Tax planning is the act of arranging one’s tax affairs in ways that postpone or avoid taxes. By employing effective tax planning variables, one can have more positive cash flows to save and invest or more money to spend.
Required:
Explain what constitutes the variables of tax planning? (4 marks)
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- Location: Tax planning is possible for some persons on account of jurisdiction/location. Manufacturing companies have the following tax rates on the basis of the location at the following areas
Accra/Tema 25%
Regional Capitals 18.75%
Any other area 12.5%
The above rates and location serve as incentive to tax planning regarding where a manufacturing company should be situated. - Activity
The various activities do not have the same or uniform tax exposure and benefits and therefore some activities can help create tax planning.
Example of activities and the years of temporary concessions.
Cattle business 10 years
Tree Crops 10 years
Cash crops/other live stocks 5 years
Agro –processing 5 years
Rural Banks 10 years - Time Horizon
Time horizon for persons is not uniform and therefore can act to engender tax planning. The number of years that a person is interested in to have a tax benefit is largely dependent on the type of activity that is engaged. The time ranges from 5 years to 10 years. This allows persons that want to plan to determine the temporary concessions available and the number of years the person is interested. The number of years in effect dictates the activity. - Entities
Benefits of tax planning is not available to all persons evenly ie tax benefit to an individual is different from that available to a company. Individual running farming activities have friendly tax exposure during their temporary concessions as opposed to other areas like a company that is into farming activities. (4 points for 4 marks)