Taxation in Ghana Re Digibooks 1 PDF

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Contents
ABOUT THE AUTHOR ......................................................................................................... 77 Roman, 12 pt
PREFACE ................................................................................................................................ 88
ACKNOWLEDGMENTS ....................................................................................................... 99
DEDICATION ..................................................................................................................... 1110
1.0 TAXATION IN GHANA .............................................................................................. 1211
1.1 Introduction of Taxation / Tax Administration in Ghana .......................................... 1211
1.1.1 Income Tax Department (1943) .......................................................................... 1412
1.1.2 Central Revenue Department ............................................................................... 1412
1.1.3 Internal Revenue Service ..................................................................................... 1412
1.2 Definition of Taxation ................................................................................................ 1513
1.3 TAX: INCOME TAX AND KINDS OF TAX .......................................................... 1513
1.3.1 What is Income Taxation? ................................................................................... 1513
1.3.2 Meaning of Income .............................................................................................. 1613
1.3.3 Main Features of Income Taxation ...................................................................... 1614
1.3.4 Tax payer ............................................................................................................. 1714
1.4 Kinds of Tax ............................................................................................................... 1814
1.4.1 Direct Tax ............................................................................................................ 1814
1.4.2 Indirect Tax.......................................................................................................... 1815
1.4.3 Progressive Tax ................................................................................................... 1915
1.4.4 Regressive Tax .................................................................................................... 1916
1.4.5 Proportional Taxes ............................................................................................... 1916
1.5 CANONS (LAWS OR RULES) OR ATTRIBUTES OF TAXATION .................... 2016
1.5.1 Equity (Fairness).................................................................................................. 2016
1.5.2 Certainty .............................................................................................................. 2016
1.5.3 Convenience ........................................................................................................ 2016
1.5.4 Economy .............................................................................................................. 2017
1.5.5 Other Attributes ................................................................................................... 2017
1.6 Impact, Incidence, Taxable Capacity and Other Terminologies ................................ 2117
1.6.1 Impact .................................................................................................................. 2117
1.6.2 Incidence .............................................................................................................. 2117
1.6.3 The taxable capacity of a country ........................................................................ 2118
1.7.1 Tax Incidence Analysis ....................................................................................... 2218
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1.7.2 The Budget Incidence .......................................................................................... 2219
1.7.3 Expenditure Incidence ......................................................................................... 2219
1.7.4 Differential Tax Incidence ................................................................................... 2319
1.8 ROLE OF TAXATION AND ITS JURISDICTION ................................................. 2319
1.8.1 The Role of Taxation in the National Economy .................................................. 2319
1.9 Tax jurisdictions and Competent Authorities............................................................. 2420
2.0 LIABILITY TO INCOME TAX ................................................................................... 2522
2.1 Resident persons ......................................................................................................... 2622
2.2 Permanent Establishment ........................................................................................... 2623
2.3 Income Subject to Tax, Internal Revenue Act, 2000 (Act 592) ................................. 2723
2.4 ASSESSABLE INCOME (SECTION 6 ACT 592 AS AMENDED) ........................ 2824
2.4.1 Income Received in Ghana .................................................................................. 2824
2.4.2 Chargeable Income .............................................................................................. 2824
2.5 CHOICE OF TRADING MEDIUM .......................................................................... 2825
2.5.1 FACTORS THAT INFLUENCE CHOICE OF TRADING MEDIUM .............. 2825
2.5.2 TRADING – WHAT IS A TRADE? ................................................................... 3025
2.5.3 BADGES OF TRADE ......................................................................................... 3026
2.6 Illustrative Example ................................................................................................... 3228
2.7 CAPITAL ALLOWANCES ON A COMMENCEMENT ........................................ 3329
2.8 OTHER POINTS TO REMEMBER WHEN COMMENCING TO TRADE ........... 3429
3.0 INDIVIDUAL INCOME TAXATION ......................................................................... 3430
3.1 TRADING – DEDUCTING EXPENSES .................................................................. 3430
3.1.1 BASIC RULE ...................................................................................................... 3530
3.1.2 Wholly and Exclusively....................................................................................... 3530
3.1.3 For the purpose of the trade ................................................................................. 3630
3.2 ACCOUNTING PRINCIPLES .................................................................................. 3630
3.3 SPECIFIC RULES ..................................................................................................... 3631
3.4 TREATMENT OF LOSSES ...................................................................................... 3933
3.5 STOCK VALUATION .............................................................................................. 4034
3.6 Comprehensive Example............................................................................................ 4035
4.0 BASIS OF ASSESSMENT FOR INDIVIDUALS AND COMPANIES ...................... 4439
4.1 THE NORMAL RULE .............................................................................................. 4439
4.2 TYPES OF BASIS PERIODS ................................................................................... 4439
4.2.1 Preceding Year – PY ........................................................................................... 4539
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4.2.2 Current (Actual) Year Basis Period ..................................................................... 4539
4.3 Conversion from Preceding Year to Current Year System of Assessment ................ 4540
4.4 Accounting Year Basis Period (1988 – 2000)............................................................ 4640
4.5 Basis Period Under ACT 592 (Section 24 of Act 592 as amended) .......................... 4641
5.0 PARTNERSHIPS .......................................................................................................... 4843
5.1 Partnership versus employment ................................................................................. 4843
5.2 Division of profits ...................................................................................................... 4943
5.3 Salaried partners ......................................................................................................... 4943
5.4 Capital allowances...................................................................................................... 4943
5.5 Losses ......................................................................................................................... 4944
5.6 CHANGES IN THE PARTNERSHIP ....................................................................... 4944
5.7 LIMITED LIABILITY PARTNERSHIPS................................................................. 5044
5.8 COMPREHENSIVE EXAMPLE .............................................................................. 5045
5.9 QUESTION BANK.................................................................................................... 5550
6.0 EMPLOYED OR SELF-EMPLOYED – EMPLOYMENT INCOME ......................... 6054
6.1 INDICATORS OF EMPLOYMENT ......................................................................... 6054
6.2 TAXABLE EMOLUMENTS .................................................................................... 6255
6.2.1 INTRODUCTION ............................................................................................... 6255
6.2.2 EMOLUMENTS ................................................................................................. 6255
6.2.3 OFFICE ............................................................................................................... 6256
6.2.4 EMPLOYMENT ................................................................................................. 6256
6.2.5 BASIS OF ASSESSMENT ................................................................................. 6256
6.3 DEDUCTIBLE EXPENSES ...................................................................................... 6356
6.3.1 QUALIFYING TRAVEL EXPENSES ............................................................... 6356
6.3.2 OTHER EXPENSES ........................................................................................... 6357
6.4 EMPLOYMENT INCOME ....................................................................................... 6457
6.4.1 Definition ............................................................................................................. 6457
6.4.2 Cash and Non-Cash Benefits from Employment ................................................ 6558
6.4.3 The Use of Domestic Servants ............................................................................ 6559
6.4.4 Perquisite and Personal Liabilities ...................................................................... 6659
6.4.5 Basic Salary ......................................................................................................... 6659
6.4.6 Consolidated Salary ............................................................................................. 6659
6.5 PERSONAL TAX RELIEFS ..................................................................................... 6760
6.6 Comprehensive Examples .......................................................................................... 6962
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7.0 CAPITAL ALLOWANCES .......................................................................................... 7367
7.1 Conditions for granting Capital Allowance ............................................................... 7467
7.2 Classes of Depreciable Assets .................................................................................... 7468
7.2.1 Class 1, 2, 3, and 4 Depreciable Assets ............................................................... 7569
7.2.2 Class 5 and 6 Depreciable Assets ........................................................................ 7770
7.3 General Provisions ..................................................................................................... 7871
7.4 COMPREHENSIVE EXAMPLES ............................................................................ 7972
7.5 DISPOSAL EFFECTS ............................................................................................... 8073
7.6 CLASS THREE POOL .............................................................................................. 8174
7.7 Class Assignment ....................................................................................................... 8376
7.8 PAST QUESTIONS ................................................................................................... 8478
8.0 CORPORATE TAX....................................................................................................... 9181
8.1 THE MEANING OF RESIDENCE ........................................................................... 9182
8.2 THE MEANING OF PROFITS ................................................................................. 9282
8.3 Principles of Taxation for Companies (Section 44 of Act 592) ................................. 9282
8.3.1 Undistributed Profits of Companies (Section 45 of Act 592) ............................. 9282
8.3.2 THE FORMAT OF THE COMPUTATION ....................................................... 9383
8.4 LOSS RELIEF............................................................................................................ 9383
8.4.1 METHODS OF RELIEF ..................................................................................... 9383
8.5 DEDUCTIONS .......................................................................................................... 9484
8.5.1 DEDUCTIONS ALLOWED ............................................................................... 9484
8.5.2 DEDUCTIONS NOT ALLOWED ...................................................................... 9787
8.5.3 OTHER DEDUCTIONS NOT ALLOWED ....................................................... 9888
8.6 INCOME EXEMPTED FROM TAX ........................................................................ 9888
8.6.1 Section 10—Exempt Income ............................................................................... 9889
8.6.2 Section 11—INDUSTRY CONCESSIONS ...................................................... 10090
8.6.3 Summary of Industrial Concessions .................................................................. 10393
8.6.4 Comprehensive Examples ................................................................................. 10595
8.7 GROUPS AND TRADING LOSSES .................................................................... 111102
8.7.1 INTRODUCTION ........................................................................................... 111102
8.7.2 ITEMS QUALIFYING FOR RELIEF ............................................................ 112102
8.7.3 GROUP RELATIONSHIPS ............................................................................ 112102
8.7.4 PLANNING POINTS FOR GROUP RELIEF ................................................ 113103
8.7.5 NON-COTERMINUOUS ACCOUNTING PERIODS .................................. 113103
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8.8 GROUPS AND CAPITAL GAINS ....................................................................... 113104
8.8.1 GROUP ROLL-OVER AND HOLD-OVER RELIEF ................................... 114104
8.8.2 CAPITAL LOSSES ......................................................................................... 114104
8.9 EXERCISE ............................................................................................................. 114105
9.0 CAPITAL GAINS TAXATION ................................................................................ 116107
9.1 BASIC PRINCIPLES OF CAPITAL GAINS TAX (CGT)................................... 116107
9.1.1 Imposition and Rate of Capital Gains Tax ...................................................... 117107
9.2 Chargeable Assets .................................................................................................. 117107
9.2.1 Chargeable asset does not include ................................................................... 117108
9.3 DISPOSAL/REALISATION ................................................................................. 117108
9.3.1 THE TIMING OF A DISPOSAL .................................................................... 118108
9.4 THE FORMAT OF A COMPUTATION .............................................................. 118108
9.4.1 Allowable Expenditure .................................................................................... 118109
9.5 CONNECTED PERSONS ..................................................................................... 119109
9.6 Shares and securities .............................................................................................. 119109
9.6.1 Securities ......................................................................................................... 119109
9.6.2 Shares............................................................................................................... 119109
9.6.3 Scrip and Rights Issues .................................................................................... 119110
9.7 Take-overs .............................................................................................................. 120110
9.8 Calculation of Capital Gain .................................................................................... 120110
9.8.1 Cost Base ......................................................................................................... 120110
9.8.2 Consideration Received ................................................................................... 121111
9.9 Exemption from Capital Gain ................................................................................ 121111
9.10 Returns and Payment of Tax ................................................................................ 122112
9.11 Assessments and Application of Income Tax Procedure ..................................... 122113
9.12 ILLUSTRATIVE QUESTIONS .......................................................................... 123113
9.13 TRIAL QUESTION ............................................................................................. 129120
10.0 GIFT TAX (SECTION 105 – 110 OF ACT 592) .................................................... 130121
10.1 INTRODUCTION................................................................................................ 130121
10.1.1 Definitions (Section 110)............................................................................... 131121
10.2 IMPOSITION OF TAX (SEC. 105(1)) ................................................................ 131121
10.2.1 Gifts Exempt from Tax (Sec. 105 (2) as amended by Act 644) .................... 131122
10.2.2 Taxable Gift (Sec. 106 as amended by Act 644) ........................................... 131122
10.2.3 Valuation (Sec. 107) ...................................................................................... 132122
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10.3 RETURNS & PAYMENT OF TAX (SEC. 108) ................................................. 132123
10.3.1 Procedural relating to Gift Tax ...................................................................... 132123
10.3.2 Assessment & Application of Income Tax Procedure (Sec. 109) ................. 133123
10.4 ILLUSTRATIONS ............................................................................................... 133123
10.5 PAST QUESTIONS ............................................................................................. 135126
11.0 VALUE ADDED TAX ............................................................................................ 138128
11.1 REASONS FOR INTRODUCING VAT IN GHANA ........................................ 138128
11.2 METHODS OF COMPUTING VAT .................................................................. 139129
11.3 REGISTRATION ................................................................................................. 141130
11.3.2 VOLUNTARY REGISTRATION ................................................................ 142131
11.3.4 SPECIAL REGISTRATION ISSUES........................................................... 143131
11.4 MAKING SUPPLIES .......................................................................................... 145132
11.4.1 TYPES OF SUPPLIES .................................................................................. 146132
11.4.2 VALUE OF SUPPLY .................................................................................... 149133
11.4.3 RELIEF SUPPLIES ....................................................................................... 152136
11.5 THE PLACE OF THE SUPPLY.......................................................................... 152136
11.6 THE TIME OF THE SUPPLY............................................................................. 152136
11.6.1 Place of Supply .............................................................................................. 153137
11.6.2 Special issues ................................................................................................. 153137
11.7 SPECIAL ISSUES ............................................................................................... 153137
11.8 DEREGISTRATION ........................................................................................... 154138
11.9 TRANSFER OF A BUSINESS AS A GOING CONCERN................................ 155139
11.10 SPECIAL ACCOUNTING ARRANGEMENTS .............................................. 156139
11.10.1 Cash accounting ........................................................................................... 156140
11.11 VALUE ADDED TAX FLAT RATE SCHEME .............................................. 157140
11.11.1 Reasons for the 3% flat rate ......................................................................... 157140
11.11.2 Features of the Value Added Tax Flat Rate Scheme ................................... 157141
11.11.3 Advantages of the VFRS ............................................................................. 158142
11.11.4 BASIC QUESTIONS ON VAT .................................................................. 160142
11.12 TRIAL QUESTIONS ......................................................................................... 164146
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K.O. APPIAH 6
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ABOUT THE AUTHOR
Dr. Kingsley Opoku Appiah (hereafter K.O.) is a lecturer of Accounting at the Roman, 12 pt
Kwame Nkrumah University of Science and Technology. His teaching effort
focused on the Bachelor of Science in Administration (BSc.) and Master in Business
Administration programmes. As the facilitator of Accounting for Managers course,
He continues to introduce significant innovations, which in turn, has made the
course the most visible among all the courses at the Masters level. For this reason,
K.O is credited for shaping the Accounting for Managers course.
Previously, K.O. lectured at the University of Ghana Business School on the

Bachelor of Science in Administration (BSc.) programme from 2000-2001, as a
Teaching Assistant. K.O. was, subsequently recruited by Sambus Company Limited
and Unicorn Ink Limited after his national service, where he worked under Professor
Joshua Abor as Assistant Accountant in 2001 and Assistant Group Finance Officer
in 2002, respectively. He was accredited with shaping the risk and internal control
systems, and for the introduction of budget and budgetary control in the Unicorn
Group, which he designed and sustained till 2002 when he left to the UK to pursue
his professional accountancy qualification (ACCA) and master‘s degree (MSc in
Accounting with Finance) at London College of Accountancy and London South
Bank University, respectively.
Prior to his doctoral degree from Loughborough University K.O was the Chief
Examiner in Accounting for the University College of Management Studies
Bachelor of Science in administration programme, and taught Cost Accounting and
Intermediate Accounting on part-time basis at the Christian Service University
College in Kumasi. As well, K.O was on the verge of producing textbooks for
students in accounting when in September 2007 he was appointed as External
Examiner for Ghana Baptist University College and a consultant for Christ
Apostolic University College, after successfully defending the cause for both its
accreditation and affiliation with Kwame Nkrumah University of Science and
Technology.
K.O is also a member of both the Association of Certified Chartered Accountants

(ACCA) and Institute of Chartered Accountants, and serves as moderator of
examination questions for the latter. He also works as auditor on part-time basis at
K.O. APPIAH 7
Owusu-Afriyie and Associates, Kumasi. Finally, He has published extensively in
top-tier journals including Journal of Benchmarking, where his paper is regarded as
one of the best articles since 2009. K.O has taught professional accountancy related
courses for over 5years in the UK, first in Jeff Wooller College, then at Boston
College of London and Hamilton College. He has also taught financial accounting,
financial reporting and financial management at both BSc and MSc levels in
Loughborough University. When not writing books and/or studying, K.O plays with
his two daughters: Abena Opoku Appiah (Naana Pokua) and Akosua Nyarko Appiah
(Maame Nyarko)

PREFACE Formatted: Font: (Default) Times New
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This book echoes McKinsey (1929) notion that ―The teaching of taxationaccounting is no
longer designed to train professional accountants only. With the growing complexity of Formatted: Font: (Default) Times New
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business and the constantly increasing difficulty of the problems of management, it has
become essential that everyone who aspires to a position of responsibility should have
knowledge of the fundamental principles of taxationaccounting.‖ Put differently, this Formatted: Font: (Default) Times New
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taxation Accounting book provides a very accessible and easy-to-follow introduction to
eleven six main aspects of taxation in Ghanaaccounting. Intended as a core textbook for Formatted: Font: (Default) Times New
Roman, 12 pt
students studying taxation accounting for the first time, especially candidates pursing
Bachelor of Science of Business Administration (Accounting Option)Actuarial Science at Roman, 12 pt
Kwame Nkrumah University of Science and Technology authored by a seasoned Senior Formatted: Font: (Default) Times New
Lecturer in Financial Management Accounting with more than 150 years of experience in the Roman, 12 pt
teaching of taxationaccounting, this book has benefited immensely from Formatted: Font: (Default) Times New
1. INTERNAL REVENUE ACT, 2000 (ACT 592) As amended by: Roman, 12 pt
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(RETENTION OF PART OF REVENUE) ACT, 2002 (ACT
628)2 Formatted: Font: (Default) Times New
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ACT 710)6 Roman, 12 pt
2. the author‘s rich knowledge-base and background either as moderator of ICAG Roman, 12 pt
examination questions or Auditor for the past 10 years.
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K.O. APPIAH 8
ACKNOWLEDGMENTS
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―As I express our gratitude, I must never forget that the highest appreciation is not to
utter words, but to live by them” by John F. Kennedy
I wish to acknowledge a number of individuals whom I owe a debt of a significant

magnitude, although I take full responsibilities for this material. Special thanks go to Mrs
Ophelia Opoku Appiah (my love and wife) and my two daughters (Abena Opoku Appiah and
Akosua Nyarko Appiah), who delivered the moral support needed and lavish their love on me
during the write-up of this material, despite my constraints to demonstrate my ardent
affection as a husband and father, respectively. I say a big thank you and pray for God‘s
blessing and long life for
In preparation for this book, the following individuals shared detailed ideas and suggestions
for changes and improvements, of which many have been implemented in this first edition. I
thank them all for their timely information.
Mr. Joseph Arthur, Graduate Assistant-KNUST School of Business-Kumasi
Mr. Richard Owusu-Afriyie, Finance Director-Pacific Savings and Loans-Kumasi
Mr. Felix Obeng-Boateng, Accountant of College of Science-KNUST, Kumasi
K.O. APPIAH 9
Miss Beatrice Osei, Graduate Assistant-KNUST School of Business-Kumasi.
Finally, to all my past students, I say a big thank you for your encouragement. you and your Formatted: Font: (Default) Times New
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family.

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K.O. APPIAH 10
DEDICATION Formatted: Font: (Default) Times New
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To my mentors:
1. The late Professor Kwasi Andam, Sir, you gave me the opportunity to be a lecturer. I Formatted: Font: English (U.S.)
wish you were alive to see my progress, RIP.
2. The late Mr. Kwadwo Baah Wiredu, Sir, you are an inspiring Chartered Accountant. Formatted: Font: English (U.S.)
My prayer is to follow your footsteps, RIP.
3. The late Nelson Mandela, Mandiba‘s selfless and perseverance attributes remain tall Formatted: Font: English (U.S.)
in his long walk to freedom, RIP. Formatted: Font color: Auto
3.4.The late Paul Victor Obeng, Sir P.V, you served mother Ghana quite well, RIP. Formatted: Font: English (U.S.)
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K.O. APPIAH 11
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CHAPTER ONE Formatted: Font: (Default) Times New
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(U.K.)

1.0 TAXATION IN GHANA Roman, 12 pt
Learning Objectives Formatted: Font: Italic, Underline
When you have completed this chapter, you should be able to Formatted: Font: Not Bold, Underline
1. Outline the history of taxation in Ghana
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2. Define of taxation Alignment: Left + Aligned at: 0.25" + Tab
3. Define income tax after: 0.5" + Indent at: 0.5"
4. Define income Formatted: Font: Not Bold, Underline
5. Describe the features of income tax Formatted: Font: Not Bold, Underline
6. Explain who is a tax payer Formatted: Font: Not Bold, Underline
7. Explain kinds of tax Formatted: Font: Not Bold, Underline
8. Differentiate between progressive, regressive and proportional tax Formatted: Font: Not Bold, Underline
9. Explain the canons of taxation
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10. Demonstrate an understanding of terminologies in taxation
11. Describe the taxable capacity of a country
12. Explain issues involved in analyzing taxes Formatted: Font: Not Bold, Underline
13. Explain the role of taxation Formatted: Font: Not Bold, Underline
14. Outline the domestic taxes and their rates Formatted: Font: Not Bold, Underline
15. Illustrate corporation tax computation Formatted: Font: Not Bold, Underline
16. Illustrate personal income tax computation
17. Illustrate self-employed income tax computation Formatted: Font: Not Bold, Underline
1.1 Introduction of Taxation / Tax Administration in Ghana
Early form of taxation in the Gold Coast was Indirect Tax – in the form of Customs duty in
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1850. It was levied on imported goods at the rate of ½% ad valorum. The British introduced
the tax after they had taken over the Danish forts and trading posts to meet the cost of
administrating the colonies. Governor Major S. J. Hill, after his arrival into the Gold Coast Formatted: Font: Not Bold, Underline
met with the chiefs in April, 1852 in connection with the introduction of the poll tax (a tax of Formatted: Font: Not Bold, Underline
a fixed amount collected from every citizen of a country). Formatted: Font: (Default) Times New
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 Activity 1.1: REASONS FOR IMPOSITION OF THE POLL TAX,
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 Can you think of any reason for the introduction of poll tax?
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K.O. APPIAH 12
Solution activity 1.1: Formatted: Left
The reasons for the imposition of the poll tax were the provision of: Formatted: Left, Indent: Left: 0.25"
 health facilities; Formatted: Left, Indent: Left: 0.5"
 education;
 roads; and
 other amenities for the people and more importantly.
The chiefs were to be used as collecting agents and in return were to be paid stipends of
allowances. The rate was 1 shilling per head for every man, woman and child living in the
British protected areas. Actual collection from August, 1852 to July, 1853 was £460,656 but
it was considered to be a promised start. This experiment of the introduction of the direct
taxation failed and by 1862 collection had ceased.
Activity 1.2: REASONS FOR CESSATION OF POLL TAX

Can you think of any reason for the failure of poll tax? Formatted: No bullets or numbering
Solution activity 1.2:

The poll tax failed because:
 promises made to the chiefs were not fulfilled; and
 the first proceeds were mainly used to pay the increased salaries of British officials
instead of the intended purposes. Formatted: Font: (Default) Times New
Roman, 12 pt
An attempt was made to reintroduce the poll tax in 1877 Governor Sir William Maxwell
made proposals for the introduction of general direct taxation but he died before his proposal
could be implemented. The most serious attempt to introduce income tax into the Gold Coast
was by Governor - Sir Ransford Slator in September, 1931. This became necessary because
the government had a budget deficit of £400,000 and there was the worst economic
depression at the time the world war was over. To redeem the deficit an introduction of the
tax at the rate of (6d) six pence in the pound on all incomes of £40 and above was proposed.
There was unequivocal opposition to the Governor‘s proposals. Sir Ransford Slator assessing
the situation decided to withdraw his income tax proposals. Instead of the income tax, a tax
on cocoa export was imposed.
In 1943 however, due to the effect of the 2nd World War, the price of cocoa fell to £30 per
ton and the government needed £800,000 to balance the budget.
Activity 1.3: HOW TO FINANCE DEFICIT BUDGET Formatted: Left

Can you think of how governments, including the present and past Ghana Formatted: Left, Indent: Left: 0.5"
Governments, finance (d) deficit budgets?
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Solution 1.3: ―Since there was no other source to consider‖ the options available to the Formatted: Left
government are (were): Since there was no other source to consider, the options available to
the government were:
 a drastic cut in government expenditure on social services or
 the imposition of income tax
Governor Sir Allan Burns opted for the income tax. Even though there were few protest
meetings and protest speeches from the official members of the Legislative Council, it was
clear that public opinion had undergone a change and the Income Tax Bill went through the
K.O. APPIAH 13
various stages in the Council without much difficulty and became law on 22nd September,
1943. The Income Tax Ordinance (No. 27) was passed in September, 1943 and became
operative with effect from 1st April, 1944. This Ordinance was modelled to a large extent on
the general principles underlying the Income Tax Act then in force in the United Kingdom. It
imposed the tax generally on incomes having their sources in Ghana so that foreign source of
income was not liable to tax unless it was remitted in Ghana. One characteristic feature of
this Ordinance was the numerous personal reliefs and deductions that it contained. The rate of
tax in the Ordinance ranged from (3d) three pence in the £ on the first £200 Chargeable
Income to (7/6d) seven shillings and six pence in the £ on the Chargeable Income in excess of
£10,000. Total collection for the first year ending 31st March, 1945 was £1,230,916.
1.1.1 Income Tax Department (1943) Formatted: Font: (Default) Times New
The revenue collection was named the Income Tax Department in the income Tax
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Ordinance No. 27 of 1943 to collect Income Tax. Other taxes collected include:
 Mineral Duty (1952)
 Betting Tax (1955)
 Casino Revenue Tax (1959)
1.1.2 Central Revenue Department Formatted: Font: (Default) Times New

With the introduction of other taxes and duties from 1961, the name was changed to
‘Central Revenue Department’.
Other Taxes / Duties introduced include:

Property Tax (1961)
 Entertainment Duty (1962)
 Airport Tax (1963)
 Excess Profit Tax (1963)
 Hotel Customers‘ Tax (1963)
 Standard Assessment (1963)
1.1.3 Internal Revenue Service Formatted: Font: (Default) Times New

