That’s because it allows the government to build new roads and bridges, improve education and job training, and provide pensions. This spurs citizens to spend more now, instead of saving for retirement, further boosting economic growth.

Consequences of Public Debt on the Economy

• Large public debt implies high interest payments and these are borne by tax payers. Governments have virtually no means of repaying debt other than through future taxation. While there is a multiplier effect to government spending, high levels of government debt essentially saddle future generations with the deadweight loss of higher taxation with no offsetting multiplier to the GDP from government spending.
• Government borrowing increases the total demand for credit in the economy, driving up the cost of borrowing in the process. Higher borrowing costs make it more expensive to finance investment in equipment, stock and other capital goods in the private sector. This increases the cost of doing business in the private sector.
• Currency collapse or currency depreciation when monies are printed to finance public debts.