Below are the various contracts awarded to KPP Books and Stationery limited by the Ghana Water Company for the 2018 year of assessment:
i) 1st contract was for the supply of stationery costing GH¢1,000 in January 2018.
ii) 2nd contract was for the supply of Station Diaries costing GH¢900 on March 2018.
iii) 3rd contract for the supply of additional stationery costing GH¢900 on August 16 2018.
Required:
What amount of withholding tax is due to Ghana Revenue Authority in the year 2018 from Ghana Water Company? (5 marks)
View Solution
i) The 1st Contract Sum of GH¢1,000 does not meet the threshold amount of GH¢2,000 so there will be no tax withheld on the amount.
ii) The 2nd Contract Sum of GH¢900 does not meet the threshold of GH¢2,000. Furthermore, the aggregate value of the 1st and 2nd contracts (GH¢1,000 + GH¢900 = GH¢1,900) also does not meet the threshold of GH¢2,000 hence no withholding tax will be charged on payment of the 2nd contract.
iii) The 3rd Contract Sum of GH¢900 does not meet the threshold of GH¢2,000. However, the aggregate value of the 1st, 2nd and 3rd contracts (GH¢1,000 + GH¢900 + GH¢900 = GH¢2,800) exceeds the threshold of GH¢2,000 hence the cumulative amount of GH¢2,800 will be subject to withholding tax at the applicable rate.
Tax withheld is 3% x GH¢2,800 = GH¢84.00
NB: A student would be correct if he or she states that, at the start of the year, the company anticipates that purchases from the vendor will exceed the threshold of GH¢2,000. In this case, the first, second and third purchases will all be taxed at 3% and the same tax liability will result.