With the re-organization of the Central Revenue Department, the name was changed to
Internal Revenue Service with effect from 1st July, 1986 by PNDCL 143 (The Internal
Revenue Service Law, 1986).
Taxes Administered include:

 Income Tax
 Employees
 Self employed
 Companies
 Capital gains Tax
 Gift Tax
 Mineral Royalties
 Stamp Duty
 Hotel & Restaurant Tax
Over the years the Income Tax Law has seen several changes through amendments, and
modifications, such as the Income Tax (Amendment) Ordinance 1952.
K.O. APPIAH 14
1. The first consolidated edition of the Income Tax Ordinance was published in March
1953. The following Acts then introduced amendments to the consolidated edition:
- Act 68 in 1961;
- Acts 178 and 197 in 1963; and
- Act 312 in 1965.
2. The second consolidated edition was published in September, 1966, i.e. the Income
Tax Decree, 1966 (No 78).
3. The Income Tax Decree 1975, SMCD 5, which was published in December, 1975 was
the third consolidated edition.
3. The Current Income Tax Law Is The Internal Revenue Act, 2000 (Act 592). This Is
The Fourth Consolidated Edition. As Amended By: Formatted: Font: (Default) Times New
Roman, 12 pt
• Internal Revenue (Amendment) Act, 2002 (Act 622)1
• Revenue Agencies (Retention Of Part Of Revenue) Act, 2002 (Act 628)2 Formatted: Indent: Left: 0.5"
• Internal Revenue (Amendment) Act, 2003 (Act 644)3 Formatted: Font: (Default) Times New
Roman, 12 pt
• Internal Revenue (Amendment) Act 2004 (Act 669)4
• Internal Revenue (Amendment) Act, 2006 (Act 700)5 Roman, 12 pt
• Internal Revenue (Amendment) (No.2) Act, 2006 (Act 710)6
Roman, 12 pt
4.
ACTIVITY 1.4-DEFINITION OF TAXATION Formatted: Font: (Default) Times New
Roman, 12 pt
 Can you define tax in your own words? Formatted: Font: (Default) Times New
Roman, 12 pt
Roman, 12 pt
1.2 Definition of Taxation Formatted: Normal, No bullets or numberin
Mr. Justice Wendell Holmes (a famous American Judge) said ―Taxation is the price we pay Formatted: Font: (Default) Times New
for living in a civilized society‖. Taxes are compulsory payments for which no value or Roman, 12 pt, Font color: Accent 1
service has to be rendered in return. Taxation is based on an arbitrary system of laws passed Formatted: Font: (Default) Times New
by Parliament and interpreted by the Judiciary, giving effect to what one must assume to be Roman, 12 pt
the democratic will of the citizens. Taxation is often defined as the levying of compulsory
contributions by public authorities having tax jurisdiction, to defray the cost of their
activities. Taxation is also regarded as a compulsion on the individual to surrender his control
over private goods and services so as to enable government to re-channel the inputs
(monetary or physical) into the production of public goods and services. Taxation is also a
major instrument of social and economic policy by which Government implements decisions
to transfer resources from the private to the public sector.
ACTIVITY 1.5-DEFINITION OF INCOME TAX

 Can you define income tax in your own words?
1.3 TAX: INCOME TAX AND KINDS OF TAX Formatted: Font: (Default) Times New
1.3.1 What is Income Taxation? Roman, 12 pt
1. Lord Macnagthen‘s definition: ―Tax on Income‖ Formatted: Font: (Default) Times New
2. C. N. Beattie‘s definition: ―A tax on income or on that deemed to be income based on Roman, 12 pt, Font color: Accent 1
Income Tax Acts Formatted: Font: (Default) Times New Rom
3. ―A compulsory annual payment from income imposed by Parliament:
K.O. APPIAH 15
ACTIVITY 1.6-DEFINITION OF INCOME Formatted: Font: 12 pt, Font color: Accent
 Can you define income in your own words ? Formatted: Font: (Default) Times New
Roman, 12 pt
Roman, 12 pt
1.3.2 Meaning of Income Formatted: Font: 12 pt
Though the charge to tax is on income in one form or another, the Internal Revenue Act, Formatted: Normal
2000 (Act 592) does not define income. The Internal Revenue Act, 2000 (Act 592) however Formatted: Font: (Default) Times New
classifies incomes into 3 specific types of classes, namely: Roman, 12 pt, Font color: Accent 1
 Income from business; Formatted: Font: (Default) Times New Rom
 Income from employment; and Formatted: Font: Font color: Auto
 Income from investment Formatted: Font: Font color: Auto
Formatted: Font: Font color: Auto
Thus, before any particular receipt can be charged to tax, it must fall into one of the classes Formatted: Font: Font color: Auto
mentioned in the Act. If it does not, it is not liable and if it is included in an assessment, that
assessment could not be successfully defended on appeal.
The courts have however offered definitions in their judgements that shed some light on the Formatted: Font: Font color: Auto
meaning of income:
 In Weight V Salmon (19TC 174), It was held that ―Income may be received in cash or Formatted: Font: Font color: Auto
in kind. When income is received in kind, valuation thereof is made on the market
price.‖
 In CIT V Shaw Wallace (61TC 178), it was held that: ―The term income connotes a Formatted: Font: Font color: Auto
periodical monetary return coming in with some regularity or expected regularity
from a definite source‖. Formatted: Font: Font color: Auto
 Income may also be described as “the fruit of the tree” or “money or money’s worth Formatted: Font: (Default) Times New
coming from a source which is received by a person and being at his disposal”. Roman, 12 pt, Font color: Accent 1
Formatted: Outline numbered + Level: 3 +
1.3.3 1.3.3 Main Features of Income Taxation Alignment: Left + Aligned at: 0" + Indent a
0.5"
 Income Tax is charged on the gains or profit accruing to an individual exercising
employment in Ghana. The gains or profit from any employment of a person is
deemed as accruing in or derived from Ghana to the extent that the employment is
Formatted: Centered, Indent: Left: 0", Firs
exercised in Ghana, regardless of the place of payment. Ghana practices source line: 0", Space After: 0 pt, Line spacing:
taxation, and the system of employment taxation is Pay As You Earn (PAYE), which single
is a graduated rate from 0 percent to 25 percent for residents (183days or more-within Formatted: Justified, Indent: Left: 0", First
line: 0", Space After: 0 pt, Line spacing:
12month period) and a 15 percent flat rate for non-residents. Contributions are single
withholdings from salaries of employees. The PAYE is computed with the Personal Formatted: Justified, Indent: Left: 0", First
Income Tax rates line: 0", Space After: 0 pt, Line spacing:
single
 ANNUAL TAX RATES Formatted: Justified, Indent: Left: 0", First
 CHARGEABLE INCOME  RATES line: 0", Space After: 0 pt, Line spacing:
single
 FIRST GHs1,584  FREE
Formatted: Justified, Indent: Left: 0", First
 NEXT GHs792  5% line: 0", Space After: 0 pt, Line spacing:
 NEXT GHs1,104  10% single
 NEXT GHs28,200  17.5% Formatted: Justified, Indent: Left: 0", First
 Exceeding >GHs31,680  25% single
  Formatted: Justified, Indent: Left: 0", First
 single
K.O. APPIAH 16
Formatted: No bullets or numbering
ACTIVITY 1.7: BASIC COMPUTATION OF ANNUAL INCOME TAX Formatted: Space After: 0 pt, Line spacing
single
Wontumi receives GHs60, 000 per year from his employers.
Compute Wontumi‘s annual income tax payable to the Ghana Revenue Authority Formatted: Space After: 0 pt, Line spacing
single, No bullets or numbering
 Formatted: Font: (Default) Times New

Roman, 12 pt
 MONTHLY TAX RATES Formatted: Indent: Left: 0", First line: 0",
  Space After: 0 pt, Line spacing: single
 CHARGEABLE INCOME  RATES

 FIRST GHs132  FREE Formatted: Indent: Left: 0", First line: 0",
Space After: 0 pt, Line spacing: single
 NEXT GHs66  5% Formatted: Indent: Left: 0", First line: 0",
 NEXT GHs92  10% Formatted: Indent: Left: 0", First line: 0",
 NEXT GHs2,350  17.5% Formatted: Indent: Left: 0", First line: 0",
 Exceeding >GHs2,640  25% Formatted: Indent: Left: 0", First line: 0",
 
 Formatted: Font: (Default) Times New
Roman, 12 pt
 ACTIVITY 1.8: BASIC COMPUTATION OF MONTHLY INCOME TAX
 Wontumi receives GHs3, 333 per month from his employers. Formatted: Font: (Default) Times New
Roman, 12 pt
 Compute Wontumi‘s monthly income tax payable to the GRA
Formatted: Space After: 0 pt, Line spacing
single
The main features of Income Taxation include: Formatted: Font: (Default) Times New Rom
Formatted: Normal
a) Tax on Income
b) Direct Tax Roman, 12 pt, Not Italic
c) Progressive Tax Formatted: Font: (Default) Times New Rom
d) Easy to evade
ACTIVITY 1.9: EXPLANATION OF THE MAIN FEATURES OF INCOME TAX
Explain the main features of income tax listed above.
Formatted: Font: Not Bold, Font color: Auto
ACTIVITY 1.10: A TAX PAYER Formatted: Font: Not Bold

Who is a tax payer? Formatted: List Paragraph, Bulleted + Leve
1 + Aligned at: 0.25" + Tab after: 0.5" +
Indent at: 0.5"
1.3.4 Tax payer
Formatted: Font: Not Bold, Not Italic
A tax payer is any person or organization required by law to pay a tax to governmental
authority. The term ‗person‘ refers to natural persons (individuals), companies and
partnerships. Businesses are affected by taxation in two ways: Roman, 12 pt, Bold, Italic
1. They pay taxes themselves, in their capacity as taxable entities, and Formatted: Font: (Default) Times New
2. They also act as tax collectors or agents of the revenue agencies Roman, 12 pt, Font color: Accent 1
K.O. APPIAH 17
ACTIVITY 1.11: A TAX PAYER GRA, 2009 (Act 791)
Who is a person according to the Ghana Revenue Authority Act, 2009 (Act 791) ?
Solution Activity 1.11:

The term ‗person‘ refers to natural persons (individuals), companies and partnerships Formatted: English (U.S.)
1.4 Kinds of Tax Formatted: Font: (Default) Times New

1.4.1 Direct Tax Roman, 12 pt
 It is imposed on incomes and earnings Roman, 12 pt, Font color: Accent 1
 It is levied on the person receiving the income. Formatted: Font: (Default) Times New Rom
 The tax is not transferable (i.e. it cannot be passed on to another person). It is levied
on the person receiving the income.
 Direct taxes are taxes where the incidence cannot be shifted. The person who pays the
tax also suffers it (e.g. income tax, capital gains tax, gift tax)
 Direct taxes are collected by Internal Revenue Service.
 The Taxpayer knows how much to pay as tax since they are direct deductions from
income and property
 The tax is paid directly by the tax payer / business to the government
ACTIVITY 1.12 MERITS AND DEMERITS OF DIRECT TAX

 Can you outline 2 merits and demerits of direct tax?
Advantages
1. Incidence and yield are easy to determine

2. The tax payer knows with certainty what he is expected to pay
3. Yield increases automatically as wealth and population increase
4. Direct taxes are in general progressive
Disadvantages
1. The cost of administration is very high

2. The effect on incentive, enterprise and savings in the case of those with large
incomes, may be considerable
1.4.2 Indirect Tax Formatted: Font: (Default) Times New

 It is imposed on consumption and expenditure
K.O. APPIAH 18
 The tax burden can pass on to another person
 The final consumer pays the tax but does not see it.
 The tax is paid indirectly by the consumer to government through traders/service
providers.
 Indirect taxes are collected by Customs Excise and Preventive Service and Value
Added Tax Service
 Indirect taxes may take the form of ad valorem (according to the value), that, is where
the rate of duty is determined as a percentage of the value of goods; or they may take
the form of specific duty, that is where the rate of duty is based on a fixed amount per
physical attribute or a combination of physical attributes of the commodity being
taxed, e.g. weight, wheat flour is dutiable at GHsS 10.00 per lb.
Advantages
1. Payment and collection of the tax are easy and convenient

2. In general, yield is elastic
3. Evasion is difficult
4. Restriction of harmful consumption, as government policy is possible
5. Incentive and enterprise are not harmed, as in the case of direct taxes
Disadvantages
1. They are often regressive

2. Revenue may be uncertain where the demand for the taxed good is elastic
3. Incidence is not easy to determine
4. They are not always equitable
1.4.3 Progressive Tax Formatted: Font: (Default) Times New

Progressive taxation is based on the fact that the higher one earns, the higher one pays into
the tax fund and the lower one earns, the lower one pays into the tax fund. In this way it
ensures equity or fairness since the rich pays more than the poor. This implies that the rich
should contribute more to the taxation fund than the poor.
Progressive tax is one which is levied according to the person‘s ability to pay. Income tax is
assumed to be a progressive tax, since an individual with a high income does not only pay
more tax, but pays at a higher rate.
1.4.4 Regressive Tax Formatted: Font: (Default) Times New

There is no equity in Regressive taxation. (E.g. the VAT paid is the same for all categories of
consumers.) It is the reverse of progressive tax. It is one which bears more heavily on those
least able to pay it. (E.g. excise duty on tobacco and cigarettes is the same for all categories
of smokers irrespective of their income levels.) It is paid by poor people who are below the
threshold for income tax.
1.4.5 Proportional Taxes Formatted: Font: (Default) Times New

It is one which is neither progressive nor regressive. It is fixed at the same rate irrespective of
income. Income tax and VAT satisfy this test for most people. The rate is the same as a
K.O. APPIAH 19
proportion of income. The rate of tax is the same for all income groups (i.e. high and low).
Although the rate of tax is the same, the amount of tax paid by high income earners is higher
than those paid by low income earners (e.g. Corporate Tax).
E.g. 25% of GHs¢1,000,000 = GHs¢250,000; 25% of GHs¢10,000,000 = GHs¢2500,000
1.5 CANONS (LAWS OR RULES) OR ATTRIBUTES OF TAXATION Formatted: Font: (Default) Times New
Adam Smith (a classical Economist) provided 4 Canons or Principles of Taxation as follows:
1. Equity (Fairness) Roman, 12 pt
2. Certainty
3. Convenience
4. Economy / Efficiency
1.5.1 Equity (Fairness) Formatted: Font: (Default) Times New

This means Taxation must be proportional to one‘s income i.e. the higher the income the
greater the tax and the lower the income the smaller the tax.
a) Vertical Equity – Individuals with higher levels of income should pay more taxes. It
is based on ability to pay. It is a strong basis for redistribution of income.
b) Horizontal Equity – Taxpayers with approximately the same level of income should
pay equal amount of tax.
1.5.2 Certainty Formatted: Font: (Default) Times New

This implies that the amount of tax paid must be certain. The tax collector must not cheat the
taxpayer. The tax payer must be certain on:
 The rate of tax
 The time of payment
 The place of payment
Taxation is not based on extortion. The Tax Administrator must be able to defend his/her
position.
1.5.3 Convenience Formatted: Font: (Default) Times New

Payment of tax should cause the least inconvenience to the taxpayer. All bottlenecks should
be removed. Income Tax forms must be simplified. Both taxpayer and Tax Administrator
must not be inconvenienced. Measures must be put in place to facilitate the payment and
collection of tax. The taxpayer must know where and when to pay the tax. The place where
the payment is to be made must be easily accessible to the taxpayer. Taxpayer must not be
unduly inconvenienced. Similarly the necessary facilities must be put in place to assist the tax
administrator in the discharged of his duties.
1.5.4 Economy Formatted: Font: (Default) Times New

This implies that the cost of collection should form a small fraction of the amount collected.
The Administrative cost of collection should be minimal.
1.5.5 Other Attributes Formatted: Font: (Default) Times New

K.O. APPIAH 20
1.5.5.1 Political and Administrative Feasibility Roman, 12 pt, Bold, Italic, Font color: Accen
A good tax system should reduce administrative burden. It should be simple to enforce. It Formatted: Font: (Default) Times New
Roman, 12 pt
should not create political tension.

1.5.5.2 Simplicity Roman, 12 pt, Bold, Italic, Font color: Accen
The tax system ought to be simple, plain and intelligible. It should not be complicated to Formatted: Font: (Default) Times New
Roman, 12 pt
become difficult to understand and administer. It should avoid administrative and legal
problems.

1.5.5.3 Elasticity/Flexibility Roman, 12 pt, Bold, Italic, Font color: Accen
A system of taxation ought to respond automatically to changes in the community‘s wealth, Formatted: Font: (Default) Times New
Roman, 12 pt
population and other important variables.

1.5.5.4 Productivity Roman, 12 pt, Bold, Italic, Font color: Accen
A system of taxation ought to produce a high net yield of revenue but not so high as to Formatted: Font: (Default) Times New
Roman, 12 pt
damage the source of that revenue. It should be able to yield enough revenue such that
government should have no recourse to deficit financing.
1.6 Impact, Incidence, Taxable Capacity and Other Terminologies Formatted: Font: (Default) Times New
1.6.1 Impact Formatted: Font: (Default) Times New
The impact of a tax is the pinch of payment and this is on the person who pays the tax Roman, 12 pt
initially, that is, it is upon those who bear the first responsibility of paying it to the tax Formatted: Font: (Default) Times New
authorities. The impact of tax is thus its first point of contact. Roman, 12 pt, Font color: Accent 1
1.6.2 Incidence Formatted: Font: (Default) Times New

The incidence of tax refers to the ultimate economic burden represented by the tax. It is the
money burden and this is on the person who finally pays the tax and is not able to pass it on
to others.
1.6.3 The taxable capacity of a country Formatted: Font: (Default) Times New
1.6.3.1 The taxable capacity of a country is the limit of a country’s capacity to accept and
absorb taxation and this is determined by: Roman, 12 pt
 The country‘s wealth
 The attitude of the population to taxation in general
 The type of taxes levied
 The possibilities of tax evasion
 The level beyond which any increase in taxation might lead to a reduction in the
national income (e.g. the effect of taxes on incentive, wage demands, price increases)
K.O. APPIAH 21
1.6.3.2 The Shifting of a Tax Roman, 12 pt, Bold, Italic, Font color: Accen
Roman, 12 pt
The shifting of a tax is the transfer of the burden of paying a tax from those who are legally
liable to others. When a tax is shifted, those liable for its payment succeed in recouping some
of the reduction in their income caused by tax payments through changes in the prices of
items they buy or sell.
Forward Shifting of a tax is transfer of its burden from sellers who are liable for its payment
to buyers as a result of an increase in the price of the taxed commodity (Price of Fuel or
Spare Parts Increase & Transport fares).
Backward shifting of a tax is a transfer of its burden from buyers who are liable for its
payment to sellers through a decrease in the market price of the taxed commodity (PAYE
Tax).
1.7 Issues involved in analyzing taxes

Two main issues are involved in analyzing taxes: its allocative role and redistributive role
a) Allocative role is used in allocating or re-allocating resources.
 High tax input will force a producer to shift to low taxed input.
 Jobs with high tax will make workers move to jobs with low tax or withdraw
services altogether.
 Lower taxes will raise work effort.
b. Redistributive role is used to scoop excess earnings of the rich to subsidize the poor
through a highly progressive tax structure. Expenditure method can be used as well
1.7.1 Tax Incidence Analysis Formatted: Font: (Default) Times New

Incidence theory deals with the effects of activities undertaken by Government on the
distribution of income, particularly effects on particular sectors of the economy by taxation.
Redistribution, in general, is important for government since the government is interested in

welfare. The specific action has to be studied to assess the incidence of government activities.
One action, direct, can spill over to affect other actions, albeit indirect actions.
1.7.2 The Budget Incidence Formatted: Font: (Default) Times New

This examines the effects of the expenditure and tax policies of government on the
distribution of incomes in the private sector, i.e. households and firm levels. Example, what
will be the incidence of petroleum tax? It will have omnibus incidence since a whole array of
things will be affected. What will be the budgetary incidence of expenditure? It will depend
on the components of the expenditure. If it is an earmarked tax weapon, e.g. to yield revenue
for road construction, there will be good roads.
1.7.3 Expenditure Incidence Formatted: Font: (Default) Times New

This examines the effects of alternative government expenditures of projects and programmes
on the distribution of income. We are talking about alternatives, i.e. given two projects, A,
&B, we are looking at the Cost-Benefit Analysis of the two projects before we implement
them. The one that will minimize income disparities should be implemented.
K.O. APPIAH 22
1.7.4 Differential Tax Incidence Formatted: Font: (Default) Times New
It is an attempt to determine who bears the tax burden in the income. The process of analysis
entails either:
a. an examination of how the taxation removes resources from the private sector, or
b. an examination of the distribution of income that results from the taxation.
This involves the examination of two taxes which generate the same revenue. For example,
Personal Income tax and Corporate Income tax to generate the same revenue. The one that
seeks to ensure equity in the distribution of income will be instituted since the tax revenue
will be the same for both.
1.8 ROLE OF TAXATION AND ITS JURISDICTION Formatted: Font: (Default) Times New
1.8.1 The Role of Taxation in the National Economy Roman, 12 pt
1. Socio Economic Significance of Taxation Roman, 12 pt, Font color: Accent 1
(a) Social Significance
(i) Source of Government Revenue for Development

Taxation is the blood of the nation. It is the government‘s main source of income. The
amount of taxes levied on taxpayers may be used to develop a country‘s infrastructure –
schools, hospitals, roads, transportation, housing, water, electricity etc. and also meet other
government needs.
(ii) Equitable redistribution of Income

Taxation may be used as a tool for equitable distribution of income through progressive
system of taxation. The rich are made to pay more to the taxation fund than the poor, thus
narrowing the gap between the rich and the poor.
(b) Economic Significance

i. Control of Inflation
Taxation can be used as a tool to control the level of inflation or deflation. A spiralling
inflation may be checked by increasing the incidence of taxation and thereby withdrawing the
excess money in circulation. A deflationary situation can also be controlled by reducing the
incidence of taxation and thereby increasing the volume in circulation.
ii. Narrowing Budget Deficit

An efficient tax administration may result in increased tax revenue. This may result in
narrowing the budget deficit and hence reduce government borrowing.
iii. Growth in Key Sectors of the Economy

Taxation may be used to foster growth of the key sectors of the economy. In Ghana, today
agricultural sector enjoys a Tax Holiday for 5 or 10 years depending on the type of
agricultural activity engaged in by the taxpayer. Manufacturing companies sited in the
regional capitals outside Accra and Tema enjoy a Tax Rebate of 25%. Other manufacturing
companies located elsewhere enjoy a Tax Rebate of 50%. Companies in Real Estate
K.O. APPIAH 23
Development have 5 years Tax Holiday. Companies in Non-Traditional Export pay corporate
tax at the rate of 8%.
iv. Protection of Local Industries (Super Taxes)

Discriminatory duties or super taxes may be imposed to discourage the importation of certain
goods either to conserve foreign exchange or to protect local industries. (Super taxes may be
imposed on cigarettes, drinks, wax print, imported chicken etc.).
v. Restrain certain types of consumption, e.g. alcoholic beverages and tobacco.
vi. Promotion of Export

Exports may be promoted through the granting of tax concessions. Under the current tax
laws, companies engaged in Non-Traditional Export enjoy a concessionary corporate tax rate
of 8%.
vii. Balance of Payment

The combined effect of (iv) and (vi) above may strengthen the Balance of Payment position.
1.9 Tax jurisdictions and Competent Authorities Formatted: Font: (Default) Times New
A tax jurisdiction is an area in which a particular set of tax laws applies. There are national
tax jurisdictions, with a set of tax laws applying within a particular country, and within a Roman, 12 pt
national tax jurisdiction. There may be local tax jurisdictions at Metropolitan, Municipal and
District Assemblies (MMDAs). There is a competent authority in each tax jurisdiction which
is responsible for administering taxes and ensuring that the taxes are collected. The
competent authority could be more than one, with each being responsible for the different
forms of taxes in the country. The competent authority responsible for direct taxes in Ghana
is the Internal Revenue Service, whereas the competent authorities responsible for indirect
taxes are CEPS for customs and excise taxes among others, and VAT for value added tax. A
tax jurisdiction may apply taxes on ‗source‘ basis or a ―global‖ basis. In Ghana, the source
jurisdiction is applied and this means that income is taxable in Ghana as long as its source is
Ghana. Thus where the source of an income is not Ghana, it is not taxable in Ghana. It is to
be noted that where the source of an income is not Ghana, the income has to be brought in or
received in Ghana to make it subject to tax in Ghana.
PRACTICE QUESTIONS
K.O. APPIAH 24
CHAPTER TWO

2.0 LIABILITY TO INCOME TAX Roman, 12 pt, Bold, Font color: Accent 1
Broadly, income tax is chargeable on: Formatted: Font: (Default) Times New
Roman, 12 pt
1. All persons fiscally resident in Ghana, whether or not their income is derived from
inside or outside Ghana.
2. Persons who are not fiscally resident in Ghana to the extent that they derive income
from any property, trade, profession, vocation or employment in Ghana.
K.O. APPIAH 25
With respect to resident persons, the income must be derived from, accrued in, brought into, Formatted: Font: 12 pt
or received in Ghana. For non-resident persons, the income must be derived from or accrued
in Ghana. Certain income derived from within Ghana may be exempt from Ghana tax when it
is received by a non-resident either under Ghana law or under the terms of double tax
agreement. Income tax is levied for a tax or fiscal year.
2.1 Resident persons Formatted: Font: (Default) Times New

a. An individual is resident for tax purposes if that individual is:
1. a citizen of Ghana, other than a citizen who has a permanent home outside Ghana for Roman, 12 pt
the whole of the year;
2. present in Ghana for a period or periods equal in total to 183 days or more in any
twelve-month period that commences or ends during the year;
3. an employee or official of the Government of Ghana posted abroad during the year; or
4. A Ghanaian who is temporarily absent from Ghana for a period not exceeding 365
continuous days where that Ghanaian has a permanent home in Ghana.
b. A company is resident for tax purposes if that company:

1. is incorporated under the laws of Ghana; or
2. has its management and control exercised in Ghana at any time during the year.
c. A body of persons is a resident body of persons if that body of persons is:

1. established in Ghana;
2. has a resident person as a manager at any time during the year of assessment; or
3. controlled directly or indirectly by a resident person or persons at any time during the
year.
d. A partnership is resident for tax purposes if at any time during the year, any partner in
the partnership is resident in Ghana.
Persons not meeting the above are considered to be non-resident persons.
2.2 Permanent Establishment Formatted: Font: (Default) Times New

