SOLUTION ADVANCED TAX & FISCAL POLICY NOV 2012

SOLUTION 1

a. Outline of approach
i. Furnish the commissioner with a return containing the following information:-
 The description and location of the property sold
 The cost base of the asset immediately prior to the realisation and how the cost
base was for construction
 The consideration received by Abudu from the realization
 The computation of any capital gain and tax payable together with a cheque in
settlement
 The full name and address of the new owner of the property, and
 Any other information the Commissioner may require.

ii. Computation of Capital Gain

GHC GHC
Consideration received 75,000
Less: cost of construction 38,000
Cost of fence wall & gate 8,000 46,000
Capital Gain 29,000
Exempt Amount 50
Chargeable gain 28,950

Tax at 15% 4,342.50

b. The Commissioner General may raise an assessment:-

i. Where a taxable person fails to submit his tax return on due date.
ii. Where the Commissioner General has grounds to believe that the return is
incorrect.
iii. Where any lawful tax has not been paid or
iv. Based on any information available to him.

 The assessment shall be in writing to the taxable person and payable within 21
days of the date of the notice. However, where the Commissioner General accepts
information or a return which he finds as valid, her may withdraw or amend the
assessment. An amended assessment is payable within 14 days.

 An additional return or alteration for the original return may be made by a written
application to the Commissioner General not later than three months of the
submission of the original return stating in detail the grounds upon which the
application is made.

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 The Commissioner General shall not raise an assessment after a period of three
years unless fraud has determined by law.

SOLUTION 2

The expected revenue inflows are:

i. Royalties
ii. Carried Interest
iii. Additional Carried Interest
iv. Additional Oil Entitlement
v. Surface Rentals
vi. Corporate Tax
vii. Technology Allowance
viii. Training Allowance

 Royalties:-This is the payment expected from the extraction of oil or gas from the
sea. It is a percentage of the value of the output. It thus does not depend on the
profitability of the operations of the contractor.
 Carried Interest:-Is the percentage of the Government of Ghana’s holding in an oil
field. It is 10% for which the government does not pay anything yet is entitled to in
respect of revenue.
 Additional Carried Interest:-Refers to the revenue that can accrue to the
government if it is able to take up more stakes in the production. Here government
would have to pay for such additional interest.
 Additional Oil Entitlement:-Refers to the revenue inflow to government from
excess profit made by the contractor where the actual rate of returns to the
contractor exceeds the targeted rate of return. It is receivable by the government in
oil.
 Surface Rentals:-are the inflows to government by way of payment for the oil
blocks for exploration.
 Corporate Tax:-payable for operations in the sector is at the rate of 35%. The
revenue there from accrues to the government.
 Technology Allowance:-is a onetime payment to the government, received by the
GNPC to enable them acquires the needed technology and equipment so they can
increase their participation in oil and gas production.
 Training Allowance:-is a payment to government to assist in training more
Ghanaians to take up positions in the oil and gas industry.

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 SOLUTION ADVANCED TAX & FISCAL POLICY NOV 2012

SOLUTION 3

1. The appropriate method to be used in determining the customs duty is the Ad valorem
method.

2. Computation of Import Duty Payable

Ad Valerom $ Rate GHC
Purchase price 45,000 1.5250 68,625
Carriage in China 200 1.5250 305
Cost 45,200 68,930
Freight 1,500 1.5250 2,288
Insurance 1,200
Cost Insurance Freight (CIF) 46,700 72,418

Import Duty (20% of CIF) 14,484

VAT (12½% of CIF + I/D) 10,863
NHIL (2½% of CIF + I/D) 2,173
Special Rate (5% of CIF) 3,621
Total duty payable 31,140

Computation of Net VAT Payable

Output Value - GHC VAT paid - GHC Amount Allowed- GHC
Ghana 90,000 13,500 13,500
Togo 45,000 - -
Egypt Embassy 10,000 - -
145,000
Input
Purchases 90,523 13,036 13,036
Carriage Inwards 1,800 270 270
Overheads 2,750 227 227
13,533

Net Refund 33

Note: Candidates should not be marked down for assuming that carriage inwards is VAT exempt
as the assumption will accord with the Commissioner’s Administrative directives. Net refund of
GHC3.3 should be mast be marked correct.