This term has taken on a special significance in terms of withholding taxes on Ghanaian
source payments to non-resident persons under section 3 of Act 592 (as amended) and the Roman, 12 pt
imposition of the branch profits tax under section 66.
Section 167 of the Act defines the concept comprehensively and uses it:
 to distinguish between trading in Ghana or with Ghana
 to distinguish between business and investment incomes
Thus, interest, rent etc. attributable to a Permanent Establishment is a
Business Income otherwise it is Investment Income.
It means a place where a person carries on business through an agent, other than a general
agent of independent status acting in the ordinary course of business as such.
 A place where a person has, is using, or is installing substantial equipment or
machinery.
K.O. APPIAH 26
 A place where a person is engaged in a construction, assembly, or installation project
for ninety days or more, including a place where a person is conducting supervisory
activities in relation to such project.
2.3 Income Subject to Tax, Internal Revenue Act, 2000 (Act 592) Formatted: Font: (Default) Times New
Internal Revenue Act, 2000 (Act 592) classifies income into 3 groups:
Roman, 12 pt
1. Business Income
Business includes any trade, profession or vocation, but does not include employment.
Business income consists of gains or profits from any business carried on by a person and
includes any investment income earned by a person that is attributed to the business.
2. Employment Income
Employment means the position of an individual in the employment of another person; the
holding of or acting in any office or a position entitling the holder to a fixed or ascertainable
remuneration other than an office or position as director of a company or manager of a body
of persons. Income from employment consists of gains or profits from employment including
allowances or benefits paid in cash or given in kind to or on behalf of an employee but
excluding:
a. A refund or discharge of the employee’s dental, medical or health insurance expenses
where the benefit is available to all full time employees on general term. [Sec 8(2)(a)]
b. A passage to or from Ghana in respect of the appointment and termination of an
employee who is
i. recruited or engaged outside Ghana
ii. in Ghana solely for the purpose of serving the employer
iii. not a resident of Ghana [Sec 8(2)(b)]
c. Any provision of accommodation by an employer carrying on a timber, mining,
building, construction or farming business to that person at any place or site where
the field operation of the business is carried on [Sec 8(2)(c)]
d. A discharge or reimbursement by an employer of an expenditure incurred by that
person on behalf of the employer that serves the proper business purposes of the
employer [Sec8(2)(d)]
e. Severance pay [Sec8(2)(e)]
International Labour Organisation defines Severance Pay to mean

“Bring to an abrupt end through:
a. Liquidation
b. Closure
c. Merger or Amalgamation
d. Re-organization
e. Divestiture
f. Night duty allowance paid to a person who is a night shift employee where the
amount involved does not exceed 50% of the monthly basic salary of that person [Sec
8(2)(f)]
3. Investment Income
Investment means a manner in which a person may derive gains, profits or income, other than
from business or employment. This definition is of a residual nature and hinges on “income”
and “gains” and “profits”. A person‘s income from investment is his gains or profits from
K.O. APPIAH 27
any investment. The gains or profits of a person from an investment include any dividends
from a non-resident company, interest, charge, annuity, royalties, rent, natural resource
payment or other income accruing to or derived by that person from the investment other than
an amount included in ascertaining that person‘s income from a business or employment.
2.4 ASSESSABLE INCOME (SECTION 6 ACT 592 AS AMENDED) Formatted: Font: (Default) Times New
The assessable income of a person for a year of assessment from any business, employment,
or investment is, Roman, 12 pt
1. In the case of a resident person, the full amount of the person‘s income from the
business, employment, or investment accruing in, derived from, brought into, or
received in Ghana during any basis period of the person ending within the year of
assessment.
2. In the case of a non-resident person, the full amount of the person‘s income from the
business, employment, or investment accruing in, derived from Ghana during any
basis period of the person ending within the year of assessment but does not include
exempt income.
2.4.1 Income Received in Ghana Formatted: Font: (Default) Times New

1. Any amount from an income accruing or derived from outside Ghana which is
remitted to or transmitted into Ghana;
2. Any amount from an income accruing or derived from outside Ghana which is applied
in whole or partial satisfaction of any debt incurred in Ghana; or
3. Any amount from an income accruing or derived from outside Ghana which is applied
to purchase a movable property which is brought into Ghana;
2.4.2 Chargeable Income Formatted: Font: (Default) Times New

The chargeable income of a person for a year of assessment is the total of the person‘s
assessable income from business, employment, and investment less the total amount of
deductions allowed to that person for the year under sections 13-22 (relating to general and
specific deductions), 39 (relating to personal reliefs, 57 (relating to life insurance) and 60
(relating to contributions to retirement funds).
2.5 CHOICE OF TRADING MEDIUM Formatted: Font: (Default) Times New

Should a person trade as:
 A sole trader or member of a partnership, or Roman, 12 pt
 Through a limited company?
2.5.1 FACTORS THAT INFLUENCE CHOICE OF TRADING MEDIUM Formatted: Font: (Default) Times New
When making this decision, the following points need to be considered.
1. TAX SHELTERING
'Tax Shelter' A legal method of minimizing or decreasing an investor's taxable income and, Formatted: Font: (Default) Times New
Roman, 12 pt
therefore, his or her tax liability. Tax shelters can range from investments or investment
accounts that provide favorable tax treatment, to activities or transactions that lower taxable
income.Within a company, profits will be taxed generally at 25% maximum. An individual
trader‘s profit will however be liable to income tax at 25% in Ghana (40% in UK) once total
K.O. APPIAH 28
income exceeds GHS31,680. Tax sheltering within a company is however only a temporary
phenomenon; sooner or later the profits must be released from the company.
2. LOSS RELIEF
Section 22 - Carry Over of Losses Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
(1) Subject to this Act, for the purposes of ascertaining the income of a person for a
basis period from agro processing, tourism, information and communication Formatted: Normal, Indent: Left: 0.25", N
bullets or numbering
technology[sic] a farming, manufacturing or mining business, [Amended by
the Roman, 12 pt
Internal Revenue (Amendment) Act, 2006 (Act 700), s.5(a).] Formatted: Normal, No bullets or numberin
Formatted: Indent: Left: 0.5", No bullets
(a) there shall be deducted, for a period of five years, a loss of the previous numbering
five
basis periods incurred by that person in carrying on that business; and
(b) where that person has incurred more than one such loss, the losses shall be
deducted in the order in which they were incurred.
(1a) A loss incurred by a venture capital financing company from the disposal
of
share [sic] invested in a venture capital subsidiary company under the Venture
Capital Trust Fund Act, 2004 (Act 684) during the period of tax exemption
granted
under section 11 (5) shall be carried forward for a period of 5 years of
assessment following the end of the exemption period. [Inserted by the
Internal Revenue (Amendment) Act, 2006 (Act 700), s.5(b)] Formatted: Font: (Default) Times New
Roman, 12 pt, Italic
3. (2) A loss may only be deducted where the loss has not been deducted in ascertaining
4. the income of that person for a previous basis period. Formatted: Font: (Default) Times New
Roman, 12 pt
5. (3) The loss incurred by a person for a basis period in carrying on a business shall be
6. calculated as the excess of amounts deductible under this Act in ascertaining a profit
7. or gain from the business over the amounts required to be included in ascertaining
8. the profit or gain.
9. (4) The aggregate deduction from the assessable income in respect of the loss shall
not
10. in any circumstances exceed the amount of the loss. [Inserted by the Internal
11. Revenue (Amendment) Act, 2002 (Act 622), s.6(b)]
12. (5) No deduction under this section for any year of assessment shall exceed the
13. amount, if any, of the assessable income (included in the total assessable income
14. for that year of assessment) from the source of income in respect of which the loss,
15. which is the subject of the deduction, was incurred. [Inserted by the Internal
3.16. Revenue (Amendment) Act, 2002 (Act 622), s.6(b)]If a company makes a loss,
it can only be relieved within the company itself; it is not possible to offset it against a
shareholder‘s personal income as the company is a separate legal entity. On a
commencement, this will mean that a loss relief in a company can normally only be
given by carry-forward and then, probably only a…………….
17. PENSION PROVISION

An employee's assessable income for a year of assessment shall be reduced by Formatted: Font: (Default) Times New
Roman, 12 pt
contributions made in respect of the employee by an employer during a basis period of
the employee ending within the year to the Social Security Pension Scheme established
K.O. APPIAH 29
under the Social Security Law, 1991 (P.N.D.C.L. 247) to the extent to which the
contributions
(a) are included in assessable income of the employee for the year under subsection
(2); and
(b) do not exceed seventeen and a half per cent of the employee‘s assessable income
1. from the employment.
2. CAPITAL TAXES
3. PROFIT RETENTION
An unincorporated trader will be taxable on the entire business profits made, even if he or she
leaves most of the profits within the business. Within a limited company, profits can be tax
sheltered at rates not exceeding 30% and be released only when it is advantageous to the
owners of the company.
4. OTHER FACTORS
There are a number of non-tax factors which need to be considered in deciding the
appropriate medium; these include administration costs, limited liability, credibility, an
ability to offer a range of tax effective rewards to staff such as share options and other share
incentives and ease of passing down the business.
2.5.2 TRADING – WHAT IS A TRADE? Formatted: Font: (Default) Times New

It is always important to know what is going to be the likely effect of an operation and, in
particular, whether the Inland Revenue is likely to regard an operation as being a capital or
revenue transaction.
The term trade is not precisely defined; however, it includes: ―every trade, manufacture,
adventure or concern in the nature of trade‖. In general, judicial definition adds very little to
this unsatisfactory state of affairs. In Erichsen v. Last (1881), Sir George Jessel MR said:
―There is not, I think, any principle of law which lays down what carrying on a trade is.
There are a multitude of things which together make up the carrying on of trade, but I know
of no one distinguishing incident, for it is a compound fact made up of a variety of incidents.‖
In Ransom v. Higgs (1974), Lord Reid said that the word is used to denote:
―Operations of a commercial character‖
2.5.3 BADGES OF TRADE Formatted: Font: (Default) Times New

Broadly the question of whether a trade is carried on is one of fact. This means that the courts
will be unwilling to interfere with the findings of the Commissioners unless there are
overriding reasons for doing so.
In 1955, the Royal Commission on Taxation attempted to classify trading under a number of
indicators or ―badges‖ of trading. Although there been a more recent restatement of principles
in Marson v. Morton (1986). It is helpful to use the badges of trade as main headings in
reviewing the relevant case law.
1. The subject matter of the realisation
K.O. APPIAH 30
In general any item can be bought or sold but some items are more likely to be dealt with in
the course of trade than others. In Rutledge v. IRC (1929) the taxpayer, whilst in Germany on
business, purchased one and a quarter million toilet rolls. Shortly after his return to England
he sold them making a profit of £10,000. Held to be trading.
In Martin v. Lowry (1927) an agricultural machinery merchant purchased from the

government its entire stock of aircraft linen amounting 45million yards. He had hoped to sell
the linen to manufacturers but instead was forced to sell it through an extensive retail
operation direct to the public. He made a profit of almost £2million. Held to be trading.
2. The length of the period of ownership

An item purchased as an investment is often held for long period of time. Items bought as
trading stock are generally intended to be kept for as short a period of time as possible.
In Wisdom v. Chamberlain (1969) the taxpayer had, with borrowed money, purchased silver
bullion as a hedge against a possible devaluation. After about a year he sold it making a
profit, after expenses, of approximately £48,000. Held to be trading per Harman LJ:
―this was a transaction entered into on a short term basis for the purpose of making profit…
and if that is not an adventure in the nature of trade, I do not really know what it is‖.
3. The frequency of a number of similar transactions

Broadly, the more often that a taxpayer has entered into a particular transaction, the greater
the presumption of trading. In J. Bolsom &Son v. Farrelly (1953), Harman J said:
―a deal done once is probably not (trading). Done three or four times it usually is‖.
In Pickfold v. Quirke (1972) the taxpayer was one of a syndicate which purchased the shares
of companies, liquidated them and sold the assets at a profit. The taxpayer had entered into
four transactions each resulting in a profit. Held to be trading.
4. Supplementary work
Whether the transaction is trading or capital may depend on the way in which the product was
handled by the taxpayer. In Cape Brandy Syndicate v. IRC (1921), three individuals in the
wine trade purchased 10,000 gallons of South African brandy. This was blended, bottled and
sold to over 100 separate purchasers over a period of about 18 months. Per Rowlatt J, they
had:
―… bought it with a view to transport, with a view to modify its character by skilful
manipulation, by blending with a view to alter…‖
In IRC v. Livingston (1972), a syndicate purchased a cargo vessel with a view to converting
it into a steam drifter and selling it at a profit. They had never previously done this. Held to
be trading.
5. Circumstances responsible for the realisation

―Some explanation such as a sudden emergency or opportunity calling for ready money,
negatives the idea that any plan of dealing prompted the original purchase.‖ Royal
Commission on Taxation, 1955
There have been few cases on this point. In Page v. Pogson (1954) the taxpayer built a house
for himself and sold it six months after completion. He then built another one but had to sell
it when his employment moved to another part of the country. Held by the Commissioners to
be trading and Upjohn J felt unable to reverse their finding whilst doubting whether he would
have reached that conclusion himself.
K.O. APPIAH 31
6. Intention
Intention to trade is clearly trading. Intention to make a profit may not necessarily be so.
In IRC v. Reinhold (1953) the taxpayer bought four houses admittedly for resale. Held not to
be trading. Per Lord Keith:
―It is not enough for the Revenue to show that the subjects were purchased with the intention
of realising them some day at a profit. This is the expectation of most, if not all, people who
make investments.‖
Conversely, the intention not to make a profit will not necessarily mean that a trade is not
being carried on. In Grove v. YMCA (1903) the canteen of a YMCA made a surplus. The
organisation was a non-commercial one. Held that the profits were trading profits. The facts
that the profits are to be used for a particular purpose or even applied to the common good
will not mean that they escape tax, Mersey Docks &Harbour Board v. Lucas (1883).
The question of whether a trade is being carried on or not, will often, in the minds of the
Revenue, depend on the results of the transaction. In Salt v. Chamberlain (1979) a number of
speculative transactions in investments by an individual was held not to be the carrying on of
a trade, thus denying him loss relief against income.
7. Other factors
It is also important to consider other factors outside case law. These would include the
method of financing the operation – long or short term, with the shorter the term, the more
likely the asset acquired might be trading stock, the existing business or employment
activities of the taxpayer and how the asset sold was originally acquired.
2.6 Illustrative Example Formatted: Font: (Default) Times New

Beatrice Osei is someone who takes delight in owning American cars, because of their size, Roman, 12 pt
that is she is a vintage motor car enthusiast, and works at KOA Metal Company Ltd in
Kumasi. She took an auto loan of GHS800,000 from Standard Chartered Bank Ltd on
January 1, 2012 at an interest rate 25% and utilised the money as follows. She built a
workshop at a cost of GHS600,000 which she completed on March 31, 2012, after which she
purchased working tools and assorted equipment at a cost of GHS16,000. Beatrice bought a
used and broken down Range Rover for GHS60,000 and set out to repair and put it back on
the road in June, 2012 at a cost of GHS14,000, which included the cost of spare parts.
Beatrice lost her job at her workplace due to an ongoing re-organisation exercise and had to
sell the Range Rover for GHS100,000. Beatrice could not secure another job so she went
ahead to purchase four Chryslers in October 2012 for GHS62,500 each and got them repaired
and put back on the road at a cost of GHS18,000 each. She finished with the repairs in March
K.O. APPIAH 32
2013 and had offers to buy three of the cars and quickly sold them out for GHS300,000.
Beatrice had an offer of appointment from PwC in Washington and had to sell her workshop
for GHS500,000 since she had to relocate to Washington. She repaid the loan of GHS800,000
to Standard Chartered Bank Ltd. Beatrice kept her working tools worth GHS19,000 as well as
the remaining Chrysler which was valued at GHS80,000.
a. Do you consider Beatrice to be carrying on an adventure in the nature of trade?
b. Discuss, in brief, the criteria you used in arriving at your decision.
Solution
Note: Use the badges of trade
a. The acquisition and disposal of the first car is an isolated transaction which may not
be deemed to be trading. The reasons being that:
 As one who takes delight in American cars for their size, she would own such
a car in order to derive enjoyment and or as investment.
 The length of ownership after the repair works on the car does not suggest
trading is going on.
 The circumstances in each case of a sale he made suggest a forced sale rather
than a voluntary sale which may constitute trading.
The above notwithstanding, the mode of operation be adopted, that is, securing a bank loan to
build a workshop and also for the acquisition of the Range Rover might be taken to be a sign
that she is engaging in a trade. Moreover, the acquisition and disposal of the next three cars is
likely to be treated as an adventure in the nature of a trade because:
i. Beatrice devoted the whole of her time to the activity.
ii. There were three acquisitions and disposals
iii. Three of the cars were sold as soon as repair and reconditioning work was
completed.
Case law can be resorted to in determining whether Beatrice was engaged in trade or not.
2.7 CAPITAL ALLOWANCES ON A COMMENCEMENT Formatted: Font: (Default) Times New

Capital allowances are treated as a trade expense. For individuals, they are calculated for a Roman, 12 pt
period of account. If the period is less than 12 months, WDA only are reduced on a time basis
and, if it exceeds 12 months, they will be increased also on a time basis. If the length of the
period of account exceeds 18 months, the procedure for calculating WDA is:
a. Split the period of account into two periods, the first 12 months and the second of the
balance of the period
b. Calculate the capital allowances for each period separately
c. Aggregate them together and deduct the total from the adjusted profits of the period of
account.
Where plant and machinery is acquired before the commencement of trade, it is deemed to be
acquired on the first day of trade. This rule does not apply to fixing an entitlement to, and the
rate of, first year allowances which depends on the date on which the expenditure was
incurred.
K.O. APPIAH 33
2.8 OTHER POINTS TO REMEMBER WHEN COMMENCING TO TRADE Formatted: Font: (Default) Times New
A. WHEN DOES A TRADE START? Roman, 12 pt
There is no simple answer to this question; in Birmingham Cattle By Products CO. Ltd v.
IRC, it was held that essentially it is a matter of fact and that preparations to get into a
position in order to carry on a trade are not necessarily evidence of trading. Key indicators
might include:
a. Opening a shop for business
b. Making a first sale
B. PRE-TRADING EXPENDITURE
This covers preparatory expenses incurred before the enterprise starts to trade. It is deductible
from profits provided:
a. It is revenue and not capital
b. It is incurred within seven years prior to commencement of trade; and
c. It would have been allowable as a trade expense had it been incurred after the
commencement of trade.
For both individuals and companies, pre-trading expenditure is treated as a trade expense of
the first day of trading.

CHAPTER THREE

3.0 INDIVIDUAL INCOME TAXATION Roman, 12 pt
3.1 TRADING – DEDUCTING EXPENSES Roman, 12 pt, Font color: Accent 1
Section 13—Deductions Allowed Formatted: Font: (Default) Times New

Roman, 12 pt
Subject to this INTERNAL REVENUE ACT, 2000 (ACT 592), for the purposes of
ascertaining the income of a person for a basis period from any business or investment there Formatted: Justified
shall be deducted— Formatted: Font: (Default) Times New

Roman, 12 pt
K.O. APPIAH 34
(a) all outgoings and expenses wholly, exclusively and necessarily incurred during that
period by that person in the production of the income; [Amended by the Internal Revenue Formatted: Font: (Default) Times New
Roman, 12 pt
(Amendment) Act, 2002 (Act 622), s.5(a)]
(b) any other deductions as may be prescribed by Regulations made under section 114.
[Amended by the Internal Revenue (Amendment) Act, 2002 (Act 622), s.5(b)].
Section 114 of the Internal Revenue (Amendment) Act, 2002 (Act 622), s.5(b)] Regulations Formatted: Font: (Default) Times New
Roman, 12 pt
stipulates that
(1) The Minister responsible for Finance may, by legislative instrument, make Regulations Formatted: Font: (Default) Times New
Roman, 12 pt
a. for matters authorised to be made or prescribed under this Act;
Formatted: Justified
b. exempting any person, class of person or income from tax;
c. amending a provision of the Schedules to this Act or any monetary amount set out Roman, 12 pt
in this Act; and
Formatted: Indent: Left: 0.5"
d. for the better carrying into effect of the provisions of this Act.
Roman, 12 pt
(2) Without prejudice to the general effect of subsection (1), Regulations made under that Formatted: Font: (Default) Times New
subsection may Roman, 12 pt
a. require a person or class of persons to deduct from an amount payable by that Formatted: Font: (Default) Times New
person or class of persons to any other person an amount calculated at the Roman, 12 pt
prescribed rate and pay that amount to the Commissioner; Formatted: Font: (Default) Times New
b. require a person or class of persons to pay tax to the Commissioner for any year of Roman, 12 pt
assessment in amounts calculated at the prescribed rate; and Formatted: Indent: Left: 0.5"
c. provide for the time of payment, manner of ascertaining, and recovery of the
amounts referred to in paragraphs (a) and (b) and any other matter incidental to the
matters referred to in those paragraphs. Formatted: Normal, Indent: Left: 0.5", Don
adjust space between Latin and Asian text,
Don't adjust space between Asian text and
3.1.1 BASIC RULE numbers
To be deductible, a trade expense must be laid out: Formatted: English (U.S.)
a. Wholly and exclusively Formatted: Font: (Default) Times New

b. For the purpose of the trade
3.1.2 Wholly and Exclusively
This implies a strict literal approach; where there is both a business and private reason for
incurring the expense, then the whole cost will be disallowed. Formatted: Font: (Default) Times New
 Mallalieu v. Drummond 1983 – Dark clothing bought by a barrister to wear in court
not allowed.
 Watkis v. Ashford, Sparks &Harwood 1985 – The cost of modest lunches eaten at
partners‘ meetings of a firm of lawyers not allowable.
If it is possible to split expenses precisely into allowable and disallowable elements, Inland Formatted: Font: Font color: Auto
Revenue practice is to allow the business part of the expense. Where however it is not
possible to do this, and where an expense consciously includes both business and private
elements, the whole expense will be disallowed.
In Bowden v. Russell 1965, the cost of visiting the USA and Canada for business and Formatted: Font: Font color: Auto
private purposes not severable into allowable and disallowable parts and so wholly Formatted: Font: Font color: Auto
disallowed.
K.O. APPIAH 35
Where the motive for incurring the cost is wholly business, the fact that the claimant derives Formatted: Font: Font color: Auto
an incidental private benefit does not preclude a deduction.
3.1.3 For the purpose of the trade Formatted: Font: (Default) Times New
This broadly means that the expense must be laid out in order to earn profits (Strong v.
Woodfield 1906).
3.2 ACCOUNTING PRINCIPLES Formatted: Font: (Default) Times New

In general, accounting principles are applied in finding taxable profits so that recognised
accounting practices will always be applied unless they conflict with tax law. Roman, 12 pt
In particular, the accruals basis is applied in arriving, at taxable profits except that where a Formatted: Font: Font color: Auto
provision is made for employees‘ emoluments in the accounts, and the liability is not paid
within 9 months after the end of the period of account, a deduction will only be given in the
accounting period in which the emoluments are actually paid.
Payments which relate to illegal transactions are never allowed. This will include payments Formatted: Font: Font color: Auto
made as:
 Bribes Formatted: Font: Font color: Auto
 Protection money Formatted: Font: Font color: Auto

 In response to blackmail Formatted: Font: Font color: Auto
3.3 SPECIFIC RULES Formatted: Font: (Default) Times New

A. Appropriations of profits are disallowed. Provisions are allowable provided that they Roman, 12 pt
are accurately calculated, relate to revenue, are required by generally accepted Formatted: Font: Font color: Auto
accounting principles and do not conflict with statute. (Owen v. Southern Railways of
Peru 1956)
B. Income or corporation tax on profits is not deductible. Formatted: Font: Font color: Auto
C. Depreciation is not deductible for individuals and companies alike. Formatted: Font: Font color: Auto
D. The cost of maintaining a trader or his or her family is disallowed. Wages paid to Formatted: Font: Font color: Auto
family members are disallowed if they exceed a reasonable amount (Copeman v.
Flood 1941).
If the payments are made on behalf of employees which relate to private expenditure, Formatted: Font: Font color: Auto
it will normally be allowed to the trader but may be assessable as a benefit in kind on
the employee.
E. Goods taken from trading stock by a trader are charged at retail price (Sharkey v. Formatted: Font: Font color: Auto
Werhner 1956). No adjustment is made for the free provision of services (Mason v.
Innes 1967).
K.O. APPIAH 36
F. Capital expenditure is disallowable; revenue expenditure is allowable, therefore; Formatted: Font: Font color: Auto
 The replacement of a whole item may be capital (O‘Grady v. Bullcroft Main Formatted: Font: Font color: Auto
Collieries Ltd 1932)
 The replacement of part only may be revenue (Samuel Jones &Co Formatted: Font: Font color: Auto
(Devondale) Ltd v CIR 1951)
If an asset is acquired which requires substantial expenditure on it before it can be Formatted: Font: Font color: Auto
used, this expenditure will be capital (Law Shipping Co Ltd v. IRC 1924). Where it is
desirable, rather than essential, to incur additional expenditure and there has been no
reduction in a reasonable purchase price then the expenditure may be revenue (Odeon
Associated Theatres v. Jones 1971). The initial cost of a franchise is capital
expenditure; annual franchise fees and royalties are revenue.
G. Payments to get rid of an unsatisfactorily employee are revenue expenses but, if they Formatted: Font: Font color: Auto
are coupled with a non-competition clause, they may be capital. One off payments to
remove a threat to the taxpayer‘s business may be revenue (Lawson v. Johnson
Matthey plc 1992) as may be payments to terminate an onerous trading agreement
when it allows the business to be run more efficiently (Croydon Hotels v. Bowen
1996).
H. The cost of writing off trade bad debts and making specific provisions against Formatted: Font: Font color: Auto
doubtful trade debts are allowable. If an employee debt is written off, it will normally
be allowable provided it is assessable on him or her as a benefit in kind. Staff thefts
are normally allowable but those made by a director or principal may not be allowable
as they would not constitute a normal trading risk (Curtis v. Oldfield 1925).
I. Subscriptions and Donations Formatted: Font: Font color: Auto
1. Subscriptions to trade associations are allowable provided the association has Formatted: Font: Font color: Auto
agreed with the Inland Revenue to pay tax on its excess income. A member is
entitled to deduct such part of his subscription to a trade protection or other trade
association as it is applied by the association towards expenditure which would
have been admissible as a deduction if incurred by the member himself (Lochgelly
Iron &Coal Co. Ltd v. Crawford)
2. Annual subscriptions paid to a professional institute or society, membership of Formatted: Font: Font color: Auto
which gives the right to use a qualification is admitted as an allowable deduction
in computing the profits from the profession.
3. Charitable donations made for general charitable purposes are allowable (e.g. Formatted: Font: Font color: Auto
modest amounts to local charities, national charities or general relief funds) but
other subscriptions and donations are disallowed; the donation should therefore be
made by gift aid. If a business gifts unwanted stock to a charity or educational
institution, the donation is treated as being made for nil consideration. Similar
provisions cover gifts of plant and machinery and certain other assets. The costs of
seconding employees to charities or educational establishments are allowable.
Direct donations to a political party are not allowable. Entertainment expenditure,
other than on staff, is disallowed (though there may be a benefit in kind on the
K.O. APPIAH 37
staff member if the costs are excessive). Gifts, other than of trade samples, are
disallowed unless:
 They bear an advertisement for the donor; and Formatted: Font: Font color: Auto
 The total value of gifts to any one customer in the year does not exceed £50. Formatted: Font: Font color: Auto
Gifts of food, drink, tobacco or a voucher exchangeable for them are not allowed. Formatted: Font: Font color: Auto
The Internal Revenue Regulations 2001 allow the following contributions as Formatted: Font: Font color: Auto
deductible:
i. Any contribution made by any person during a year of assessment to a charitable Formatted: Font: Font color: Auto
institution or fund approved by the government.
ii. Any amount expended by any company or body of persons under a scheme of Formatted: Font: Font color: Auto
scholarship for technical, professional or other course of study by the government.
iii. Any donation made by a person during a year of assessment for the purpose of Formatted: Font: Font color: Auto
development of any rural or urban area with the approval of the government.
iv. Any donation made by a person during a year of assessment for the purpose of Formatted: Font: Font color: Auto
sports development or sports promotion approved by the government.
v. Any donation made by a person during a year of assessment to the government for Formatted: Font: Font color: Auto
a worthwhile government cause approved by the commissioner for IRS.
J. Legal and professional fees may be Formatted: Font: Font color: Auto
 Allowable; these include: Formatted: Font: Font color: Auto
i. The renewal of an existing lease with a life of less than 50 years; Formatted: Font: Font color: Auto
ii. Costs to preserve of existing trading rights; Formatted: Font: Font color: Auto
iii. Audit and accounting fees; Formatted: Font: Font color: Auto
iv. Contracts of employment for staff Formatted: Font: Font color: Auto
 Disallowable; these include: Formatted: Font: Font color: Auto

i. Costs of acquiring a new asset or right Formatted: Font: Font color: Auto
ii. Costs of a tax appeal or enquiry unless no adjustments are to be made Formatted: Font: Font color: Auto
as a result of any adjustments only relate to the year of enquiry and do
not relate to fraudulent or negligent conduct.
iii. Preparing a partnership agreement and the costs of litigation arising Formatted: Font: Font color: Auto
from the agreement.
Fines, costs etc. for breaches of the law are not normally allowed. Parking Formatted: Font: Font color: Auto
fines paid on behalf of employees are generally allowed but not if they relate
to offences of a proprietor.
K. The costs of obtaining loan finance, whether successful or not, are allowed. The costs Formatted: Font: Font color: Auto
of a share issue for a company are disallowed. Interest paid by an individual trader is
deductible as a trade expense; interest on overdue tax payments is not allowed.
L. Travelling in the course of trade is allowable. Travel expenses between home and Formatted: Font: Font color: Auto
work are disallowable (Newsom v. Robertson 1952).
M. The cost of educational courses for staff is allowable. Educational costs of a Formatted: Font: Font color: Auto
proprietor are deductible if they update existing knowledge but not if they provide
new knowledge or skills!! Pension contributions for staff are allowable.
K.O. APPIAH 38
3.4 TREATMENT OF LOSSES Formatted: Font: (Default) Times New
A. FOREIGN CURRENCY EXCHANGE LOSSES Roman, 12 pt
There shall be deducted any foreign currency exchange loss, other than a loss of a capital Formatted: Font: Font color: Auto
nature, incurred in the production of income during the period in respect of any debt claim,
debt obligation, or foreign currency holding of that person. A foreign exchange loss of a
capital nature may be capitalized and capital allowance granted at the rate of 10%. A
deduction is not allowed to a person for a foreign currency exchange loss incurred unless that
person has notified the Commissioner in writing of the existence of the debt claim, debt
obligation, or foreign currency holding which gave rise to the loss by the due date for
furnishing of that person‘s return of income for the year of assessment in which the basis
period in which the debt arose or foreign currency was acquired ends, or by a later date which
the Commissioner may allow. (This does not apply to a financial institution)
No deduction is allowed to a person for a foreign exchange currency loss where the person or Formatted: Font: Font color: Auto
associate of that person realizes an offsetting foreign currency exchange gain under another
transaction, including a hedging contract that is not included in assessable income (because it
might be of capital nature or has a foreign source which is not received in Ghana).
―Hedging Contract‖ means a contract entered into by a person in order to eliminate or reduce Formatted: Font: Font color: Auto
that risk of adverse financial consequences which might result for that person under contract
from currency exchange rate fluctuation.
B. Carry Over of Losses Formatted: Font: Font color: Auto

For the purpose of ascertaining the income of a person for a basis period from farming, Formatted: Font: Font color: Auto
manufacturing (manufactures mainly for export) or mining business, there shall be deducted
for a period of 5 years a loss of the previous 5 basis periods incurred by that person in
carrying on that business; and where that person has incurred more than one such loss, the
losses shall be deducted in the order in which they were incurred - FIFO basis. A loss may
only be deducted where the loss has not been deducted in ascertaining the income of that
person for a previous basis period. The loss for a basis period is calculated as the excess of
amounts, deductible in ascertaining a gain or profit from business over the amount required to
be included in ascertaining the profit or gain. The aggregate deduction from assessable
income in respect of the loss shall not in any circumstance exceed the amount of the loss. No
deduction for any year of assessment shall exceed the amount if any, of the assessable income
(included in the total assessable income for that year of assessment) from the source of
income in respect of which the loss, which is the subject of the deduction, was incurred.
It should be noted that ―manufacturing business‖ is defined as a business that manufactures Formatted: Font: Font color: Auto
mainly for export, thus persons that manufacture mainly for local consumption are not
covered by this provision. For the tourism industry, this provision covers only those operators
registered with the Ghana Tourist Board and for ICT; it covers persons engaged in software
development.
C. Treatment of Losses (LI 1675 Regulation 10) Formatted: Font: Font color: Auto
In deducting a loss from any income in respect of any basis period losses incurred from a Formatted: Font: Font color: Auto
business and an investment shall be treated separately. A loss incurred from a business shall
not be set off against or deducted from an investment and a loss from investment shall not be
set off against or deducted from an income from a business. No deduction is made in respect
K.O. APPIAH 39
of carry over losses unless a claim in respect of the loss is made to the Commissioner in
writing within twelve months after the end of the basis period in which the loss was incurred.
3.5 STOCK VALUATION Formatted: Font: (Default) Times New

The generally accepted basis of valuation is the lower of cost and market value. There is no
statutory guidance on the principles of stock valuation for income tax purposes. The UK Roman, 12 pt
Inland Revenue‘s view of cost, which is also applicable in Ghana, is that the term means Formatted: Font: Font color: Auto
actual or historical cost. If actual cost cannot be accurately computed, the next appropriate
alternative should be adopted – e.g. adjusted selling price method in departmental stores.
3.6 Comprehensive Example Formatted: Font: (Default) Times New

Mr. Agana has been operating a trading business, Joe Gana Ent., for several years in Roman, 12 pt
Ayeduase. He has prepared and presented the following Profit and Loss Account for the year Formatted: Font: Font color: Auto
2013.
JOE GANA ENT.
PROFIT AND LOSS ACCOUNT FOR THE YEAR ENDED 31 ST DECEMBER 2013 Formatted: Font: Font color: Auto
GHS GHS Formatted: Font: Font color: Auto

Gross profit b/d 312,500 Formatted: Font: Font color: Auto
Rent income 62,000 Formatted: Font: Font color: Auto
Less Expenses: Formatted: Font: Font color: Auto
Staff salaries 18,000 Formatted: Font: Font color: Auto
Management salaries (Note 1) 52,500 Formatted: Font: Font color: Auto
Interest on loan (Note 2) 15,000
Rent (Note 3) 65,000
Repairs (Note 4) 51,000
Entertainment (Note 5) 8,000
Donations (Note 6) 23,000 Formatted: Font: Font color: Auto
Vehicle expenses (Note 7) 10,000 Formatted: Font: Font color: Auto

Travelling and transport (Note 8) 17,500 Formatted: Font: Font color: Auto
Legal fees (Note 9) 11,800 Formatted: Font: Font color: Auto
Bad debts (Note 10) 24,200 Formatted: Font: Font color: Auto
Depreciation 38,000 Formatted: Font: Font color: Auto
Advertisement (Note 11) 32,000 Formatted: Font: Font color: Auto
Exchange loss (Note 12) 28,000
Medical expenses (Note 13) 30,000
Loss on sale of fixed assets 5,000
Training expenses (Note 14) 12,000 Formatted: Font: Font color: Auto
(441,000) Formatted: Font: Font color: Auto
Net loss 66,500 Formatted: Font: Font color: Auto

Additional information: Formatted: Font: Font color: Auto
1. Management Salaries Formatted: Font: Font color: Auto
Proprietor 28,000 Formatted: Font: Font color: Auto
Chief accountant 15,000
K.O. APPIAH 40
Proprietor‘s nephew 9,500 Formatted: Font: Font color: Auto
Given the qualification of the proprietor‘s nephew, he would have earned GHS8,000 Formatted: Font: Font color: Auto
on the open market.
2. Interest is on an overdraft facility he obtained from Ecobank. Formatted: Font: Font color: Auto
3. Rent Formatted: Font: Font color: Auto
This is in respect of a building, part of which is used by Mr. Agana as residence. It is Formatted: Font: Font color: Auto
assumed that the residential portion of the building covers 70% of the total cost of the
rent.
4. Repairs Formatted: Font: Font color: Auto
This is made up as follows: Formatted: Font: Font color: Auto
Fixing of burglar proof doors 14,000 Formatted: Font: Font color: Auto
Replacing concrete floor with terrazzo 21,000 Formatted: Font: Font color: Auto
Normal repairs 16,000 Formatted: Font: Font color: Auto
5. Entertainment Formatted: Font: Font color: Auto

This was in respect of the expenses incurred during the wedding of Mr. Agana‘s elder Formatted: Font: Font color: Auto
brother.
6. Included in donations is an amount of GHS13,000 given to the Holy Rosary Catholic Formatted: Font: Font color: Auto
Church harvest committee.
7. Vehicle Expenses: these are on the car used by Agana. It is estimated that the vehicle Formatted: Font: Font color: Auto
is used evenly for business and private purposes.
8. The travelling and transport expenses were in respect of Agana‘s medical treatment in Formatted: Font: Font color: Auto
London.
9. Legal fees Formatted: Font: Font color: Auto
This was in respect of a suit against the enterprise for defaulting on tax payment Formatted: Font: Font color: Auto
10. Bad debts Formatted: Font: Font color: Auto
Specific debts written off 19,200 Formatted: Font: Font color: Auto
General provisions 8,000 Formatted: Font: Font color: Auto
Specific provision 12,400
Recoveries 15,400
11. Advertisements
Permanent neon sign 10,000
Newspaper advertisement 14,000 Formatted: Font: Font color: Auto
Advertisement tax 8,000 Formatted: Font: Font color: Auto

12. Included in the exchange loss account is an amount of GHS18,500 in respect of a Formatted: Font: Font color: Auto
fixed asset purchased on credit. Formatted: Font: Font color: Auto
13. Medical expenses; an amount of GHS17,500 was spent on Agana‘s nephew when he Formatted: Font: Font color: Auto
was hospitalised.
14. Training expenses Formatted: Font: Font color: Auto
ICAG Seminar attended by the chief accountant 3,500 Formatted: Font: Font color: Auto
Parishioners society of Ghana dues paid by Agana 8,500 Formatted: Font: Font color: Auto
15. Capital allowances; assume capital allowance on all assets for the year was Formatted: Font: Font color: Auto
GHS47,000.
16. Closing stock of GHS25,000 was obtained on LIFO basis (FIFO: GHS28,000). Formatted: Font: Font color: Auto
Required: Formatted: Font: Font color: Auto

Determine Agana‘s chargeable income and tax liability for 2013 year of assessment. Ignore Formatted: Font: Font color: Auto
any reliefs.
K.O. APPIAH 41
SOLUTION Formatted: Font: Font color: Auto
JOE GANA ENT Formatted: Font: Font color: Auto
COMPUTATION OF ADJUSTED PROFIT Formatted: Font: Font color: Auto
Net loss 66,500 Formatted: Font: Font color: Auto
Less rent income1 62,000 (128,500)
Add:
Management salaries (28,000+1,500) 29,500
Rent: 70%×65,000 45,500
Repairs (14,000+21,000) 35,000 Formatted: Font: Font color: Auto
Entertainment 8,000 Formatted: Font: Font color: Auto

Donations 13,000 Formatted: Font: Font color: Auto
Vehicle expenses 5,000 Formatted: Font: Font color: Auto
Travelling and transport 17,500 Formatted: Font: Font color: Auto
Legal fees 11,800 Formatted: Font: Font color: Auto
Bad debts 8,000 Formatted: Font: Font color: Auto
Depreciation 38,000
Advertisement (10,000+8,000) 18,000
Exchange loss 18,500
Medical expenses 17,500 Formatted: Font: Font color: Auto
Loss on disposal 5,000 Formatted: Font: Font color: Auto
Training expenses 8,500 Formatted: Font: Font color: Auto

Stock valuation (28,000 – 25,000) (3,000) 275,800 Formatted: Font: Font color: Auto
Adjusted Business Profit 147,300 Formatted: Font: Font color: Auto
COMPUTATION OF CHARGEABLE INCOME Formatted: Font: Font color: Auto
Business Profit 147,300
1 Formatted: Font: Font color: Auto
RENT TAX
This is the tax paid by rent income earners on the gross amount earned in a year of
assessment. The rate of tax is 8% on the gross rent income. It is a final tax. This provision
replaces the
K.O. APPIAH 42
Less capital allowance 47,000 100,300 Formatted: Font: Font color: Auto
Gross Rent Income 62,000 Formatted: Font:
Less standard allowance (30%×62,000) 18,600 43,400 Formatted: Font:
Chargeable income 143,700 Formatted: Font: Font color: Auto
COMPUTATION OF TAX LIABILITY FROM TRADE INCOME Formatted: Font: Font color: Auto
Year Income Tax Rate Tax Amount Cumulative Tax Formatted: Font:
2013 GHS % GHS GHS Formatted: Font: Font color: Auto
First 1,584 0 0.00 0.00 Formatted: Font:
Next 792 5 39.60 39.60 Formatted: Font:
Next 1,104 10 110.40 150.00
Next 28,200 17.5 4,935.00 5,085.00
Remaining 68, 620 25.0 17,155 22,240.00
COMPUTATION OF TAX LIABILITY FROM RENT INCOME Formatted: Font: Font color: Auto
8% on Gross Rent ¢62,000………………..………………………………………..GH¢4,960 Formatted: Font: Font color: Auto
Thus Mr. Agana‘s tax liability for 2013 is GH¢27,200 Formatted: Font: Font color: Auto
. Formatted: Font: Font color: Auto
Example Two Formatted: Font: Font color: Auto

Mr. Benkuta has been the Head of Treasury in Bank Du Accra for many years. For the year Formatted: Font: Font color: Auto
2010, his entitlements were as follows:
GHS
Salary 14,000 Formatted: Font: (Default) Times New Rom
Fully furnished accommodation Formatted: Font: Font color: Auto

Vehicle with fuel Formatted: Font: Font color: Auto
Inconvenience allowance 3,500 Formatted: Font: Font color: Auto
Risk allowance 9,000 Formatted: Font: Font color: Auto
He receives cash of GHS450 a month for entertaining visitors. He contributes towards the Formatted: Font: Font color: Auto
Social Formatted: Font: Font color: Auto
Security Scheme. He also has a life assurance policy with a capital sum of GHS30,000 upon
which he pays a monthly premium of GHS250. Roman, Font color: Auto
He has been operating two Urvan buses. His account for the year ended 31st December 2010 Formatted: Font: Font color: Auto
showed the following results:
GHS GHS Roman, Font color: Auto
Total income 12,000 Formatted: Font: (Default) Times New Rom
Less expenses: Formatted: Font: Font color: Auto
IRS quarterly stickers 1,250
Repairs and testing 1,550
Drivers and mates 1,500
Petrol and lubricants 2,650
Road tips 2,150 Formatted: Font: Font color: Auto
K.O. APPIAH 43
Fines 900 Formatted: Font: Font color: Auto
Insurance 850 Formatted: Font: Font color: Auto
Depreciation 1,950 12,800 Formatted: Font: Font color: Auto
Net profit (loss) (800) Formatted: Font: Font color: Auto
He is married with five children all of whom are attending schools in the United States of Formatted: Font: Font color: Auto
America. Capital Allowance granted for the period amounted to GHS2,850.
You are required to determine his tax liability for the 2010 year of assessment. Formatted: Font: Font color: Auto
Roman, 12 pt

Roman, Font color: Accent 1
CHAPTER FOUR Roman, 12 pt, Font color: Accent 1

4.0 BASIS OF ASSESSMENT FOR INDIVIDUALS AND COMPANIES Roman, 12 pt, Bold, Font color: Accent 1
4.1 THE NORMAL RULE Roman, 12 pt
A trader is assessed on the adjusted trading profits of the Year of Assessment of 12 months Formatted: Font: (Default) Times New
ended in the relevant tax year. Year of assessment is the Income Tax Year. It is the year in
which taxes are charged and collected. It coincides with the government‘s fiscal year. In Roman, 12 pt
Ghana it has changed from time to time. In 1944 when assessment was first made the Year of
Assessment was April – March (1/4 -31/3). In 1961 it was changed to July – June (1/7 –
30/6). In 1983 it was changed to Jan – Dec (1/1 – 31/12). Section 24 of Act 592 (as amended)
defines the Year of Assessment of a person as the calendar year from 1st January to 31st
December.
4.2 TYPES OF BASIS PERIODS Formatted: Font: (Default) Times New

The source of income will determine the type of basis period to be applied or used. It is
possible that in a particular year of assessment, income being levied from different sources Roman, 12 pt
will have totally different basis periods altogether but will be assessed in the same year of
assessment.
K.O. APPIAH 44
Year of Assessment Employees Individuals / Companies Formatted: Font: Font color: Auto
1944/45 – 1960/61 PY (APR – MAR) PY (APR – MAR)
1961/62 – 1981/82 CY (JUL – JUN) PY (JUL – JUN) Formatted: Font: Font color: Auto
1983 – 1987 CY (JAN – DEC) CY (JAN – DEC)
1988 – 2000 CY (JAN – DEC) AY or CY (JAN – DEC) Formatted: Font: Font color: Auto
4.2.1 Preceding Year – PY
Under the preceding year system income from all sources were assessed on previous year
basis. Therefore in a particular year of assessment, the income to be assessed from those
sources should be income earned in the year immediately preceding its year of assessment. Roman, 12 pt, Font color: Accent 1
4.2.2 Current (Actual) Year Basis Period Formatted: Font: Font color: Auto
PNDCL 61 (Provisional National Defence Council Law No. 61 of 1983) defined the Year of Formatted: Font: (Default) Times New
Assessment as: Roman, 12 pt, Font color: Accent 1
The period of 12 months commencing on the 1st day of January, 1983 and ending 31st day of Formatted: Font: (Default) Times New Rom
December in that year. Formatted: Font: Font color: Auto
Under the current year system, incomes from all sources were assessed on the same day Formatted: Font: Font color: Auto
current basis. Sec 76 of SMCD 5 (Supreme Military Council Decree No. 5 of 1975) was
amended as follows:
―Basis Period‖ in respect of any person means the year of assessment. ―Year of Assessment‖ Formatted: Font: Font color: Auto
means the period of twelve months commencing on the 1st day of January 1983, and ending
on 31st December, 1983, and each subsequent period of twelve months commencing on the
1st day of January and ending on the 31st day of December in that year (Basis of Computing
Assessable Income) Sec 11 of SMCD 5 Replaced by PNDCL61 Sec 11(1) states that the
income of any person for any Year of Assessment from each source of his income
(hereinafter referred to as ―assessable income‖) shall be the full amount from each source for
that year of assessment.
Apportionment of Incomes (PNDCL61 – Income Tax Amendment Law, 1983) Formatted: Font: Font color: Auto
Sec 11(4) of SMCD 5 (as amended) states that where in the case of any trade, business, Formatted: Font: Font color: Auto
profession or vocation it is necessary, in order to arrive at the income of any part of
assessment or other period, to divide and apportion to specific periods the income or any
period for which accounts have been made up, or to aggregate any such income or any
apportioned parts thereof, it shall be lawful to make such division and apportionment or
aggregation, and any apportionment under this section shall be made in proportion to the
number of days in the respective periods, unless the Commissioner, having regard to any
special circumstances, otherwise directs
4.3 Conversion from Preceding Year to Current Year System of Assessment Formatted: Font: (Default) Times New
Section 26 of PNDCL 61 provides specific rules to be followed during the change over from
Preceding Year to Current Year. Roman, 12 pt
The change took effect from 1st January, 1983 Formatted: Font: Font color: Auto
The Year of Assessment changed from (July to June) to (January to December)
K.O. APPIAH 45
The last two years prior to the year of change have been divided into two viz: Formatted: Font: Font color: Auto
 1981/82 (Proper) 1/7/81 – 30/6/82 Formatted: Font: Font color: Auto
 1981/82 (Transitional) 1/7/82 – 31/12/82 Formatted: Font: Font color: Auto
The laws governing these two periods are very similar to the laws applicable to the Formatted: Font: Font color: Auto
penultimate and cessation years under the Preceding Year (PY) system of assessment
1981/82 (Proper) Formatted: Font: Font color: Auto

Basis: 1/7/80 – 30/6/81 whichever is higher Formatted: Font: Font color: Auto
1/7/81 – 30/6/82 Formatted: Font: Font color: Auto
1981/82 (Transitional) Formatted: Font: Font color: Auto

The law states that tax will be levied on income earned during that particular period (i.e. Formatted: Font: Font color: Auto
1/7/82 – 31/12/82)
This is similar to the Year of Cessation under the Preceding Year (PY) system of assessment Formatted: Font: Font color: Auto
except that in this case the law categorically states that the TAX payable for 1981/82
(Transitional) period should not be less than half of the tax payable for 1981/82 Proper
4.4 Accounting Year Basis Period (1988 – 2000) Formatted: Font: (Default) Times New
PNDCL 192 of 1987 (Amendment NO. 2) amended SMCD 5 of 1975 by the substitution for Roman, 12 pt
sec 11 of the following new section Formatted: Font: Font color: Auto
11(1) the income of any person for any year of assessment from each source of his income Formatted: Font: Font color: Auto
(hereafter referred to as ―Assessable Income‖) shall be the full amount of his income from
each source for that Year of assessment provided that for the purpose of determining the
Assessable income of any person whose accounting period ends on a date other 31st
December, the accounting period of that person shall be the basis period for assessing his
income for that Year of Assessment within which his accounting period ends.
―Year to” refers to a period of exactly 12 months Formatted: Font: Font color: Auto
“Period to” refers to a period of either less than 12 months or more than 12 months Formatted: Font: Font color: Auto
4.5 Basis Period Under ACT 592 (Section 24 of Act 592 as amended) Formatted: Font: (Default) Times New
Means the period by reference to which assessable income of any person is computed in
accordance with the provisions of the Act. Roman, 12 pt
The basis period of a person is, Formatted: Font: Font color: Auto
 In the case of an individual or a partnership, the calendar year from 1st January to Formatted: Font: Font color: Auto
31st December; and
 In the case of a company or a body of persons, the accounting year of the company or Formatted: Font: Font color: Auto
body
 A Company or Body of Persons may change its basis period but must seek approval Formatted: Font: Font color: Auto
from the Commissioner and comply with the commissioner‘s condition that may be
attached to the approval.
 The Commissioner may revoke approval if conditions are not complied with. Formatted: Font: Font color: Auto
K.O. APPIAH 46
COMPREHENSIVE EXAMPLES Formatted: Font: Font color: Auto
Example One Formatted: Font: Font color: Auto

Pepple Ltd commenced business on June 4, 2008, preparing accounts to 30 th November Formatted: Font: Font color: Auto
annually. The company presented the following agreed profits for the first three years of its
operations:
GHS Formatted: Font: Font color: Auto
Period to 30/11/2009 24,800 Formatted: Font: Font color: Auto
Year to 30/11/2010 15,600 Formatted: Font: Font color: Auto
Determine the company‘s assessable income for all the relevant years of assessment.
Solution Formatted: Font: Font color: Auto

PEPPLE LTD Formatted: Font: Font color: Auto
DETERMINATION OF THE ASSESSABLE INCOME Formatted: Font: Font color: Auto
Year of Assessment Basis Period Assessable Income Formatted: Font: Font color: Auto
2008 4/6/08 – 30/11/08 (24,800×6/18) 8,267
2009 1/12/08 – 30/11/09 (24,800×12/18) 16,533
2010 1/12/09 – 30/11/10 15,600
2011 1/12/10 – 30/11/11 35,500
NOTE: The period to 30/11/2009 constitutes a total number of 18months starting from Formatted: Font: Font color: Auto
June 2008 to November, 2009.