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SOLUTION 4

Administrative Directives

Administrative directives supplement the general provisions of the Act. They are meant to address
matters requiring further interpretation, explanation, guidance, procedural matters or advice to aid
compliance to the tax laws. They take the form of:

i. Practice notes
ii. Private rulings
iii. Regulations
iv. Forms and notices
v. Service of notices and documents
vi. Access to books, records and computers

 Practice Notes
These are meant to achieve consistency in the administration of the tax laws and to provide
guidance to persons affected by the Act as well as officers of the service. The Commissioner
issues the practice notes setting out his interpretation of the provisions of the Act. This enables
taxpayers to know his views on a case and therefore impact positively in the practice of taxation.
A practice note is therefore binding on the Commissioner until revoked but not on person affected
by the Act.

 Private Rulings
A taxpayer may apply for a private ruing setting out all aspects of a transaction in detail. The
Commissioner, upon a study of the case, may state his position or ruling in the matter. Private
rulings are very important for cases which are not clear in law. The purpose therefore, is to enable
the taxpayer to understand the situation and to enable him to plan his business, be able to self-
assess, project his income for tax purposes and generally to determine the outcome of his
decisions in advance. The ruling is binding on the Commissioner and respect to the application of
the law at that time and the taxpayer with regard to the transaction.

 Regulations
The Minister Responsible for finance is mandated to make regulations under Act 592 by means of
Legislative Instruments. The regulations are mean to enable to relate to matters authorised or
prescribed under the Act 592 amending the schedules of the various chapters or monthly amounts
set out in the Act, or the better carrying into effect of the purposes of the Act.

From the above, there will be no need for every change in the Act to pass through Parliament. It is
binding on both the Commissioner and the taxpayer.

Forms and Notices

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All taxpayers are required under the Internal Revenue Act, 2000 (Act 592) to submit returns and
other information to the Commissioner of Internal Service. To provide guidance and achieve
consistency in the submission of these requirements, the Commissioner may specify the form of
these returns, claims, notices, statements and other documents. This facilitates speedy examination
of these documents as well as educating the taxpayer as to what is exactly required of him, his
rights and obligations under the tax laws. It also enhances greater co-operation and understanding
between the tax administrator and the taxpayers.

 Service of Notices and other Documents

Since nobody wants to pay taxes, service of notices and other documents relating to tax would be
very difficult. If not impossible, if no administrative directives are provided. These administrative
directives therefore serve to establish a linkage between the tax office and the taxpayer. They are
therefore framed to have a very wide coverage to ensure that the taxpayer does not have any
excuses to dodge service of notices and document and consequently evade taxes. The coverage
extends to direct personal service, postage both ordinary and registered and to all places where the
taxpayer may be found or contacted. This helps to impact favourably in the practice of taxation.

 Access to books, records and computers

The practice of taxation involves identifying the taxpayer, imposing the tax, collecting the tax and
paying the tax so collected into the Consolidated Fund. In this process, it is anticipated that only
the right amount of tax due will be collected. To achieve this, there is the need to have access to
all relevant books, records and information for scrutiny to arrive at the required results. Act 592
therefore provides the necessary administrative directives to enable the Commissioner or an
officer authorised in writing by him to have full and complete access to these documents thereby
playing a very crucial role in the practice of taxation.

NB: There Are Several Other Administrative Directives

SOLUTION 5

GHC GHC
Net profit as per a/cs 6,700
Deduct: Profit on sale of fixed assets 48,500
Dividend received 3,100 51,600
(44,900)

Add: 108,000
Depreciation 4,200
Permanent signboard 14,200
Cost of installation of machines 21,500
Cost of standby generators 20,500
Entertainment (opening of factory) 13,500
Legal expenses (formation) 6,400 188,300
Adjusted profit 143,400

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 SOLUTION ADVANCED TAX & FISCAL POLICY NOV 2012

Computation of Tax
GHC
2009 (1/2/09-30/9/09) (8/20 x 143,400) 57,360
Less C/Allce 56,701
Chargeable Income 659

2010 (1/10/09 – 30/9/10) (12/20 x 143,400) 86,040

Less C/Allce 94,706
Utilised 86,040 86,040
c/f 8,666
Chargeable Income NIL

CAPITAL ALLOWANCE COMPUTATION

YEARS OF CLASS 2 CLASS 4 CLASS 5
ASSESSMENT (30%) (20%) (10%) TOTALS
2009
1/2/09 – 30/9/09)

B/F 40,000 192,500 350,200 56,701

D/Allce 7,956 25,526 23,219
C/F 32,044 166,974 326,981

2010
(1/10/09 – 30/9/10)

Adds 36,000 41,000 -___

68,044 207,974 326,981
D/Allce 20,413 41,595 32,698 94,706
C/F 2011 47,631 166,379 294,283

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