Monica, a dealer in antiques, makes up accounts showing adjusted profits as follows: Formatted: Font: Font color: Auto
Year ending 31 December, 2009 360,000 Formatted: Font: Font color: Auto
Year ending 31 December, 2010 180,000 Formatted: Font: Font color: Auto
Year ending 31 December, 2011 320,000
15 months to 31 March, 2013 480,000
Show all assessments to be based on these accounting periods
Solution
Monica Formatted: Font: Font color: Auto
DETERMINATION OF THE ASSESSMENTS Formatted: Font: Font color: Auto

Year of Assessment Basis Period Assessable Income Formatted: Font: Font color: Auto
2009 1/1/09 – 31/12/09 360,000 Formatted: Font: Font color: Auto
2012 1/1/12 – 31/12/12 (480,000×12/15) 384,000
2013 1/1/13 – 31/3/13 (480,000×3/15) 96,000
K.O. APPIAH 47
CHAPTER FIVE Roman, 12 pt, Font color: Accent 1

5.0 PARTNERSHIPS Roman, 12 pt, Bold, Font color: Accent 1
A partnership is the relationship that subsists between two or more persons carrying on Roman, 12 pt
business in common with a view to a profit. The Incorporated Private Partnership Act 1962, Formatted: Font: Font color: Auto
Act 152 3 (1) defines Partnership as ―the association of two or more individuals carrying on
business jointly for the purpose of making profits.‖
For tax purposes the same basic definition applies, but to be effective the partnership must Formatted: Font: Font color: Auto
exist: IN SUBSTANCE and IN FORM
―you do not constitute or create or prove a partnership by saying that there is one‖ Clyde LP – Formatted: Font: Font color: Auto
IRC v. Williamson.
5.1 Partnership versus employment Formatted: Font: (Default) Times New

The taxation implications of being a partner over being an employee include:
a. The Inland Revenue can challenge the reasonableness of a salary paid to an employee Roman, 12 pt
as it is a trade expense. It cannot generally challenge the reasonableness of a Formatted: Font: Font color: Auto
partnership share as it is appropriate of profits. So long as the partner makes a fair
K.O. APPIAH 48
contribution to the affairs of the partnership a substantial share of profits can be
allocated.
b. A major disadvantage of being a partner is that of unlimited liability for partnership Formatted: Font: Font color: Auto
debt. This may be mitigated by the use of a limited liability partnership.
5.2 Division of profits Formatted: Font: (Default) Times New

All partnership profits and other income are calculated for a period of account and divided in
the profit sharing arrangements of that period. Priority is given to allocating salaries and Roman, 12 pt
interest on capital. The total profits will be assessed; salaries are not assessed and interest is Formatted: Font: Font color: Auto
taxable. There is no joint assessment; income tax will be assessed directly on each individual
partner. The partner must submit a tax return at the end of the year of assessment. The return
will contain a partnership statement containing details of:
 Income, losses and charges Formatted: Font: Font color: Auto
 Their division between the partners Formatted: Font: Font color: Auto
5.3 Salaried partners Formatted: Font: (Default) Times New

They are treated as employees – not partners- for tax purposes. However, they will be treated
as partners for partnership law. Whether or not a partner is salaried or equity will depend on Roman, 12 pt
both the partnership agreement and reality; in particular if a partner shares in losses then he or Formatted: Font: Font color: Auto
she is likely to be an equity partner.
5.4 Capital allowances Formatted: Font: (Default) Times New

Capital allowances will be claimed by the partnership and dealt with in the partnership
statement. There is no provision for capital allowance claims by individual partners. Roman, 12 pt
5.5 Losses Formatted: Font: (Default) Times New
Like profits, losses will be divided between the partners in accordance with the profit/loss Roman, 12 pt, Font color: Accent 1
sharing arrangements of the relevant period of account. Each partner can nominate the loss Formatted: Font: (Default) Times New
relief that he or she requires. A new partner joining the partnership can claim relief for his or Roman, 12 pt
her share of a loss (subject to rules restricting relief where one spouse joins the other in Formatted: Font: Font color: Auto
partnership) and a partner leaving may claim terminal loss relief if appropriate.
5.6 CHANGES IN THE PARTNERSHIP Formatted: Font: (Default) Times New

Only changes in equity, as opposed to salaried partners are relevant for this purpose. Roman, 12 pt
Essentially, each partner is treated as trading on his or her own, and; Formatted: Font: Font color: Auto
a. If a partner joins the ongoing partnership, he or she is treated as commencing a new Formatted: Font: Font color: Auto
business individually. Individual overlap profits may be calculated and will be carried
forward for relief.
b. If a partner leaves an ongoing partnership, he or she is treated as ceasing an individual Formatted: Font: Font color: Auto
business. The overlap profits calculated on commencement will be deducted from the
final year‘s assessment with terminal loss relief available if the overlap exceeds the
profit of that year.
K.O. APPIAH 49
5.7 LIMITED LIABILITY PARTNERSHIPS Formatted: Font: (Default) Times New
Recently, it has become possible to carry on a partnership, effectively with limited liability.
The partnership is formed by the registration of incorporation documents with the Registrar Roman, 12 pt
of Companies. There must be at least two partners, referred to as ―members‖ and new Formatted: Font: Font color: Auto
partners/members can join at any time. Members can leave the LLP but there must always be
a minimum of two members at any time.
In law, an LLP is effectively treated as a company with limited liability however it is run and Formatted: Font: Font color: Auto
taxed as though it was unincorporated partnership. The limited liability status is not absolute
and the members of an LLP can still be liable in tort and for wrongful trading. Accounts will
be prepared as for a limited company and, depending on the size of the partnership an audit
may be required. The liability of a member on a winding up will normally be restricted to his
or her capital together with any undrawn profits.
For tax, an LLP is treated as a normal partnership except on liquidation where there are Formatted: Font: Font color: Auto
special rules. An existing partnership can be transferred to an LLP with no tax formalities
apart from a new VAT registration however it is not possible to obtain tax neutrality on:
 The conversion of a limited company to an LLP, nor on Formatted: Font: Font color: Auto
 The conversion of an LLP into a limited company Formatted: Font: Font color: Auto
If an LLP makes a trading loss, normal loss relief is available however the amount of the loss Formatted: Font: Font color: Auto
that can be offset against the partner‘s other income is generally restricted to the amount of
the member‘s subscribed capital.
5.8 COMPREHENSIVE EXAMPLE Formatted: Font: (Default) Times New

Example one
Roman, 12 pt
Below is the first Profit and Loss Account of Marian and Vickie, two sisters who have been Formatted: Font: Font color: Auto
in partnership to engage in merchandising.
Profit and Loss Account for the period 1/4/11 – 31/12/13 Formatted: Font: Font color: Auto
Salaries/wages 71,000 Gross Profit b/d 324,500 Formatted: Font: Font color: Auto
Interest on capital 4,000 Rent income 6,000 Formatted: Font: Font color: Auto
Transportation 48,000 Dividend 44,000 Formatted: Font: Font color: Auto
Vehicle expenses 15,000
Foreign exchange loss 60,000
Bad debts 4,000
Legal fees 7,500
Income tax 26,000 Formatted: Font: Font color: Auto
Telephone and fax 11,800 Formatted: Font: Font color: Auto

Depreciation 6,200 Formatted: Font: Font color: Auto
Net profits 121,000 Formatted: Font: Font color: Auto
374,500 374,500 Formatted: Font: Font color: Auto
NOTES: Formatted: Font: Font color: Auto
K.O. APPIAH 50
1. Rent is in respect of surplus accommodation which the business did not require. The Formatted: Font: Font color: Auto
commissioner did not permit the 10% withholding tax deduction
2. Dividend is net amount received from their investment with Tullow Oil Plc. Formatted: Font: Font color: Auto
3. The firm exported goods of GHS150,000; however at the time of preparation of the Formatted: Font: Font color: Auto
account, GHS100,000 of the amount had been paid. This is reflected in the accounts.
The firm prepares accounts on the accrual basis.
4. Marian is the managing director of the business and is entitled to a salary of Formatted: Font: Font color: Auto
GHS1,000 a month.
5. Vickie who provided additional capital of GHS240,000 as working capital is entitled Formatted: Font: Font color: Auto
to 10% interest annually on the additional capital.
6. Transportation is in respect of conveyance of goods. The haulage company is owned Formatted: Font: Font color: Auto
by Vickie. She charged the firm 5% more than the normal rate chargeable in the
haulage business.
7. Foreign exchange loss represents cedis required to pay for imported goods due to fall Formatted: Font: Font color: Auto
in the exchange rate of cedi between date of supply of goods and due date for
payment.
8. The legal fees are in connection with registration and formation of business. Formatted: Font: Font color: Auto
9. Bad debts represent goods that were given as gratis to customs officials at the Formatted: Font: Font color: Auto
harbour.
10. Income tax is paid quarterly. Formatted: Font: Font color: Auto
11. A niece of the two sisters, Naa, who is in Accra sent a brand new Opel Vectra car to Formatted: Font: Font color: Auto
the two aunts as gift. The value of the car was GHS50,000 at the time of delivery in
January 2011. It was agreed that this should be used as a business vehicle and it is
being used as such.
12. Other assets owned by the business include furniture and fittings costing GHS20,000 Formatted: Font: Font color: Auto
purchased on 1/3/2011.
13. The firm purchased an old building for GHS75,000. This has been used as office and Formatted: Font: Font color: Auto
store since 1/4/2011. The building was put up in 1980 at a cost of GHS6,500. Two
computers costing GHS12,500 each were purchased on 17/11/2012.
14. The two sisters share profit and loss equally. Formatted: Font: Font color: Auto
15. Marian is married with three children. Two of the children attend high schools in Formatted: Font: Font color: Auto
Ghana; while the last one attends Kings College in London. She also takes care of two
aged uncles.
16. Vickie is enjoying her single life; however, she takes care of their parents. Their Formatted: Font: Font color: Auto
father is 65 years, but, their mother is 55 years.
You are required to determine the chargeable income of each partner for all relevant years. Formatted: Font: Font color: Auto
SOLUTION Formatted: Font: Font color: Auto

Marian and Vickie Partnership Formatted: Font: Font color: Auto
Computation of Capital Allowances Formatted: Font: Font color: Auto
Class 1 Class 4 Class 5 Total Formatted: Font: Font color: Auto
GHS GHS GHS GHS Formatted: Font: Font color: Auto
2011 (1/4/ - 31/12)
Cost 20,000 75,000 95,000
Capital allowance (9/12) (3,000) (5,625) (8,625)
WDV c/d 17,000 69,375 86,375
2012 (1/1 – 31/12) Formatted: Font: Font color: Auto
K.O. APPIAH 51
WDV b/d 17,000 69,375 86,375 Formatted: Font: Font color: Auto
Additions 25,000 Formatted: Font: Font color: Auto
Carrying amount 25,000 17,000 69,375 86,375 Formatted: Font: Font color: Auto
Capital allowance (10,000) (3,400) (7,500) (20,900) Formatted: Font: Font color: Auto
WDV c/d 15,000 13,600 61,875 65,475 Formatted: Font: Font color: Auto
2013 (1/1 – 31/12) Formatted: Font: Font color: Auto

Capital allowance (6,000) (2,720) (7,500) (16,220) Formatted: Font: Font color: Auto
Computation of Partnership Adjusted Profit Formatted: Font: Font color: Auto

Net profit 121,000 Formatted: Font: Font color: Auto
Less: Rent income 6,000 Formatted: Font: Font color: Auto
Dividend received 44,000 50,000 71,000 Formatted: Font: Font color: Auto
Add back:
Income tax 26,000
Depreciation 6,200
Undisclosed income 50,000
Transport fees (5%×48,000) 2,400 Formatted: Font:
Legal fees 7,500 Formatted: Font: Font color: Auto

Bad debts 4,000 96,100 Formatted: Font:
Adjusted Profit 167,100 Formatted: Font: Font color: Auto
Computation of Partnership Chargeable Income Formatted: Font: Font color: Auto

Business income 167,100 Formatted: Font: Font color: Auto
Gross rent income 6,000 Formatted: Font:
Less standard allowance (30%) 1,800 Formatted: Font:
Investment income 4,200
Total income 171,300
Distributed as follows:
2011 – 9/33×171,300 46,718
Capital allowance (8,625) Formatted: Font: Font color: Auto

2012 – 12/33×171,300 62,291 Formatted: Font: Font color: Auto
Less capital allowance (20,900) Formatted: Font: Font color: Auto
2013 – 12/33×171,300 62,291 Formatted: Font: Font color: Auto

Less capital allowance (16,220) Formatted: Font: Font color: Auto
ASSESSMENT OF PARTNERS Formatted: Font: Font color: Auto
K.O. APPIAH 52
Marian Vickie Formatted: Font: Font color: Auto
2011 (1/4/ - 31/12) Formatted: Font: Font color: Auto
Share of profit 19,047 19,047 Formatted: Font: Font color: Auto
Salary (GHS1,000×9) 9,000 Formatted: Font: Font color: Auto
Interest on capital (240,000×10%×9/12) 18,000
Total Assessable Income 28,047 37,047
Reliefs:
Marriage 200
Children education (200×2) 400 Formatted: Font: Font color: Auto
Aged dependent (100 each) 200 (800) 100 (100) Formatted: Font: Font color: Auto
Chargeable income 27,247 36,947 Formatted: Font: Font color: Auto

Salary (GHS1,000×12) 12,000
Interest on capital (240,000×10%) 24,000
Reliefs (800) (100)

Salary (GHS1,000×12) 12,000
Interest on capital (240,000×10%) 24,000
Reliefs (800) (100)

Kingsley, Opoku and Appiah have been partnership for many years trading as KOA Formatted: Font: Font color: Auto
Hardware and preparing accounts to September 30 th annually. Their agreement showed that
they shared profits and losses in the ratio 3:2:1 respectively.
The assets used in their operations as at September 30th, 2010 were stated as follows: Formatted: Font: Font color: Auto
Office equipment 135,000 Formatted: Font: Font color: Auto
Pick-up trucks 68,000 Formatted: Font: Font color: Auto
Motor car 20,500 Formatted: Font: Font color: Auto
K.O. APPIAH 53
Appiah resigned from KOA Hardware on July 1 st, 2012 and after his exit, the remaining Formatted: Font: Font color: Auto
partners continued the business agreeing to share profits equally.
The engine of the motor car was replaced on 15 th March, 2011 at a cost of GHS10,000 Formatted: Font: Font color: Auto
whereas additional assets were acquired by the firm as follows:
a. A building was purchased at a cost of GHS520,000 in May 15 th 2012. Formatted: Font: Font color: Auto
b. A Nissan Patrol 4×4 was acquired at a cost of GHS250,000 on August 31st, 2012. Formatted: Font: Font color: Auto
Some of the office equipment were sold on October 15th, 2012 for GHS20,500. Formatted: Font: Font color: Auto
The firm adjusted profits for tax purposes were reported as follows: Formatted: Font: Font color: Auto
You are required to compute the chargeable income for each partner for the relevant years of Formatted: Font: Font color: Auto
assessments on the assumption that no other incomes accrue to any of the partners.
KOA ENT. Formatted: Font: Font color: Auto

COMPUTATION OF CAPITAL ALLOWANCE Formatted: Font: Font color: Auto
2011 TO 2013 YEARS OF ASSESSMENT Formatted: Font: Font color: Auto
Pool 2 Pool 4 Pool 5 Total Formatted: Font: Font color: Auto
30% 20% 10% Formatted: Font: Font color: Auto
GHS GHS GHS GHS
2011 Year of Assessment
B.P. 01/10/2010 – 30/9/2011
Balance b/f 88,500 135,000
Additions 10,000 0 Formatted: Font: Font color: Auto
Balance in Pool 98,500 135,000 Formatted: Font: Font color: Auto

Capital allowance 29,550 27,000 56,550 Formatted: Font: Font color: Auto
Balance c/d 68,950 108,000 Formatted: Font: Font color: Auto
2012 Year of Assessment Formatted: Font: Font color: Auto
B.P. 01/10/2011 – 30/9/2012 Formatted: Font: Font color: Auto
Balance b/d 68,950 108,000
Additions 250,000 520,000
Balance in Pool 318,950 108,000 520,000
Capital Allowance 95,685 21,600 52,000 169,285
Balance c/d 223,265 86,400 468,000 Formatted: Font: Font color: Auto
K.O. APPIAH 54
2013 Year of Assessment Formatted: Font: Font color: Auto
B.P. 01/10/2012 – 30/9/2013 Formatted: Font: Font color: Auto
Balance b/d 223,265 86,400 468,000 Formatted: Font: Font color: Auto
Disposals 20,500 Formatted: Font: Font color: Auto
Balance in Pool 223,265 65,900 468,000 Formatted: Font: Font color: Auto
Balance c/d 156,285 52,720 416,000
KOA ENT. Formatted: Font: Font color: Auto

COMPUTATION OF CHARGEABLE INCOME Formatted: Font: Font color: Auto
2011 TO 2013 YEARS OF ASSESSMENT Formatted: Font: Font color: Auto
Year of Assessment 2011 2012 2013 Formatted: Font: Font color: Auto
Basis Period (01/10 – 30/09) Formatted: Font: Font color: Auto
GHS GHS GHS
Adjusted Profit 250,000 320,000 385,500
Less Capital Allowance 56,550 169,285 132,160
Chargeable Income 193,450 150,715 253,340
Share to Partners as follows: Formatted: Font: Font color: Auto
King 96,725 75,358 126,670 Formatted: Font: Font color: Auto
Opoku 64,483 56,518 126,670 Formatted: Font: Font color: Auto
Appiah 32,242 18,839 0 Formatted: Font: Font color: Auto
5.9 QUESTION BANK Formatted: Font: (Default) Times New

ARE YOU TRADING? Roman, 12 pt
a. Classify each of the transactions described below as trading or non-trading; Formatted: Font: Font color: Auto
1. Edward is given a rare book as a birthday present. He sells it some years later to
finance private medical treatment for a member of his family.
2. Fiona‘s hobby is collecting rare books. She occasionally sells one of her books (if, for Formatted: Font: Font color: Auto
example, she finds herself in possession of two copies of the same book), but she
never sells more than one or two books a year.
3. Graham is employed as a teacher of English literature but he spends most of his Formatted: Font: Font color: Auto
weekends and vacations at book fairs, buying and selling rare books. He is also a
skilled bookbinder and often repairs a book‘s binding before selling it.
b. You are a partner in a large organisation of tax advisers. You have been asked to Formatted: Font: Font color: Auto
advise on the following transactions and in particular whether they might be taxable
either as a trade or as a capital gain:
1. In September 2013, Andrew bought a job lot of bankrupt stock with the intention of Formatted: Font: Font color: Auto
selling it at a profit. In October 2013, he sold the entire job lot to a single customer,
K.O. APPIAH 55
making a large profit. This was a one-off transaction and Andrew has no intention of
repeating it. Was he trading?
2. In April 2013, on the death of her grandfather, Barbara was left a country house Formatted: Font: Font color: Auto
together with its entire contents. She arranged for the contents of the house to be sold
at auction, realising a substantial sum. Was she trading?
3. Several years ago, Charles bought a painting that he admired and hung it on his living Formatted: Font: Font color: Auto
room wall. On being made redundant from his job in June 2013 he found himself
short of money and reluctantly decided to sell the painting. Was he trading?
4. Dorothy bought some shares in AngloGold Ashanti with the view to deriving Formatted: Font: Font color: Auto
dividend income from the shares. A few years later she sold the shares at a profit. Was
this a trading profit?
5. A leading merchant bank bought and sold shares constantly during its accounting Formatted: Font: Font color: Auto
year. Was the profit derived from these transactions a trading profit?
INDIVIDUAL INCOME TAXATION Formatted: Font: Font color: Auto

1. Capone is in business as a wine merchant preparing accounts to 30 June annually. His Formatted: Font: Font color: Auto
profit and loss account for the year ended 30 June 2013 is as follows: Formatted: Font: Font color: Auto
Rent and business rates 2,740 Gross profit b/d 51,929 Formatted: Font: Font color: Auto
Light and heat 120 Bank deposit interest 160
Office salaries 19,660 Dividend (net) 140
Repairs to premises (a) 2,620
Motor expenses 740
Depreciation - motor vans 2,800 Formatted: Font: Font color: Auto
equipment 750 Formatted: Font: Font color: Auto

Amortisation of lease 120 Formatted: Font: Font color: Auto
Loss on sale of equipment 40 Formatted: Font: Font color: Auto
Bad and doubtful debts (b) 680 Formatted: Font: Font color: Auto
Professional charges (c) 375 Formatted: Font: Font color: Auto
Interest on bank overdraft (d) 240 Formatted: Font: Font color: Auto
Sundry expenses (e) 770
Salary – Capone 14,000
- wife, as secretary 1,450
Net profit 5,124
52,229 52,229 Formatted: Font: Font color: Auto
K.O. APPIAH 56
The following information is given: Formatted: Font: Font color: Auto
a. Repairs to premises GHS Formatted: Font: Font color: Auto
Alterations to flooring in order to install new bottling machine 1,460 Formatted: Font: Font color: Auto
Decorations 475 Formatted: Font: Font color: Auto
Replastering walls damaged by damp 685 Formatted: Font: Font color: Auto
2,620
b. Bad and doubtful debts account Formatted: Font: Font color: Auto
Trade debts written off 1,300 Provision b/d – general 3,600 Formatted: Font: Font color: Auto
Loan to employee written off 400 specific 1,520 Formatted: Font: Font color: Auto
Provision c/d – general 3,350 trade debts recovered 60 Formatted: Font: Font color: Auto
Specific 980 Loan to employee recovered 170
Profit and loss account 680
6,030 6,030
c. Professional charges GHS Formatted: Font: Font color: Auto

Accountancy 200 Formatted: Font: Font color: Auto
Cost of court action for failing to observe custom‘s regulations 110 Formatted: Font: Font color: Auto
Legal costs of obtaining new lease 20 Formatted: Font: Font color: Auto
Debt collection 45 Formatted: Font: Font color: Auto
375
d. Interest on bank overdraft Formatted: Font: Font color: Auto

The overdraft was obtained in order to finance the purchase of stock. Formatted: Font: Font color: Auto
e. Sundry expenses Formatted: Font: Font color: Auto

Fine re breach of custom‘s bonding regulations 250 Formatted: Font: Font color: Auto
Subscription to Wine Retail Trade Association 50 Formatted: Font: Font color: Auto
Donation to police welfare fund 20 Formatted: Font: Font color: Auto
Entertaining customers 300 Formatted: Font: Font color: Auto
Calendars bearing firm‘s name sent to 300 customers 120
Miscellaneous allowable expenses 30
770
f. During the year Capone withdrew goods from stock for his own consumption. The Formatted: Font: Font color: Auto
cost of this stock was GHS455. The business makes a uniform gross profit of 35% on
selling price. No entry had been made in the books in respect of the goods taken, other
than the resulting reduction in closing stock.
REQUIRED Formatted: Font: Font color: Auto

Compute Capone‘s adjusted profit before capital allowance for the year ended 30 June 2013. Formatted: Font: Font color: Auto
STARTING TO TRADE Formatted: Font: Font color: Auto
K.O. APPIAH 57
1. Sandra started a hairdressing business on 1st July 2012, and made accounts to 30th Formatted: Font: Font color: Auto
June annually. Her tax adjusted profits for her first three periods of account were as
under:
Year to 30 June 2013 24,800 Formatted: Font: Font color: Auto
Calculate the assessments for the first four tax years and calculate the amount of any Formatted: Font: Font color: Auto
overlap profits to be carried forward.
2. Freddy also started a business on 1st July 2012, and made up his accounts to 30th Formatted: Font: Font color: Auto
September annually. The tax adjusted profits for her first three periods of account
were as under:
15 months to 30 September 2013 30,600 Formatted: Font: Font color: Auto
Year to 30 September 2014 24,000 Formatted: Font: Font color: Auto
Year to 30 September 2015 20,000 Formatted: Font: Font color: Auto
Calculate the assessments for the first four tax years and calculate the amount of any Formatted: Font: Font color: Auto
overlap profits to be carried forward.
PARTNERSHIP Formatted: Font: Font color: Auto
Alberta &Betty are in partnership as equal partners preparing accounts to 30 th June each year. Formatted: Font: Font color: Auto
The following assets were in use as at 1st July, 2010.
Data process equipment 60,000 Formatted: Font: Font color: Auto
Plant, equipment and machinery 75,000 Formatted: Font: Font color: Auto
Leasehold building (5 yrs) 55,000 Formatted: Font: Font color: Auto
The following assets were purchased as at 1st July 2010: Formatted: Font: Font color: Auto
Cash registers 25,000
Furniture and fittings 20,000
The following assets were disposed off on 1st June, 2011:
Part of data equipment 30,000
All of Pool 2 assets 70,000 Formatted: Font: Font color: Auto
On 1st October 2010, Constance was admitted as a partner who was to enjoy 1/5 of the profits Formatted: Font: Font color: Auto
and losses.
K.O. APPIAH 58
Additional information Formatted: Font: Font color: Auto
Capital at 1/07/2010: GHS Formatted: Font: Font color: Auto
Partner Alberta (A) 50,000 Formatted: Font: Font color: Auto
Partner Betty (B) 50,000 Formatted: Font: Font color: Auto
Partner Constance (C) 20,000 Formatted: Font: Font color: Auto
Drawings made for the half year in 2011 year of assessment: Formatted: Font: Font color: Auto
Partner A 5,000 Formatted: Font: Font color: Auto
Partner B 10,000 Formatted: Font: Font color: Auto
Interest on partners‘ capital are allowed at 15% pa while drawings attract an interest of 10% Formatted: Font: Font color: Auto
pa.
Partner C was employed to be an active partner and she is to be paid a salary of GHS200 per Formatted: Font: Font color: Auto
month.
Trading results declared for the year to 30th June 2011 was GHS265,000 profit. Formatted: Font: Font color: Auto
All partners contribute to the Social Security Fund at a rate of 18.5% (including the Formatted: Font: Font color: Auto
contribution by the firm) of the distributable chargeable income. Only partner C is married
with 3 children in senior high schools while partners A and B have life assurance policies for
which they pay premium of GHS600 per month, with capital sum assured of GHS600,000
each.

a. Determine total chargeable income of each partner for the year of assessment 2011. Formatted: Font: Font color: Auto
b. Determine the tax payable by each partner for the same year. Formatted: Font: Font color: Auto
PARTNERSHIPS Formatted: Font: Font color: Auto

Boris, Steffi and Ivan are partners in leisurewear business which commenced on 1 st Formatted: Font: Font color: Auto
November 2010. Up to 30th June 2012, the partners shared profits in the ratio of 3:3:1, after
charging a salary of GHS2,000 to Ivan. After that date, the partners shared profits in the ratio
4:3:2, after charging a salary of GHS10,000 to Ivan. Recent partnership profits/losses after
making all necessary tax adjustments are as follows:
Year to 31st October 2011 GHS31,000 Formatted: Font: Font color: Auto
Year to 31st October 2012 GHS(30,000) Formatted: Font: Font color: Auto
You should assume that the partners‘ individual assessable shares of profits in 2013/14 will Formatted: Font: Font color: Auto
be GHS30,000, GHS35,000 and GHS40,000 respectively. You should also assume that
2012/13 tax rates and allowances apply for all relevant years of assessment.
Ivan, who is single, has no income apart from his share of partnership profits, and had none in Formatted: Font: Font color: Auto
earlier years. He is anxious to know how to make best use of his share of the loss incurred in
the year to 31st October 2012. He understands that he has a choice between a claim against
total income or, alternatively, against future trading profits.
a. Compute the partnership profits assessable in respect of each of the partners for Formatted: Font: Font color: Auto
2010/11 and 2011/12 and the overlap profits for each partner;
b. Compute the loss relief available to each of the partners; Formatted: Font: Font color: Auto
c. Advise Ivan whether he should claim loss relief taking income tax into account. Formatted: Font: Font color: Auto
K.O. APPIAH 59
Example 2 Formatted: Font: Font color: Auto
Arthur ceased to trade on 30th June 2013 when he transferred his business to a limited Formatted: Font: Font color: Auto
company which was wholly owned by him. His results since starting to trade on 1 st October
2008 have been:
Period to 30th June 2009 20,000 profit Formatted: Font: Font color: Auto
Year to 30th June 2010 23,000 profit Formatted: Font: Font color: Auto
2011 28,000 profit Formatted: Font: Font color: Auto
2012 26,000 profit Formatted: Font: Font color: Auto
2013 80,000 loss
He transferred all his business assets to the company, other than cash of GHS20,000 which he
retained personally. The assets transferred were:
Goodwill 600,000 Formatted: Font: Font color: Auto
Leasehold property purchased on 1st October for GHS77,250 150,000 Formatted: Font: Font color: Auto
Stocks and debtors 90,000 Formatted: Font: Font color: Auto
The consideration for the transfer was 400,000 ordinary shares of GHS1 each fully paid. Formatted: Font: Font color: Auto
Because the new company has just won a major contract and expects very substantial profits,
Arthur expects to receive an annual salary of GHS160,000 per annum.
a. Show the assessments on cessation of business; Formatted: Font: Font color: Auto
b. Show the CGT position on incorporation; Formatted: Font: Font color: Auto
c. Advise Arthur on the most appropriate relief for the loss of the last period of account; Formatted: Font: Font color: Auto
d. Assuming that the company has adequate cash resources, advise Arthur of potential Formatted: Font: Font color: Auto
tax planning that could be effected if he had GHS40,000 available capital losses.

CHAPTER SIX Roman, 12 pt, Font color: Accent 1

6.0 EMPLOYED OR SELF-EMPLOYED – EMPLOYMENT INCOME Roman, 12 pt, Bold, Font color: Accent 1
CONSEQUENCES Roman, 12 pt
The consequences of being employed as opposed to being self-employed include: Formatted: Font: Font color: Auto
a. A self-employed person pays income tax later than an employee, who has income tax Formatted: Font: Font color: Auto
deducted at source under PAYE. Formatted: Font: Font color: Auto
b. The expenses rule for an employee is more rigorous than for the self-employed. Formatted: Font: Font color: Auto
c. The costs of acquiring an office or employment are not allowable; they will however
normally be deductible as a trade expense.
6.1 INDICATORS OF EMPLOYMENT Formatted: Font: (Default) Times New

The following indicators are important in deciding whether a person is employed or self-
employed: Roman, 12 pt
K.O. APPIAH 60
a. Whether the contract is one of service (which indicates employment) or for services Formatted: Font: Font color: Auto
(which indicates self-employment). It is important to appreciate that the terms of the
contract cannot override the substance of the relationship. - Bank voor Handel en
Scheepvart NV v. Slatford.
b. The level of control a person has over: Formatted: Font: Font color: Auto
i) What he or she does. Formatted: Font: Font color: Auto
ii) When he or she does it. Formatted: Font: Font color: Auto
iii) Where he or she does it. Formatted: Font: Font color: Auto
iv) How he or she does it. Formatted: Font: Font color: Auto
The greater the degree of control, the more likely the individual is an employee.
c. How remuneration is calculated and paid. Payment by regular instalments, Formatted: Font: Font color: Auto
irrespective of the work done, which might include payment for overtime, sickness
and holidays would indicate employment. Conversely, the ability to negotiate the rate
of payment for different work done, payment only for work carried out etc. might
indicate self-employment.
d. If a person bears professional or financial risk in the venture, it might indicate self- Formatted: Font: Font color: Auto
employment.
e. Where a taxpayer can send a substitute, this might indicate self-employment. Formatted: Font: Font color: Auto
f. If a person provides his or her own tools and equipment this will indicate self- Formatted: Font: Font color: Auto
employment. Each situation depends on its facts: in some cases it is impossible or
impracticable for a person to provide his or her own equipment but this will not
prevent them from being self-employed – Hall v. Lorimer (1993).
g. Where a person can benefit from his or her efforts it indicates self-employment; Formatted: Font: Font color: Auto
conversely if his or her efforts benefit another person it indicates employment.
h. If a person only works for one business or for several, but associated, businesses, it Formatted: Font: Font color: Auto
will indicate employment.
i. If the person enjoys conditions similar to those enjoyed by recognised employees e.g. Formatted: Font: Font color: Auto
cars, use of company facilities etc., this will indicate employment.
j. If the person is an integral part of an organisation, it is difficult to establish that he or Formatted: Font: Font color: Auto
she is self-employed.
Activity Formatted: Font: Font color: Auto

Mr. Adu Eric was engaged by Focus FM 94.3 (FM 94.3) Kumasi to design and present Formatted: Font: Font color: Auto
programs on accounting matters on radio, twice a week. Mr. Adu had worked in an Accra-
based entity on such programs before. He and FM 94.3 agreed on an amount of GHS2,500
for eight programs a month. There was no time limit to the deal but either side could
terminate the contract by giving one-month notice. He was provided with an office, which he
could use if he wanted; he would also have the services of a typist if he found this necessary.
He was required to attend monthly staff meetings for review of the programs; otherwise he
K.O. APPIAH 61
was free to do his work as he deemed fit. Even though he presented the programs regularly,
he did not use the office facilities.

Determine whether he is an employee of FM 94.3 or self-employed. Bring out the necessary Formatted: Font: Font color: Auto
ingredients to substantiate your view.
6.2 TAXABLE EMOLUMENTS Formatted: Font: (Default) Times New

6.2.1 INTRODUCTION Roman, 12 pt
An individual is liable on the emoluments received from an office or employment. Formatted: Font: (Default) Times New
6.2.2 EMOLUMENTS Formatted: Font: (Default) Times New Rom
These are anything received as a reward for service or as per Lord Templeman in Shilton v Formatted: Font: (Default) Times New
Wilmshurt 1991 any payment received for ‗… being or becoming an employee …‘ and can
include:
 Gifts and prizes Formatted: Font: Font color: Auto
 Tips Formatted: Font: Font color: Auto
 Payment of an employee‘s obligation to third parties Formatted: Font: Font color: Auto
 Certain social security benefits including retirement pensions, statutory sickness and Formatted: Font: Font color: Auto
maternity pay, etc.
In general: Formatted: Font: Font color: Auto

a. If an employee has a contractual right to receive income, it is very likely to be a Formatted: Font: Font color: Auto
taxable emolument. Moorhouse v Dooland 1995
b. If the income received is recurrent, it is likely to be an emolument. Wright v Boyce Formatted: Font: Font color: Auto
(1958)
c. It is not necessary for the person providing the income to be the employer. Amounts Formatted: Font: Font color: Auto
received from outsiders are taxable they are a reward for service. Blackiston v Cooper
(1909)
d. Very exceptionally, a payment which is made because of the personal qualities of the Formatted: Font: Font color: Auto
recipient may not be taxable. Moore v Griffiths (1971).
6.2.3 OFFICE Formatted: Font: (Default) Times New

This is a position existing independently of the person who occupies it. Great Western
Railway Company v Bater (1922).
6.2.4 EMPLOYMENT Formatted: Font: (Default) Times New

This is a legal relationship of master and servant.
6.2.5 BASIS OF ASSESSMENT Formatted: Font: (Default) Times New

Income is taxable when received; it will normally be assessed at the earliest of:
a. The payment of the emoluments; or
b. When the employee becomes entitled without any restrictions to emoluments due to
him or her; or Formatted: Font: Font color: Auto
c. When a payment on account of the emoluments is made Formatted: Font: Font color: Auto
K.O. APPIAH 62
6.3 DEDUCTIBLE EXPENSES Formatted: Font: (Default) Times New
To be deductible an expense must satisfy expenses rule, i.e. it must consist of: Roman, 12 pt
 Qualifying travelling expenses, or Formatted: Font: Font color: Auto
 Any amount (other than qualifying travelling expenses) expended wholly, exclusively Formatted: Font: Font color: Auto
and necessarily in the performance of the duties of the office or employment. Formatted: Font: Font color: Auto
6.3.1 QUALIFYING TRAVEL EXPENSES Formatted: Font: (Default) Times New

Qualifying travelling expenses are broadly those incurred by an employee in the performance
of his or her duties together with those incurred in travelling to a place other than the normal
place of employment in order to carry out those duties. The following points are relevant:
a. There is no deduction for the costs of normal commuting. This is the cost of travel to Formatted: Font: Font color: Auto
and from the normal place of work. What is the normal place of work is generally a
matter of fact, but it is possible to have more than one normal place of work.
b. If an employee is required to travel from and back to the normal work place for Formatted: Font: Font color: Auto
business purposes, the cost will be deductible. Similarly, if he or she is required to
travel from home to visit a customer, the cost will again be deductible. Normal
commuting will not turn into a business trip because of (say) a minor digression to see
a customer or to pick up goods or where the business journey is substantially the same
as the journey to work.
c. If an employee is asked to work at a temporary workplace then the costs of travel to Formatted: Font: Font color: Auto
and from that workplace will be allowed. However if the period spent there is likely to
be substantial (40% or more of the employee‘s time for more than 24 months), then it
will become a permanent workplace and the travel costs from home will cease to be
allowed. If it is known at the outset that visits to the temporary workplace are likely to
exceed 24 months, then it will normally be treated as permanent from the beginning
and no travel costs will be allowed. In addition where this travel was not expected to
last for more than a 24month period but then is extended so that it exceeded
24months, the deduction for travel costs ceases from the date that the employee
becomes aware of the extension.
The allowable travel costs include any related subsistence. A complete deduction is made for Formatted: Font: Font color: Auto
allowable costs; there is no need to reduce them by the savings made from not commuting to
and from the normal workplace.
6.3.2 OTHER EXPENSES Formatted: Font: (Default) Times New

a. The test of deductibility is not whether an employee requires the incurring of the
expenses but whether the duties do (Brown v Bullock 1961).
b. The fact that disciplinary action would be taken if the expenditure was not incurred Formatted: Font: Font color: Auto
does not make it allowable (Griffiths v Mockler 1953).
K.O. APPIAH 63
c. If an expense is incurred to reduce other costs to the employer then it will normally be Formatted: Font: Font color: Auto
allowed (Elwood v Utitz 1965).
d. The cost of meals is not allowable (Sanderson v Durbridge 1955). Formatted: Font: Font color: Auto
e. The cost of clothing is not allowable (Ward v Dunn 1978) but the cost of protective Formatted: Font: Font color: Auto
clothing might be allowed.
f. Capital allowances are available if plant and machinery is necessarily acquired by an Formatted: Font: Font color: Auto
employee for use in the office or employment.
g. Where expenses are reimbursed by the employer to the employee, then except for Formatted: Font: Font color: Auto
purely private reimbursements, the business expenses will all be deductible to the
employee with any disallowance suffered by the employer. If a round sum allowance
is given to an employee it is normally treated as taxable in his or her hands and he or
she is responsible for claiming a deduction.
6.4 EMPLOYMENT INCOME Formatted: Font: (Default) Times New

6.4.1 Definition Roman, 12 pt
A person‘s income from an employment is that person‘s gains or profits from that Formatted: Font: (Default) Times New
employment. This includes any allowances or benefits paid in cash or given in kind to or Roman, 12 pt, Font color: Accent 1
received on behalf of, that person from the employment Formatted: Font: (Default) Times New Rom
The definition of gains or profits from employment provides for the assessment of gains or Formatted: Font: Font color: Auto
profits paid or granted in money or otherwise. It can be noticed from the charging section of
Act 592 (S.8(1) – (4) that the definition is broad enough to include not only monetary
payments but also benefits in kind capable of being converted into monetary terms as well as
payments by employers to discharge debts or other obligations of their employees.
Gains or profits from any employment may be summarized as follows: Formatted: Font: Font color: Auto
a) Any wages, salary, leave pay, fee, commission, bonus (with limitations), gratuity, Formatted: Font: Font color: Auto
perquisite or allowance paid or granted in respect of the employment whether in
money or otherwise.
b) The value of any food, clothing, lodging or transport (with limitations) provided by Formatted: Font: Font color: Auto
or paid for by the employer.
The vast majority of payments conferring an element of personal benefit made by an Formatted: Font: Font color: Auto
employer to or for the benefit of any employee are gains or profits from employment. This is
so even though the payment may be received from a person other than his employer, for
example, tips paid to a waiter or a taxi driver or an office worker.
For the purpose of employment assessment, any amount, allowance, or benefit is a gain or Formatted: Font: Font color: Auto
profit from employment if it is provided:
 by the employer, an associate of the employer, or a third party under an arrangement Formatted: Font: Font color: Auto
with the employer or an associate of the employer,
 to any employee or an associate of any employee, and Formatted: Font: Font color: Auto
 in respect of past, present or prospective employment Formatted: Font: Font color: Auto
K.O. APPIAH 64
6.4.2 Cash and Non-Cash Benefits from Employment Formatted: Font: (Default) Times New
The following are some of the cash allowances paid to employees:
1. Child Education Allowance
2. Responsibility Allowance Formatted: Font: Font color: Auto
3. Instructor Inducement Allowance Formatted: Font: Font color: Auto

4. General Service Allowance Formatted: Font: Font color: Auto
5. Risk Allowance Formatted: Font: Font color: Auto
6. House Help Allowance Formatted: Font: Font color: Auto
7. Cook Allowance Formatted: Font: Font color: Auto
8. Steward Allowance Formatted: Font: Font color: Auto
9. Watchman Allowance
10. Garden Boy Allowance, etc.
Where an employee enjoys any of these, it/they should be added to his /her Consolidated
Basic Salary to arrive at his/her total cash emoluments. Formatted: Font: Font color: Auto
The following are some non-cash benefits enjoyed by employees: Formatted: Font: Font color: Auto
1. Crockery Formatted: Font: Font color: Auto
2. Cooking gas Formatted: Font: Font color: Auto
3. Toilets rolls Formatted: Font: Font color: Auto
4. Drinks, etc. Formatted: Font: Font color: Auto
In determining the Rent Element and Car Element of an employee, all non-cash benefits
should be excluded from the total cash emoluments.
6.4.3 The Use of Domestic Servants Formatted: Font: (Default) Times New
Domestic servants may be grouped into two (2) categories:
a. Watchmen, garden boys, and others whose duty it is to keep watch and maintain the
property.
b. Stewards, cooks, etc. providing personal services. Formatted: Font: Font color: Auto
Where the property being occupied by the employee belongs to the employer, it is taken that Formatted: Font: Font color: Auto
the domestic servants in category a) are maintaining the property of the employer.
However, where the property belongs to the employee and the employer provides the use of Formatted: Font: Font color: Auto
domestic servants in category a), this is a benefit in kind since they are protecting the
employee‘s property, hence their total emoluments shall be added to the emoluments of the
employee assessed to tax.
In the case of domestic servants in category b), whether the employee is living in his own Formatted: Font: Font color: Auto
premises or that of the employer, once they are providing service to the employee, it is a
benefit in kind hence their total emoluments shall be added to the emoluments of the
employee and assessed to tax.
K.O. APPIAH 65
6.4.4 Perquisite and Personal Liabilities Formatted: Font: (Default) Times New
This is a wide term and covers monetary payments such as tips received by employees as
mentioned above. The payment of employee‘s liabilities, e.g. the income tax, electricity bills,
etc. by his employer, constitutes income in the hands of the employee. It holds therefore that
when considering the amount which the employee has to pay tax, all emoluments and
benefits of his employment should be taken into account, and, unless a particular allowance is
exempt statutorily from tax, all allowances fall to be included in his or her emolument.
6.4.5 Basic Salary Formatted: Font: (Default) Times New

Basic Salary refers to the income represented, usually, by the monthly salary paid to an
employee and applicable to the grade, rank or position of that employee without the addition
of any allowance or benefit paid in cash or given in kind to that employee or applicable to the
grade, rank or position of that employee.
6.4.6 Consolidated Salary Formatted: Font: (Default) Times New

Consolidated Salary, otherwise known as Total Emoluments refers to the total of all income
supplements payable in cash or given in kind to the employee. Emoluments are thus defined
as including salaries, fees, wages, perquisites and any profits, however accruing.
This is arrived at as follows. To basic salary, add the following amounts: Formatted: Font: Font color: Auto
1. All cash allowances payable in respect of rent, transportation, canteen and leave; Formatted: Font: Font color: Auto
2. Any other cash allowances payable in respect of such items as clothing, education, Formatted: Font: Font color: Auto
utility, furniture/furnishing, profession, etc. which are routinely paid and are therefore
income supplements. However, any other cash allowances payable in respect of
protective clothing or for uniforms which can be worn only at the particular
establishment may not be consolidated;
3. Allowances peculiar to certain jobs which are routine, paid regularly as part of the Formatted: Font: Font color: Auto
salary, and intended to be permanent, such as duty, height, underground, tools, head,
discomfort, etc. allowances. However, where such payments are occasional, they are
added to consolidated salary when paid. Such allowances include performance bonus,
acting allowance, etc. which are dependent on some contingency and cannot therefore
be pre-determined.
4. Car maintenance allowance; Formatted: Font: Font color: Auto
5. Annual bonus paid regularly as part of the salary and not dependent on any Formatted: Font: Font color: Auto
contingency;
6. Any cash allowances paid to the employee in respect of garden boy, watchman and Formatted: Font: Font color: Auto
house-help;
7. Any amount spent by the employer on the provisions of utilities to the employee; Formatted: Font: Font color: Auto
8. Any values attributed by the employer to the provision of employee. However, where, Formatted: Font: Font color: Auto
in the opinion of the Commissioner, the values attributed to such benefits by the
employer are unrealistic, he or she shall determine them for tax purposes in
K.O. APPIAH 66
accordance with the Tables A and B discussed earlier above, as provided for in Act
592. In the case where a rent element is applied,
 Where the employee pays rent to his employer, the rent paid should be Formatted: Font: Font color: Auto
deducted from the rent element and the excess added to the total cash
emoluments.
 In situations where the rent paid by the employee is more than the rent Formatted: Font: Font color: Auto
element, the excess should not be deducted from the total cash emoluments.
 Where the rent paid is equal to the rent element, the rent element is neutralized Formatted: Font: Font color: Auto
and therefore nil.
6.5 PERSONAL TAX RELIEFS Formatted: Font: (Default) Times New

This is an approved deductible allowance from the assessable income of an individual which
is intended to reduce the taxable income and thereby lesson the individual‘s tax burden. They Roman, 12 pt
are not given automatically; the taxpayer must fulfil certain laid down conditions Formatted: Font: Font color: Auto
Marginal Formatted: Font: Font color: Auto

This relief is different from the other reliefs in that it is automatic. This relief is built into the Formatted: Font: Font color: Auto
tax rates. It is the thresh hold below which and up to which incomes of taxpayers are not
taxable.
Marriage / Responsibility Formatted: Font: Font color: Auto

In the case of an individual with a dependent spouse or at least two dependent children [GH¢ Formatted: Font: Font color: Auto
35 – Act 731 of 2007 as amended in 2013 Budget - GH¢ 200] will be granted. Only one
spouse is entitled and the relief will be granted upon of a marriage certificate or a certified
copy of the registration of the marriage to support the claim. Dependent child, spouse or
relative in respect of an individual means a child, spouse or relative of the individual for
whom that individual provides the necessaries of life and who does not have income for the
year of assessment exceeding twenty currency points (i.e. GH¢20.00).
Disabled Formatted: Font: Font color: Auto

In the case of a disabled individual, 25% of that individual‘s assessable income from business Formatted: Font: Font color: Auto
or employment
Old Age Formatted: Font: Font color: Auto

In the case of an individual who is 60 or more years of age and derives assessable income Formatted: Font: Font color: Auto
during the year from an employment or business, assessable income up to GH¢200 [2013
Budget]
Child Education Formatted: Font: Font color: Auto

In the case of an individual sponsoring the education of the individual‘s children or wards in Formatted: Font: Font color: Auto
any recognized educational institution in Ghana GH¢200 per child or ward, up to a maximum
of 3 children [GH¢ 30 – Act 731 of 2007 as amended to GH¢ 200 in 2013 budget]. Where
two or more persons qualify in respect of the same child or ward, only one relief shall be
granted. The relief will be granted only on the production of a certificate issued by the Head
of the educational institution concerned, stating that the child or ward is a pupil of that
institution.
K.O. APPIAH 67
Aged Dependent Relief Formatted: Font: Font color: Auto
In the case of an individual with a dependent relative, other than a child or a spouse, who is Formatted: Font: Font color: Auto
60 or more years of age, GH¢ 25 per dependent relative, up to maximum of 2 relatives [GH¢
25 – Act 731 of 2007 as amended to GH¢ 100 in 2013 budget]. Where two or more persons
qualify in respect of the same relative, only one relief shall be granted.
Cost of Training Formatted: Font: Font color: Auto

In the case of an individual who has undergone any training to update the professional, Formatted: Font: Font color: Auto
technical or vocational skills or knowledge of that individual, GH¢ 100 [GH¢100 – Act 731
of 2007 as amended to GH¢ 200 in 2011 budget].
INSURANCE: PRIVATE AND NATIONAL Formatted: Font: Font color: Auto

Life Insurance Formatted: Font: Font color: Auto
 The assessable income of an individual for a year of assessment shall be reduced by Formatted: Font: Font color: Auto
any insurance premium paid by that individual in Ghana currency during a basis
period within a year to a person carrying on a life insurance business in Ghana with
respect to the individual‘s life.
 The reduction for premiums paid shall not exceed the lesser of Formatted: Font: Font color: Auto
i) Ten per cent of the sum assured Formatted: Font: Font color: Auto
ii) Ten per cent of the individual‘s total assessable income for the year from each Formatted: Font: Font color: Auto
business, employment, and investment less any deduction for a contribution
made to a retirement fund.
Computation of Relief for a Single Policy Formatted: Font: Font color: Auto

Premium Capital Sum Assured Total Ass. Income Relief Granted Formatted: Font: Font color: Auto
GH¢1,200,000 GH¢15,000,000 GH¢30,000,000 GH¢1,200,000 Formatted: Font: Font color: Auto
Computation of Relief for More Than One Policy Formatted: Font: Font color: Auto
Where a person has more than one life assurance policy, the computation is done in two Formatted: Font: Font color: Auto
stages.
In stage one; calculate the relief for each policy. Then sum up all the reliefs arrived at. Formatted: Font: Font color: Auto
In stage two, compare the total relief with 10% of the person‘s total assessable income for the Formatted: Font: Font color: Auto
year. The lesser of the two amounts will then be granted as the relief allowed for all the
policies held by the person
Stage One Formatted: Font: Font color: Auto

Premium Capital Sum Assured Total Ass. Income Relief Granted Formatted: Font: Font color: Auto
GH¢ GH¢ GH¢ GH¢ Formatted: Font: Font color: Auto
1,200,000 15,000,000 30,000,000 1,200,000 Formatted: Font: Font color: Auto
2,500,000 20,000,000 30,000,000 2,000,000 Formatted: Font: Font color: Auto
3,100,000 32,000,000 30,000,000 3,000,000
Total Reliefs 6,200,000
K.O. APPIAH 68
Stage Two Formatted: Font: Font color: Auto
Total Relief 10% Ass. Income Relief Allowed Formatted: Font: Font color: Auto
GH¢ 6,200,000 GH¢ 3,000,000 GH¢ 3,000,000 Formatted: Font: Font color: Auto
The relief granted to the individual on all the three policies is GH ¢3,000,000 Formatted: Font: Font color: Auto
Social Security Contribution: Formatted: Font: Font color: Auto

An employee‘s assessable income for a year of assessment shall be reduced by contributions Formatted: Font: Font color: Auto
made in respect of the employee by an employer during a basis period to the Social Security
Pension Scheme. The contribution which should be included in the employee‘s income shall
not exceed 18½% of the employee‘s assessable income from employment.
6.6 Comprehensive Examples Formatted: Font: (Default) Times New

Example One Roman, 12 pt
Trap has been in the employment of Bayla Ltd since 1/11/2007 on a salary scale of Formatted: Font: Font color: Auto
GHS2,500×GHS450 – GHS4,750. As a financial controller of the company, he is provided
with the following as part of his condition of service:
1. A well-furnished bungalow provided by his employer in respect of which he pays Formatted: Font: Font color: Auto
GHS13 per week as rent by way of deductions at source.
2. Watchman allowance of GHS170 per annum. Formatted: Font: Font color: Auto
3. Risk allowance of 15% on basic salary and car maintenance allowance of GHS380 for Formatted: Font: Font color: Auto
the year.
4. Leave allowance of GHS445 per annum. Formatted: Font: Font color: Auto
5. Watchman and a garden boy on salary of GHS65 and GHS45 per month respectively. Formatted: Font: Font color: Auto
6. Medical allowance per month of GHS70. Formatted: Font: Font color: Auto
7. Special retirement package of which he contributes 7% of his basic salary, while the Formatted: Font: Font color: Auto
company tops it up with 12.5%.
8. Meals allowance of GHS20 per month. Formatted: Font: Font color: Auto
9. Two maidservants on GHS190 wages per annum. The amount is paid to the servants Formatted: Font: Font color: Auto
directly by the company.
10. Thirteenth month salary of 40% of annual basic salary – bonus Formatted: Font: Font color: Auto
11. Entertainment allowance of GHS400 per year. Formatted: Font: Font color: Auto
12. He has life assurance policy with GLICO Insurance Ltd. The details are as follows: Formatted: Font: Font color: Auto
Policy Sum Assured (GHS) Premium (GHS) Formatted: Font: Font color: Auto
A 4,000 420 Formatted: Font: Font color: Auto
B 2,800 240
C 16,000 1,650
D 5,000 525
13. He is entitled to 40 gallons of fuel at GHS3 per month for which the company pays
him cash. He is entitled to company car, driver and fuel for both official and private Formatted: Font: Font color: Auto
use. On 1st January 2008 he was given a car loan of GHS15,000 to purchase a car for
his private use at a simple interest rate of 5% per annum. The existing market rate of
interest is 25% per annum. The loan is to be amortised over a four-year period.
14. He is married with 4 children; 3 of whom are in high school, the other is working. He Formatted: Font: Font color: Auto
is also responsible for the upkeep of 4 aged relatives of his. He is currently pursuing a
MBA in Accounting at KNUST School of Business where he incurred GHS7,000 by
K.O. APPIAH 69
Formatted
Formatted
Formatted
Formatted
Formatted
way of educational expenses. It is the hope of the company that the course would help
Formatted
improve his professional skills.
Formatted
Formatted
Required:
1. Compute his chargeable income for 2010 year of assessment. Formatted
2. Compute his tax liability for that year. Formatted

3. Determine his take-home pay for the year. Formatted
Formatted
Formatted
SOLUTION Formatted
Remember the basis period of an individual is from 1/1 – 31/12. Formatted
Formatted
Consolidated Salary:
Formatted
GHS Relevant Periods Salary
1/11/2007 – 31/10/2008 2,500 Formatted
1/11/2008 – 31/10/2009 2,950 Formatted

1/11/2009 – 31/10/2010 3,400 1/1/10 – 31/10/10 = 3,400×10/12 = 2,833.33 Formatted
1/11/2010 – 31/10/2011 3,850 1/11/10 – 31/12/10 = 3,850×02/12 = 641.67 Formatted
Consolidated Salary 3,475.00 Formatted
Formatted
Mr. Trap Formatted
Computation of His Chargeable Income for 2010 Year of Assessment Formatted
GHS GHS
Formatted
Consolidated Salary 3,475.00
Formatted
Cash Allowances:
Watchman 170.00 Formatted
Risk (15%×3,475) 521.25 Formatted

Car maintenance 380.00 Formatted
Leave 445.00 Formatted
Medical (70×12) 840.00 Formatted
Special retirement (12.5%×3,475) 434.38 Formatted
Meals (20×12) 240.00 Formatted
Bonus – 40%×3,475 1,390.00
Formatted
Entertainment 400.00
Formatted
Petrol entitlement (40×3×12) 1,440.00 6,260.63
Formatted
Total Cash emoluments 9,735.63
Add: Formatted
Rent element (10% of cash emoluments) 973.56 Formatted

Less amount paid (13×52) 676.00 297.56 Formatted
Car element (12.5%× cash emoluments) 1,216.95 Formatted
Non-cash benefits: Formatted
Maidservants 190.00 Formatted
Interest on loan (25% - 5%)×15,000) 3,000.00 3,190.00 Formatted
Total Qualifying employment income 14,439.58
Formatted
Less Bonus taxable at 5% (1,390.00)
Formatted
Assessable income 13,049.58
Less Reliefs: Formatted
SSF – 5%×3,475 173.75 Formatted
7% Retirement Fund 3,475 243.25 Formatted

Formatted
K.O. APPIAH 70
Marriage 35.00 Formatted: Font: Font color: Auto
Children education (30×3) 90.00 Formatted: Font: Font color: Auto
Aged dependents(25*2) 50.00 Formatted: Font: Font color: Auto
Training cost 100.00 Formatted: Font: Font color: Auto
Life Policy 1,443.96 2,135.96 Formatted: Font: Font color: Auto
Chargeable income 11,053.18
Formatted: Font:
Computation of Tax Liability Formatted: Font: Font color: Auto

Income (GHS) Rate (%) Tax (GHS) Formatted: Font: Font color: Auto
First 240 0 0.00 Formatted: Font: Font color: Auto
Next 240 5 12.00 Formatted: Font: Font color: Auto
Next 1,200 10 120.00
Next 7,920 17.5 1,386.00
Remaining 1,657.83 25.0 414.46
10,920.83 1,932.46
5% Final tax on bonus 69.50 Formatted: Font: Font color: Auto
Income Tax 2001.96 Formatted: Font: Font color: Auto

Computation of Take-home Pay Formatted: Font: Font color: Auto
Consolidated Salary 3,475.00 Formatted: Font: Font color: Auto
Cash Allowances: Formatted: Font: Font color: Auto
Watchman 170.00
Risk (15%×3,475) 521.25
Car maintenance 380.00
Leave 445.00 Formatted: Font: Font color: Auto
Medical (70×12) 840.00 Formatted: Font: Font color: Auto
Meals (20×12) 240.00 Formatted: Font: Font color: Auto

Bonus – 40%×3,475 1,390.00 Formatted: Font: Font color: Auto
Entertainment 400.00 Formatted: Font: Font color: Auto
Petrol entitlement (40×3×12) 1,440.00 5,826.25 Formatted: Font: Font color: Auto
9,301.25 Formatted: Font: Font color: Auto
Less deductions: Formatted: Font: Font color: Auto
SSF 173.75
7% Retirement Fund 243.25
Loan repayment (15,000/4) 3,750.00
Interest on loan (5%*15,000) 750.00 Formatted: Font: Font color: Auto
Rent deducted at source 676.00 Formatted: Font: Font color: Auto

Income Tax 2001.96 7,594.96 Formatted: Font: Font color: Auto
Take-home pay 1,706.29 Formatted: Font: Font color: Auto
Working of Life Policy Formatted: Font: Font color: Auto
Policy Sum Assured (GHS) Premium (GHS) Assessable Income (GHS) Relief Granted
(GHS)
A 4,000 420 12,903.14 400.00 Formatted: Font: Font color: Auto
K.O. APPIAH 71
B 2,800 240 12,903.14 240.00 Formatted: Font: Font color: Auto
C 16,000 1,650 12,903.14 1,290.31 Formatted: Font: Font color: Auto
D 5,000 525 12,903.14 500.00 Formatted: Font: Font color: Auto
Total Relief 2,430.31 Formatted: Font: Font color: Auto
Compared with 10% of assessable income 1,290.31 Formatted: Font: Font color: Auto
Hence, Life Policy relief is GHS1,290.31
Taxation of overtime Formatted: Font: 12 pt
Overtime payments made to qualifying junior employees* in a month are taxable at 5% if the Formatted: Font: 12 pt
payment does not exceed 50% of the basic salary of the employee for the month. Any
overtime payment to a qualifying junior employee that exceeds the above threshold is taxable
at 10%. For all other employees, overtime payments are included in employment income and
taxed under the graduated rates of tax shown on page 15. A qualifying junior employee is a
junior employee whose qualifying employment income for a month does not exceed Formatted: Font:
GH¢800.
Taxation of bonus Formatted: Font: 12 pt
Bonus payments made to employees which fall below the threshold of 15% of the employees‘ Formatted: Font: 12 pt
annual basic salary are taxed at a rate of 5%. Bonus payments in excess of the 15% threshold
are added to the employment income of the employees and taxed at the graduated rates of tax.

Roman, 12 pt
TRIAL QUESTION
Mr. Benkuta has been the Head of Treasury in Bank Du Accra for many years. For the year Formatted: Font: Font color: Auto
2010, his entitlements were as follows: Formatted: Font: Font color: Auto
GHS Formatted: Font: (Default) Times New Rom
Salary 14,000 Formatted: Font: Font color: Auto
Fully furnished accommodation
Vehicle with fuel
Inconvenience allowance 3,500
Risk allowance 9,000
He receives cash of GHS450 a month for entertaining visitors. He contributes towards the Formatted: Font: Font color: Auto
Social Formatted: Font: Font color: Auto

Security Scheme. He also has a life assurance policy with a capital sum of GHS30,000 upon Formatted: Font: (Default) Times New
which he pays a monthly premium of GHS250. Roman, Font color: Auto
He has been operating two Urvan buses. His account for the year ended 31st December 2010 Formatted: Font: Font color: Auto
showed the following results: Formatted: Font: (Default) Times New
GHS GHS Roman, Font color: Auto
Total income 12,000 Formatted: Font: (Default) Times New Rom
Less expenses: Formatted: Font: Font color: Auto

IRS quarterly stickers 1,250 Formatted: Font: Font color: Auto
Repairs and testing 1,550 Formatted: Font: Font color: Auto
Drivers and mates 1,500 Formatted: Font: Font color: Auto
Petrol and lubricants 2,650 Formatted: Font: Font color: Auto
Road tips 2,150
K.O. APPIAH 72
Fines 900 Formatted: Font: Font color: Auto
Insurance 850 Formatted: Font: Font color: Auto
Depreciation 1,950 12,800 Formatted: Font: Font color: Auto
Net profit (loss) (800) Formatted: Font: Font color: Auto
He is married with five children all of whom are attending schools in the United States of Formatted: Font: Font color: Auto
America. Capital Allowance granted for the period amounted to GHS2,850.
You are required to determine his tax liability for the 2010 year of assessment. Formatted: Font: Font color: Auto
Roman, 12 pt

CHAPTER SEVEN Formatted: Font: (Default) Times New

7.0 CAPITAL ALLOWANCES Roman, 12 pt, Bold, Font color: Accent 1
In financial accounting practice, a non-current asset is subject to depreciation or amortization Roman, 12 pt
to the extent of usage. Such practice is in consonance with the matching concept, as revenues Formatted: Font: Font color: Auto
are matched with their corresponding expenses. Depreciation in Financial Accounting is not
accepted in Taxation because of varying accounting policies with different rates. Sec 23(vii)
of Act 592 (amended by the Internal Revenue (Amendment) Act, 2002 (Act 622) s.7)
categorically disallows depreciation of any fixed assets. Remember, IAS 16 provides
alternative depreciation policies which can be adopted; hence depreciation policy choice is
generally a subjective exercise.
K.O. APPIAH 73
Capital allowance is granted in lieu of depreciation which is uniform for similar assets, Formatted: Font: Font color: Auto
businesses and sectors. Capital allowances are granted to both individuals in business and
corporate bodies against only income from trade, business, profession or vocation. Section 20
of the Internal Revenue Act, 2000, Act 592 allows businesses to deduct capital allowance
calculated in accordance with the Third Schedule in ascertaining the chargeable income of
that business.
The Third Schedule to the Internal Act, 2000 (Act 592) provides under paragraph 1, as Formatted: Font: Font color: Auto
amended by section 19 of the Internal Revenue (Amendment) Act, 2002 (Act 622) that a
person shall be granted capital allowances for each year of assessment in respect of
depreciable assets owned by that person at the end of a basis period ending within the year
and used in carrying on a business during that period. It further provides that the
Commissioner shall be notified about any depreciable asset acquired within one month after
it has been put into use in the production of the income of the business. It should be noted
that Capital Allowances which a person is entitled to or granted under Act 592 is not
transferrable either separately or together with any depreciable asset (the Internal Revenue
(Amendment) Act, 2002 (Act 622), s.19(a)).
7.1 Conditions for granting Capital Allowance Formatted: Font: (Default) Times New
The general rules and conditions that must be satisfied by businesses before a capital Roman, 12 pt
allowance is granted are as follows: Formatted: Font: Font color: Auto
1. The asset must be owned by the taxpayer seeking to make the claim.
2. The asset must be used for the purpose of the business for which the claim is required.
3. A qualifying capital expenditure must be incurred in acquiring the asset.
4. The asset must be depreciable
5. The asset must remain in use at the end of the basis period. Formatted: Font: Font color: Auto
An asset is treated as used by a person who owns it in carrying on business where: Formatted: Font: Font color: Auto
a) the asset is acquired by the person for the purposes of a business which the person Formatted: Font: Font color: Auto
intends to carry on and, subsequently, the asset is first used by the person in that
business;
b) the asset has been used in the business but is in temporary disuse; or Formatted: Font: Font color: Auto
c) the person leases the asset on an operating lease to another person who uses it in Formatted: Font: Font color: Auto
carrying on a business of that other person.
7.2 Classes of Depreciable Assets Formatted: Font: (Default) Times New

A depreciable asset is an asset to the extent to which it is used in carrying on a business, Roman, 12 pt
which asset is likely to lose value because of wear and tear, obsolescence, or the effluxion of Formatted: Font: Font color: Auto
time, but does not include trading stock, and depreciable assets are classified as follows:
Class Assets Included Formatted: Font: Font color: Auto
i. Computers and data handling equipment. Formatted: Font: Font color: Auto
K.O. APPIAH 74
ii. Automobiles; buses and minibuses, goods vehicles; construction and earth-moving Formatted: Font: Font color: Auto
equipment, heavy general purpose or specialised trucks; trailers and trailer-mounted
containers; plant and machinery used in manufacturing;
iii. Assets referred to in subparagraph (3) in respect of long term crop planting costs. Formatted: Font: Font color: Auto
iv. Mineral and petroleum exploration and production rights; assets referred to in Formatted: Font: Font color: Auto
subparagraph (4) in respect of mineral and petroleum prospecting, exploration, and
development costs;
v. Buildings, structures and works of a permanent nature used in respect of assets referred to Formatted: Font: Font color: Auto
in item (i) which are likely to be of little or no value when the rights are exhausted or the
prospecting, exploration, or development ends, as the case requires;
vi. Plant and machinery used in mining or petroleum operations. Formatted: Font: Font color: Auto
vii. 4 Railroad cars, locomotives, and equipment; vessels, barges, tugs, and similar water Formatted: Font: Font color: Auto
transportation equipment; aircraft; specialised public utility plant, equipment, and machinery;
office furniture, fixtures, and equipment; any depreciable asset not included in another class;
viii. 5 Buildings, structures, and works of a permanent nature other than those mentioned in Formatted: Font: Font color: Auto
class 3;
ix. 6 intangible assets, other than those mentioned in class 3 Formatted: Font: Font color: Auto
(3) Costs of a capital nature incurred by a person in the production of income from a business Formatted: Font: Font color: Auto
which is a timber concern or a large scale rubber, oil palm, or other long term crop plantation
in respect of planting vegetation from which timber, rubber, oil palm, or other crops are
derived are treated as if they were incurred in securing the acquisition of an asset that is used
by the person in that production.
(4) Costs incurred by a person in the production of income from a business in respect of Formatted: Font: Font color: Auto
mineral and petroleum prospecting, exploration, and development are treated as if they were
incurred in securing the acquisition of an asset that is used by the person in that production.
7.2.1 Class 1, 2, 3, and 4 Depreciable Assets Formatted: Font: (Default) Times New
1. A person's depreciable assets in classes 1, 2, 3 and 4 shall be placed into separate
pools for each class of asset, and a capital allowance granted for each pool for a year
of assessment with respect to each basis period of the person ending within the year Formatted: Font: Font color: Auto
calculated according to the following formula
A×B× ⁄ Formatted: Font: Font color: Auto
Where,
A is the written down value of the pool at the end of a basis period; Formatted: Font: Font color: Auto
B is the depreciation rate applicable to the pool; and Formatted: Font: Font color: Auto
C is the number of days in the period. Formatted: Font: Font color: Auto
K.O. APPIAH 75
2. The depreciation rate applicable to the pools of depreciable assets referred to in Formatted: Font: Font color: Auto
subparagraph (1) are
Class Rate Formatted: Font: Font color: Auto
1 40% Formatted: Font: Font color: Auto
3 80% of the cost base of assets added to the pool during the basis period Formatted: Font: Font color: Auto
and 50% of the balance of the pool, if any
3. The written down value of a pool at the end of a basis period is the total of Formatted: Font: Font color: Auto
a. the written down value of the pool at the end of the preceding basis period after Formatted: Font: Font color: Auto
allowing for the capital allowance granted under sub-paragraph (1) with respect to
that preceding period;
b. with respect to a pool of Class 3 depreciable assets, 5% of the cost base of assets Formatted: Font: Font color: Auto
added to the pool during the preceding basis period; and
c. the cost base of assets added to the pool during the period, reduced, but not below Formatted: Font: Font color: Auto
zero, with respect to each asset from the pool realised during the period by the
consideration received from the realisation of the asset.
4. Where the amount of consideration received by a person from the realisation during a Formatted: Font: Font color: Auto
basis period of any asset or assets from a pool exceeds the written down value of the
pool at the end of the period disregarding that amount, the excess is included in
ascertaining the person's income from the business in which the asset or assets were
used for the year of assessment in which the period ends.
5. If the written down value of a pool at the end of a basis period, after allowing for the Formatted: Font: Font color: Auto
deduction under sub-paragraph (1) in respect of that period, is less than GH¢5 a
capital allowance is granted for the year of assessment in which the period ends for
the amount of that written down value and that written down value shall be reduced to
zero.
6. Where all the assets in a pool are realised before the end of a basis period, a capital Formatted: Font: Font color: Auto
allowance is granted for the year of assessment in which the period ends for the
amount of the written down value of the pool as at the end of that period.
7. The cost base of a depreciable asset is added to a pool in the basis period in which the Formatted: Font: Font color: Auto
asset is first used in carrying on the business.
8. For the purposes of this Schedule only, the cost base of a road vehicle, other than a Formatted: Font: Font color: Auto
commercial vehicle, shall not exceed ¢250 million. [Amended by Internal Revenue
(Amendment) Act, 2004 (Act 669), s.8].
9. In this paragraph, "commercial vehicle" means Formatted: Font: Font color: Auto
a. a road vehicle designed to carry loads of more than half a tonne or more than thirteen Formatted: Font: Font color: Auto
passengers; or
b. a vehicle used in a transportation or vehicle rental business. Formatted: Font: Font color: Auto
K.O. APPIAH 76
7.2.2 Class 5 and 6 Depreciable Assets Formatted: Font: (Default) Times New
1. A person shall be granted for a year of assessment a capital allowance for each Class
5 depreciable asset with respect to a basis period ending within the year calculated
using the following formula:
A×B× ⁄ Formatted: Font: Font color: Auto

Where, Formatted: Font: Font color: Auto
A is the cost base of the asset; Formatted: Font: Font color: Auto
B is the rate of 10%; and Formatted: Font: Font color: Auto
C is the number of days in the basis period. Formatted: Font: Font color: Auto
2. A person shall be granted for a year of assessment a capital allowance for each Class Formatted: Font: Font color: Auto
6 depreciable asset with respect to a basis period ending within the year calculated Formatted: Font: Font color: Auto
using the following formula
⁄ × ⁄ Formatted: Font: Font color: Auto

Where, Formatted: Font: Font color: Auto
A is the cost base of the asset; Formatted: Font: Font color: Auto
C is the number of days in the basis period; and Formatted: Font: Font color: Auto
D is the useful life of the asset in whole years calculated at the time the asset is Formatted: Font: Font color: Auto
acquired by the person. Formatted: Font: Font color: Auto
3. The total amount of capital allowances granted to a person for a Class 5 or 6 Formatted: Font: Font color: Auto
depreciable asset for one or more years of assessment shall not exceed the cost base of
the asset.
4. Where a person realises a Class 5 or 6 depreciable asset during a basis period ending Formatted: Font: Font color: Auto
within a year of assessment,
a. there shall be included in ascertaining the person's income for the year from the Formatted: Font: Font color: Auto
business in which the asset is used an amount, if any, calculated using the following
formula
E — F or Formatted: Font: Font color: Auto
b. there shall be granted to the person for that year an additional capital allowance Formatted: Font: Font color: Auto
calculated using the following formula
F—E Formatted: Font: Font color: Auto
E is the lesser of the consideration received from the realisation or the cost base of the Formatted: Font: Font color: Auto
asset; and
F is the written down value of the asset. Formatted: Font: Font color: Auto
5. For the purposes of this paragraph, the "written down value" of a depreciable asset of Formatted: Font: Font color: Auto
a person means the cost base of the asset as reduced by the total of any capital
allowances granted to the person for the asset.
K.O. APPIAH 77
7.3 General Provisions Formatted: Font: (Default) Times New
1. Where a person incurs costs in more than one basis period which are included in the Roman, 12 pt
cost base of a depreciable asset, this Schedule applies as if the costs incurred in Formatted: Font: Font color: Auto
different periods were incurred for the acquisition of separate depreciable assets of the
same class.
2. Where a depreciable asset owned by a person is only partly used in the production of Formatted: Font: Font color: Auto
income from a business then, for the purposes of this Schedule only, the cost base of
the asset and any consideration received from the realisation of the asset shall be
proportionately reduced.
3. Where a person uses depreciable assets in the production of income which is exempt Formatted: Font: Font color: Auto
from tax
a. that person is granted capital allowances under this Schedule in respect of those Formatted: Font: Font color: Auto
assets; and
b. those allowances shall be deducted in ascertaining the income which is exempt, Formatted: Font: Font color: Auto
and where the assets are subsequently used by that person in the production of
income which is not exempt from tax, only the written down value of the pool or
written down value of the asset, as the case requires, shall be used in calculating
capital allowances granted to that person in respect of that subsequent use.
References in this Schedule to cost base in relation to the person incurring the cost, shall not Formatted: Font: Font color: Auto
include an expenditure which is allowed to be deducted in computing the gains or profits of
any business or investment under section 5 of this Act. [Amended by the Internal Revenue
(Amendment) Act, 2002 (Act 622), s.19(b).]
SUMMARY TABLE OF THE CLASSES AND RATES Formatted: Font: Font color: Auto
CLASS DEPRECIABLE ASSETS RATE (%) Formatted: Font: Font color: Auto
1 Computers, Printers, Typewriters, Facsimile – all data 40
capturing and handling equipment
2a. Motor vehicles, Trailers and heavy general purpose Formatted: Font: Font color: Auto
vehicles Formatted: Font: Font color: Auto
2b. 30
Plant and Machinery for manufacturing
2c. Formatted: Font: Font color: Auto
Capital costs incurred in respect of tree crop, farming, Formatted: Font: Font color: Auto
timber, rubber or oil palm Formatted: Font: Font color: Auto
3a. Capital costs incurred in respect of mineral and petroleum
exploration
Permanent and temporary building structures used for the Formatted: Font: Font color: Auto
3b. 80/5030
purpose of mining or petroleum exploration Formatted: Font: Font color: Auto
Plant and machinery used in mining or petroleum
3c. exploration
K.O. APPIAH 78
4a. Railroad cars, locomotives, vessels, aircrafts, barges, tugs, Formatted: Font: Font color: Auto
etc – thus, water and air transport equipment, public utility
plant, equipment and machinery
20 Formatted: Font: Font color: Auto
Office furniture, fixtures and equipment and any
4b. depreciable assets not included elsewhere.
5 Buildings, Structures and works of 10 Formatted: Font: Font color: Auto
permanent nature other those in Class 3
6 Intangibles Useful life Formatted: Font: Font color: Auto
7.4 COMPREHENSIVE EXAMPLES Formatted: Font: (Default) Times New

Activity 7.1Example One Roman, 12 pt
Pauline OseiAsuo Ltd is a manufacturer of a taxable product. The company started operations Formatted: Font: Font color: Auto
on 1st September, 20151. The fixed asset schedule of the company as shown below:
Cost Date of Acquisition Cost Date of Acquisition
GHS GHS
Buildings 50,000 1/1/20130
Furniture and Fittings 15,000 18/2/20130 12,000 1/04/20152 Formatted: Font: Font color: Auto
Motor vehicles 24,000 25/6/20141 45,000 14/08/20152 Formatted: Font: Font color: Auto
Computers 18,000 20/9/20141 30,000 17/09/20152 Formatted: Font: Font color: Auto
Plant and machinery 78,000 15/12/20141 Formatted: Font: Font color: Auto
Office equipment 20,000 17/11/20141 80,000 15/11/20152 Formatted: Font: Font color: Auto
Intangibles 40,000 16/12/20141 Formatted: Font: Font color: Auto
Required:
Compute the capital allowance for the relevant assessment years if the company prepares its
accounts to 31st March annually.

Paulina OseiAsuo Ltd Formatted: Font: Font color: Auto
Computation of Capital Allowance Formatted: Font: Font color: Auto
Basis period (1/09/20141 – 31/3/20152) Formatted: Font: Font color: Auto
Pool Rate (%) Cost Basis of Capital WDV c/d Formatted: Font: Font color: Auto
GHS Apportionment Allowance (GHS) GHS
1 40 18,000 212/365 4,182 13,818
2 30 102,000 212/365 17,773 84,227
4 20 35,000 212/365 4,066 30,934
5 10 50,000 212/365 2,904 47,096 Formatted: Font: Font color: Auto
6 20 40,000 212/365 4,647 35,353 Formatted: Font: Font color: Auto

Paulina OseiAsuo Ltd Formatted: Font: Font color: Auto

K.O. APPIAH 79
Basis period (1/04/20152 – 31/3/20163) Formatted: Font: Font color: Auto
Pool Rate (%) WDV b/d Additions Total Capital WDV c/d Formatted: Font: Font color: Auto
GHS GHS GHS Allowance (GHS) GHS Formatted: Font: Font color: Auto
1 40 13,818 30,000 43,818 17,527 26,291 Formatted: Font: Font color: Auto
2 30 84,227 45,000 129,227 38,768 90,459 Formatted: Font: Font color: Auto
4 20 30,934 20,000 50,934 10,187 40,747
5 10 47,096 47,096 5,000 42,096
6 20 35,353 35,353 8,000 27,353
7.5 DISPOSAL EFFECTS Formatted: Font: (Default) Times New

When a qualifying asset in Class 1 to 4 is disposed of the consideration received from the
said disposal is credited to the respective pool in order to reduce the amount of the pool. Roman, 12 pt
1. Where the proceeds from the sale exceeds the written down value of the related pool,
the surplus is included as income in ascertaining the income for the year of
assessment in the basis period.
2. In circumstances where the proceeds of the sale of a qualifying asset is less than the Formatted: Font: Font color: Auto
written down value of the entire pool to which the asset relates, the deficit is granted
as an additional capital allowance for the year of assessment in which the period ends.
3. Where the written down value of a pool falls below GHS5 after allowing for capital Formatted: Font: Font color: Auto
allowance at the end of the basis period, an extra capital allowance is granted for the
year of assessment in which the period ends for the amount of that written down
value. The written down value is therefore reduced to zero.
Example Formatted: Font: Font color: Auto

The written down value of a class 2 pool of assets for 2012 basis period was GHS25,000. On Formatted: Font: Font color: Auto
1st June, 2012 one of the motor cars in the pool was sold for GHS30,000. A manufacturing
plant costing GHS40,000 was bought for cash to replace the old one on 15 th December 2012.
A manufacturing machinery with a written down value of GHS20,000 was sold for
GHS30,500 on 10th October, 2013.
The written down value of a class 4 pool of assets for 2013 year of assessment was Formatted: Font: Font color: Auto
GHS45,000. On 18th September 2013 all the assets in the pool was sold for GHS38,500.
Show the necessary treatments. Formatted: Font: Font color: Auto

2012 Basis Period Class 2 Formatted: Font: Font color: Auto
Written down value b/d 25,000 Formatted: Font: Font color: Auto
Addition 40,000 Formatted: Font: Font color: Auto
Disposal (30,000)
Carrying amount 35,000
Capital Allowance @ 30% (10,500)
Written down value c/d 24,500
2013 Basis Period Formatted: Font: Font color: Auto

K.O. APPIAH 80
Disposal (30,500) Formatted: Font: Font color: Auto
Written down value c/d Nil Formatted: Font: Font color: Auto
Surplus added to business income 6,000 Formatted: Font: Font color: Auto
2013 Basis Period Class 4 Formatted: Font: Font color: Auto

Disposal (38,500) Formatted: Font: Font color: Auto
Additional capital allowance (6,500) Formatted: Font: Font color: Auto
Written down value c/d Nil Formatted: Font: Font color: Auto
7.6 CLASS THREE POOL Formatted: Font: (Default) Times New

1. Capital allowance is computed as 80% of the cost base of the depreciable asset in the
first year of acquisition and usage. Roman, 12 pt
2. Add 5% of the cost base of the asset to the written down value of the pool of class 3 Formatted: Font: Font color: Auto
depreciable assets. This is done once and only where the asset is first put to use.
3. Subsequent years attract 50% capital allowance of the written down value.
Example Formatted: Font: Font color: Auto

Ojoe Ltd., a mining company commenced business on 1 st January 2008. The company Formatted: Font: Font color: Auto
acquired the following assets for use in the business.
ASSETS DATE OF ACQUISITION COST (GHS) Formatted: Font: Font color: Auto
Exploration cost 1/08/2007 650,000 Formatted: Font: Font color: Auto
Plant and machinery 1/01/2008 480,000 Formatted: Font: Font color: Auto
Fixtures and fittings 25/4/2009 515,000 Formatted: Font: Font color: Auto
Plant &Machinery 4/01/2011 750,000 Formatted: Font: Font color: Auto
Buildings 10/1/2011 600,000
Production rights 1/05/2013 900,000
Required: Compute the capital allowances for the relevant years. Formatted: Font: Font color: Auto

Ojoe Ltd Formatted: Font: Font color: Auto
Basis Period – 1/01/2008 to 31/12/2008 Formatted: Font: Font color: Auto
Plant & Exploration Total Formatted: Font: Font color: Auto
Machinery Costs
GHS GHS GHS Formatted: Font: Font color: Auto
Cost 480,000 650,000 1,130,000 Formatted: Font: Font color: Auto
Capital Allowance (384,000) (520,000) (904,000) Formatted: Font: Font color: Auto
WDV c/d 96,000 130,000 226,000 Formatted: Font: Font color: Auto


Plant & Exploration Fixtures & Total Formatted: Font: Font color: Auto
K.O. APPIAH 81
Machinery Costs Fittings Formatted: Font: Font color: Auto

WDV b/d 96,000 130,000 226,000 Formatted: Font: Font color: Auto
Add back 5% 24,000 32,500 56,500 Formatted: Font: Font color: Auto
Additions 515,000 515,000 Formatted: Font: Font color: Auto
Capital allowance 50/80 (60,000) (81,250) (412,000) (553,250)
WDV c/d 60,000 81,250 103,000 244,250

Plant & Exploration Fixtures & Total Formatted: Font: Font color: Auto
Machinery Costs Fittings Formatted: Font: Font color: Auto

WDV b/d 60,000 81,250 103,000 244,250 Formatted: Font: Font color: Auto
Add 5% of cost base 25,750 25,750 Formatted: Font: Font color: Auto
Capital allowance @50% 30,000 40,625 64,375 135,000 Formatted: Font: Font color: Auto
WDV c/d 30,000 40,625 64,375 135,000

Existing Pool Plant & Mach Buildings Total Formatted: Font: Font color: Auto
WDV b/d 135,000 135,000 Formatted: Font: Font color: Auto
Additions 750,000 600,000 1,350,000 Formatted: Font: Font color: Auto
Carrying amount 135,000 750,000 600,000 1,485,000
Capital allowance 50/80 67,500 600,000 480,000 1,147,500
WDV c/d 67,500 150,000 120,000 337,500

WDV b/d 67,500 150,000 120,000 337,500 Formatted: Font: Font color: Auto
Add back 5% of cost base 37,500 30,000 67,500 Formatted: Font: Font color: Auto
Capital allowance @50% 33,750 93,750 75,000 202,500 Formatted: Font: Font color: Auto

Existing Pool Prodn Right Total Formatted: Font: Font color: Auto
GHS GHS GHS Formatted: Font: Font color: Auto
WDV b/d 202,500 202,500 Formatted: Font: Font color: Auto
Additions 900,000 900,000 Formatted: Font: Font color: Auto
Carrying amount 202,500 900,000 1,102,500
Capital allowance 101,250 720,000 821,250
WDV c/d 101,250 180,000 281,250
K.O. APPIAH 82
WDV c/d 101,250 180,000 281,250 Formatted: Font: Font color: Auto
Add back 5% 45,000 45,000 Formatted: Font: Font color: Auto
Carrying amount 101,250 225,000 326,250 Formatted: Font: Font color: Auto
Capital allowance 50,625 112,500 163,125 Formatted: Font: Font color: Auto
7.7 Class Assignment Formatted: Font: (Default) Times New

1. Vickie Ltd has a manufacturing enterprise which commenced business on 1st April
2007. The fixed assets schedule of the company is shown below: Roman, 12 pt
Cost Date Disposal Date Formatted: Font: Font color: Auto
GHS000 GHS000
Leasehold buildings 920 24/02/2007
Furniture &Fittings 250 01/05/2007
2 Toyota Camry cars 800 06/09/2007 900 25/04/2009
Computers 450 21/07/2008 Formatted: Font: Font color: Auto
Plant &Machinery 1,000 01/09/2008 Formatted: Font: Font color: Auto

The plant and machinery was acquired under hire purchase terms with an initial deposit of Formatted: Font: Font color: Auto
GHS400,000; the balance to be settled in two equal instalments in 2009 and 2010. Formatted: Font: Font color: Auto
Details of the last five year‘s results of operations are as follows: Formatted: Font: Font color: Auto
Year of Assessment Business Profits Investment Income Formatted: Font: Font color: Auto
Period to 30/9/2007 (1,000,000) 745,000 Formatted: Font: Font color: Auto
Year to 30/09/2008 4,500,000 5,000,000 Formatted: Font: Font color: Auto
Year to 30/09/2009 7,000,000 6,000,000 Formatted: Font: Font color: Auto
Year to 30/09/2010 11,000,000 7,000,000
Period to 30/9/2010 Nil 1,500,000

1. Prepare the capital allowance schedule of Vickie Ltd for all the relevant years. Formatted: Font: Font color: Auto
2. Compute the chargeable income of Vickie Ltd for all the relevant years. Formatted: Font: Font color: Auto
2. Oscar acquired the following items of plant in three accounting periods to 31 st March, Formatted: Font: Font color: Auto
2014; there was GHS40,000 brought forward in the plant pool at 1st April 2011.
Year to 31st March 2012 Formatted: Font: Font color: Auto

1/10/2011 Bought general plant for GHS20,000 and a second hand machine for Formatted: Font: Font color: Auto
GHS10,000. This latter item was purchased from his father.
1/1/2012 Bought three cars; the first two cost GHS10,000 each – one was for the Formatted: Font: Font color: Auto
use of Oscar and the other for a senior employee. The third car cost GHS16,000 and
was for the use of the sales manager. Each car had 40% private use.
K.O. APPIAH 83
1/2/2012 Bought two labelling machines for GHS8,000 each; both have an Formatted: Font: Font color: Auto
expected useful life of 4years. One will be sold for GHS20 but the other is likely to be
sold for GHS10,000.

1//1/2013 Bought a lorry on hire purchase; the original cost was GHS30,000. Formatted: Font: Font color: Auto
There was a deposit of GHS10,000 and 36 monthly instalments of GHS900. Another
lorry with a cost of GHS40,000 was leased for 5years for GHS1,000 a month.
1/2/2013 Bought a stamping machine with an estimated life of 60years at a cost Formatted: Font: Font color: Auto
of GHS20,000.
1/1/2014 Bought another stamping machine with an estimated life of 60years at Formatted: Font: Font color: Auto
a cost of GHS120,000.
He sold the following assets in the year to 31/3/2014: Formatted: Font: Font color: Auto
Two items of general plant – the first which cost GHS2,000 was sold for GHS1,200 Formatted: Font: Font color: Auto
and the second which cost GHS4,000 was sold for GHS6,800, Oscar sold his car for
GHS8,000 and the first labelling machine was sold for GHS50.
REQUIRED Formatted: Font: Font color: Auto

Calculate the capital allowances for the various periods. Formatted: Font: Font color: Auto
7.8 PAST QUESTIONS Formatted: Font: (Default) Times New

Question One Roman, 12 pt
PokuahSugar Box Ltd is a limited liability company which deals in the manufacture of plastic
waste in Accra. It commenced business on 1st March 201301 and maintained accounts to
31st December every year. Its trading profit/ (loss) as adjusted for taxation were:
Period to 31/12/1301 (GHs¢850,000,000) Formatted: Font: Font color: Auto
Year ended 31/12/1402 GHs¢1,350,000,000 Formatted: Font: Font color: Auto
Year ended 31/12/1503 GHs¢2,560,000,000 Formatted: Font: Font color: Auto
The company acquired the following assets: Formatted: Font: Font color: Auto
Date of Formatted: Font: Font color: Auto
K.O. APPIAH 84
Acquisition Asset Cost (GHs¢) Formatted: Font: Font color: Auto
1/3/1301 Computers 55,000,000 Formatted: Font: Font color: Auto
1/6/1301 Motor vehicles Formatted: Font: Font color: Auto
(Opel Astra) 75,000,000 Formatted: Font: Font color: Auto
(Toyota Avensis Salon) 340,000,000 Formatted: Font: Font color: Auto
18/7/1301 Plant & Machinery 190,000,000
21/12/1301 Furniture & Fittings 86,000,000
20/2/1402 Additional computers for 65,500,000
the accounts office
11/5/1402 Delivery van 170,000,000 Formatted: Font: Font color: Auto
14/4/1503 Machinery 420,000,000 Formatted: Font: Font color: Auto

10/11/1503 Motor vehicle Formatted: Font: Font color: Auto
Mercedes Benz Salon 510,500,000 Formatted: Font: Font color: Auto
NOTE: Formatted: Font: Font color: Auto
The Opel Astra purchased on 1/6/1301 was sold for GHs¢30,000,000 on 16/09/1503 and Formatted: Font: Font color: Auto
some of the company‘s furniture were disposed off at GHs¢2,400,000 on 30/9/1503.
You are required to determine the net tax payable for the assessment years 201301, 201402 Formatted: Font: Font color: Auto
and 201503.
Use the following rates of capital allowance. Formatted: Font: Font color: Auto
Class 1 - 40% Formatted: Font: Font color: Auto
Class 6 - 10%
Rate of tax for all the assessment years was 2532.5%. 24 marks;
(adopted from ICA May, 2009)
Suggested Solution Formatted: Font: Font color: Auto

 In answering this question, be careful to use the appropriate amount for the private Formatted: Bulleted + Level: 1 + Aligned a
saloon car. rate incident to the years of assessments. For instance, before 2006, 0.25" + Tab after: 0.5" + Indent at: 0.5"
maximum amount of private saloon car subject to capital allowance was 150million
cedis or GHS15,000. If cost of private saloon car exceeds GHs15,000, the excess is
disregarded and thus, only GHs15,000 is recorded in the pool.(amended to
GHs25,000 since 1/1/2005)
!
COMPUTATION OF CAPITAL ALLOWANCES

Year of Assessment (1/03/201301 to 31/12/201301)
CLASS 1 CLASS 2 CLASS 4 TOTAL
K.O. APPIAH 85
GHs¢‘000 GHs¢‘000 GHs¢‘000
¢‘000
Cost 55,000 290415,000 86,000 556,000
Capital allowance (306/365) 18,444 72,937104,375 14,420
105,801137,239
WDV c/d 36,556 217,063310,625 71,580 418,761

WDV b/d 36,556 217,063310,625 71,580 418,761
Additions 65,500 170,000 235,500
Carrying amount 102,056 387,063480,625 71,580
560,699654,261
Capital allowance 40,822 116,11944,188 14,316
171,25799,326
WDV c/d 61,234 270,944336,437 57,264
389,442454,935

WDV b/d 61,234 270,944336,437 57,264
389,442454,935
Additions 445570,000 445570,000
Disposal (30,000) (2,400) (32,400)
Carrying amount 61,234 685,944876,437 54,864
802,042992,535
Capital allowance 24,494 205,78362,931 10,973
241,25198,398
WDV c/d 36,740 480,160613,506 43,891
560,791694,137
COMPUTATION OF CHARGEABLE INCOME

¢‘000 ¢‘000GHs
Business Profit (850,000)
Less Capital Allowance 105,801137,239
Chargeable income Nil
Capital allowance c/f 105,801137,239
Business Profitloss c/f (850,000)

¢‘000 ¢‘000GHs
Business Profit 1,350,000
Less business loss c/f (850,000)
Adjusted profit 500,000
Less: Capital allowance 199,326
Capital allowance c/f 105,80137,239 (305,12736,565)
Chargeable income 194,87363,435
K.O. APPIAH 86
Tax @ 2532.5% 48,71853,116

¢‘000 ¢‘000GHs
Less capital allowance (241,25198,398)
Tax @ 2532.5% 579,687735,021
Roman, 12 pt
QUESTION TWO
Nyarko Company LTD, a manufacturing company has been in business for several years. The
following figures are for capital allowance computations:
01/01/2014 Acquired in 2014
GHS GHS
Buildings 87,670 480,000
Furniture and fittings 37,890 68,000
Motor vehicles 109,776 550,000
Computers 18,978 80,000
Plant and machinery 23,897 650,000
Office equipment 64,987 84,000
Patent and copyrights 44,448 80,800
The following were disposed off during the year 2014

Original cost proceeds
GHS GHS
Motor vehicles 75,000 60,000
Computers 80,000 72,000
Plant and machinery 85,000 66,000
Office furniture 55,000 65,000
1. The building value at the start of the year was a written down value. The building was Formatted: Numbered + Level: 1 +
constructed four years ago and four year capital allowance have been enjoyed Alignment: Left + Aligned at: 0.25" + Inden
2. The patent and copyrights as at 01/01/2014 had three years to run while those in 2014 at: 0.5"
were for 8 years
Required:
Compute the capital allowance for Nyarko company Limited for the assessment year
2014.
Solution
Nyarko Company LTD
Computation of Capital Allowance for the year of assessment 2014
2014 Class 1 class 2 class 4 class 5 class 6 Class 6

Total
K.O. APPIAH 87
Rate 40% 30% 20% 10% old new
WDV 18,978 133,673 102,877 87,670 44,448 0

Additions 80,000 1,200,000 152,000 480,000 0 80,800 Formatted: Font: (Default) Times New
Roman, 12 pt
98,978 1,333,673 254,877 567,670 44,448 80,800
Disposals 72,000 126,000 65,000 0 0 0 Formatted: Font: (Default) Times New
Roman, 12 pt
26,978 1,207,673 189,877 567,670 44,448 80,800
Capital all‘ce (10,791) (362,302) (37,975) (62,612) (14,816) (10,100)
498,596
16,187 845,371 151,902 505,058 29,632 70,700 Formatted: Font: (Default) Times New
Roman, 12 pt
Class 5
X-0.1*4x=87,670
X-0.4x=87,670
0.6X=87,670
X=146,117
Capital Allowance = 10%*146,117
= 10%*48000
62,612
QUESTION THREE
Ophelia Manufacturing Company LTD, producers of household utensils for both local and
export markets, commenced business on 1st May, 2011 preparing accounts to 31st December,
each year.
The company acquired the following chargeable assets for use in the business which is
located at Tarkwa in the Western region
Date of purchase Cost
Buildings May 2011 200,000
Office equipment June 2011 15,000
Computers/Software July 2011 400,000
Toyota salon car September 2011 40,000
Office furniture Feb 2012 8,000
Nissan Bus April 2012 50,000
Toyota Land Cruiser May 2014 80,000
Data Handling Machines July 2014 90,000
Toyota Bus Oct 2014 70,000
Office equipment Nov 2014 9,000
Additional Information
1. The Toyota salon car was sold on 1st September, 2011 for GHS 24,000 Formatted: Numbered + Level: 1 +
2. The Nissan Bus was involved in an accident in October, 2011 and on 15th December Alignment: Left + Aligned at: 0.29" + Inden
2011 GHS 22,000 compensation was received from the insurance company. at: 0.54"
K.O. APPIAH 88
3. Some of the office equipment bought in 2009 were sold in July 2011 for GHS 17,000
and GHS 20,000 was paid in December 2014 for the extension of work on buildings
Required:
Determine the Capital Allowance for Ophelia Manufacturing Company for all the
relevant years
Solution
Ophelia Company LTD
Computation of Capital Allowance
Class 1 Class 2 Class 4 Class 5 (old) Class 5(new)

Total
Rates 40% 30% 20% 10% 10%
2011
Cost 400,000 40,000 15,000 200,000 0
C.A (245days):
107,397 8,055 2,014 13,425 0 Formatted: Font: (Default) Times New
Roman, 12 pt
130,891
2012 WDV 292,603 31,945 12,986 186,575 0
Additions 0 50,000 8,000 0 0
292,603 81,945 20,986 186,575 0 Formatted: Font: (Default) Times New
Roman, 12 pt
C.A 117,041 24,584 4,197 20,000 0
165,822 Formatted: Font: (Default) Times New
Roman, 12 pt
2013 WDV 175,562 57,361 16,789 166,575 0
Disposal 0 46,000 17,000 0 0 Formatted: Font: (Default) Times New
Roman, 12 pt
175,562 11,361 0 166,575 0
C.A 70,225 3,408 0 20,000 0
93,633
2014 WDV 105,337 7,953 0 146,575 Formatted: Font: (Default) Times New
Roman, 12 pt
Additions 90,000 145,000 9,000 0 20,000
195,337 152,953 9,000 146,575 20,000 Formatted: Font: (Default) Times New
Roman, 12 pt
C.A 78,135 45,886 1,800 20,000 2,000
Roman, 12 pt
2014 WDV 117,202 107,067 7,200 126,575 18,000

Roman, 12 pt
K.O. APPIAH 89
CHAPTER EIGHT
K.O. APPIAH 90
8.0 CORPORATE TAX Formatted: Font: (Default) Times New
Roman, 12 pt
Corporate taxation applies to the net profit of incorporated businesses, following the theory
that the legal person created by incorporation creates an economic entity with tax-bearing
capacity separate from the owners (shareholders) of that business. It should be noted that
business income is not the same as corporate income since many businesses, including many
that are highly profitable, are not legally organized as companies. These other businesses,
such as sole proprietorship and partnership, pay tax through the individual tax structure. The
tax applies to total corporate profit as produced by the financial statements in accordance
with accounting standards and the tax law. Unlike individuals, companies do not enjoy
personal reliefs and exemptions; however, the Internal Revenue Act, 2000 (Act 592) does
allow certain deductions before the remaining amount shown as adjusted profit is subjected to
tax.
For corporation tax purposes, a corporation can broadly be:
A formal corporation
This is a body which is legally created by:
 Incorporation under the companies code, or
 By guarantee, or
 By Act of Parliament
An informal corporation
This is a group of persons who, taken together, form an unincorporated association. It can
include, in particular, sports and social clubs. However they may escape a liability to
corporation tax if they carry on mutual activities.
The broad definition of mutuality is that a person cannot trade with himself or herself (New
York Life Insurance Co. v Styles 1889 per Lord Watson). This principle has been extended to
cover groups of persons acting inter se and through a common fund (IRC v Eccentric Club
Ltd 1923). The mutuality exemption only covers income received from members that
deriving from outsiders will be taxable (NALGO v Watkins 1934).
Similarly mutuality must be genuine, the courts will not recognise elaborate shams designed
to avoid tax (Fletcher v Income Commissioner 1972).
Apart from sports and social clubs, many insurance companies and flat management
companies are mutual.
8.1 THE MEANING OF RESIDENCE Formatted: Font: (Default) Times New

A company‘s liability to corporation tax depends on its fiscal residence. If a company is
incorporated in Ghana, then it will be treated as Ghana resident. If it is not Ghana Roman, 12 pt
incorporated, it may still by Ghana resident if it is controlled and managed in Ghana. In
general there can be two approaches to determine where a company is controlled and
managed:
a. The traditional approach
b. The modern approach
Under the traditional approach, the test is to ask where does the board of directors meet (De
Beers Consolidated Mines v Howe, 1906; Unigate Guernsey Ltd v McGregor, 1996).
K.O. APPIAH 91
The modern approach is to ask where the control of the company really takes place. This may
be different from where the board meetings actually take place (Unit Construction Co. Ltd v
Bullock 1959).
When deciding the residence status of a company, the approach is:
a. To ascertain whether the directors do, in fact, exercise central management and
control
b. If so, then it is necessary to determine where this actually takes place which may not
always be where the board of directors meets
c. If the directors do not control and manage the company, then the modern approach is
used.
8.2 THE MEANING OF PROFITS Formatted: Font: (Default) Times New

A company is liable to corporation tax on its profits; these are defined as:
a. Income, and Roman, 12 pt
b. Chargeable gains
When finding profits:

 Dividends received from other Ghana resident companies are not liable to corporation
tax.
 The basis period is the accounting period
 There are no private use restrictions in a company
8.3 Principles of Taxation for Companies (Section 44 of Act 592) Formatted: Font: (Default) Times New
A company is liable to tax separately from its shareholders (sub sec 1). Subject to subsection
(3), a dividend paid to a resident company by another resident company is exempt from tax Roman, 12 pt
where the company receiving the dividend controls, directly or indirectly, twenty-five per
cent or more of the voting power in the company paying the dividend (sub sec 2). Subsection
(2) does not apply to
a. a dividend paid to a company by virtue of its ownership of redeemable shares in the
company paying the dividend; or
b. a dividend of the type referred to in paragraph (e) of subsection (3) of section 55.
(Sub sec 3)
8.3.1 Undistributed Profits of Companies (Section 45 of Act 592) Formatted: Font: (Default) Times New
Where the Commissioner is satisfied that a company controlled by not more than five persons
and their associates does not distribute to its shareholders as dividends a reasonable part of its
income from all sources for a basis period within a reasonable time after the end of the basis
period, the Commissioner may, by notice in writing, treat that part of the company‘s income
which the Commissioner determines as distributed as dividends paid to its shareholders
during that period or any other period. In determining whether a company has distributed a
reasonable part of its income from all sources for a basis period, the Commissioner shall
consider
a. the current requirements of the company's business after accounting for any
adjustments which the Commissioner may make under sections 70 or 112; and
b. any other requirements necessary or advisable for the maintenance and development
of the business.
K.O. APPIAH 92
8.3.2 THE FORMAT OF THE COMPUTATION Formatted: Font: (Default) Times New
Steps 1 – Assemble the profits: X
Trading losses b/f (X)
Unfranked investment income received (gross) X
Capital gains X
Capital losses b/f (X) X
Step 2 – Make deductions:

Charges (gross) (X)
Profit chargeable to corporation tax X
Basic principles for calculating profits

In general, the same adjustment of profits rules apply to companies as to individuals however,
as indicated above, there can be no private use reductions. To be acceptable to the Inland
Revenue, accounts must be prepared in accordance with Generally Accepted Accounting
Principles (GAAP); they will then be adjusted to comply with tax law.
8.4 LOSS RELIEF Formatted: Font: (Default) Times New

BASIC PRINCIPLES Roman, 12 pt
Before any loss relief can be considered, it is necessary to determine:
1. Is the loss one of a real trade? – then relief is possible
2. Or one of a hobby dressed up as a trade? – no relief is available
8.4.1 METHODS OF RELIEF Formatted: Font: (Default) Times New

1. Carry forward
The trade loss is carried forward and offset against the first available future trading profits of
the same trade.
2. Offset
The loss is offset against total profits:
a. Of the same accounting period; then if the company wishes
b. Of the preceding 12 months – LIFO – any apportionment being made on a strict time
basis. All the available loss must be offset. There is no provision for partial claims.
Therefore, there are 3 potential claims:

 The accounting period; carry back and carry forward
 The accounting period and carry forward
 carry forward only
Total profits are all profits liable to corporation tax before charges for claims of the
accounting period, and all profits liable to corporation tax after trade charges for claims in
earlier accounting periods.
K.O. APPIAH 93
8.5 DEDUCTIONS Formatted: Font: (Default) Times New
Not all expenses incurred in the course of trading are deductible in computing the annual
profits or gains for tax purposes. An expenditure which may be expedient from the trader‘s Roman, 12 pt
point of view may be too remotely connected with his trade and may be disallowed by the
Commissioner.
The Commissioner is guided by the following when calculating business, employment, or
investment income for tax purposes:
 Is the expenditure prohibited by the Act
 Is the expense capital in nature
 Is the expense a proper deduction under normal accounting principle
 Is the expense wholly, exclusively, and necessarily incurred
Sec 13 of the Internal Revenue Act, 2000 (Act 592 as amended) states that, ―… for the
purposes of ascertaining the income of a person for a basis period from any business or
investment there shall be deducted.
8.5.1 DEDUCTIONS ALLOWED Formatted: Font: (Default) Times New

Deductions allowed include those discussed under Individual Income Taxation from
Business. Other allowable deductions are as follows:
1. Research and Development (S.19)

There shall be deducted research and development expenditure incurred by that person during
the period in the production of the income.
―Research & Development expenditure‖, means any outgoing or expense incurred by a
person for the purpose of development that person‘s business and improving business
products or process but does not include any outgoing or expense incurred for the acquisition
of an asset in relation to which that person is entitled to a capital allowance.
It includes additions to business products and business processes.
2. Bad Debts (S.18)

Bad debt refers to a debt claim of a person in respect of which that person has taken all
reasonable steps to pursue payment and which that person reasonably believes will not be
satisfied. Such claims are thus allowable deductions for tax purposes. The conditions to be
satisfied for the allowance of this expenditure are that:
a. The amount of the debt claim should have been included in ascertaining the person‘s
assessable income with respect to any prior basis period; or
b. The debt claim is in respect of advances made by that person in the normal course of
business other than advances made on capital account.
This implies that it should be a debt claim occasioned by the business the person carries out.
General provisions for bad debt are not allowed but specific provisions are allowed. Specific
debts are allowable because, when the goods are supplied to a customer, the transaction is
entered as part of his profits for the period when the amount becomes due, hence, if later the
customer does not pay, the sum involved has to be allowed as a deduction. However, if the
bad debt is allowed and the debt is later paid, the amount must be brought in as a trading
receipt of the year when it is paid. Thus, bad debts recovered are treated as trading receipts in
respective year of receipt.
K.O. APPIAH 94
A debt claim of a bank regulated under the Banking Law 1989 (PNDCL 225) is considered a
bad debt where the debt is written off in accordance with the standards of the Bank of Ghana.
3. Donation
a. Contributions to Charity
Any contribution made by a person during a year of assessment to a charitable institution or
fund approved by the Government (e.g. the Ghana National Trust Fund, the Osu Children‘s
Home, etc) may be deducted in calculating the person‘s chargeable income for the year.
b. Scholarships
Any amount expended by any company or body of persons during a year of assessment under
a scheme of scholarship approved by the Government for a technical, professional or other
course of study may be deducted in calculating the chargeable income of that company or
body of persons for the year.
c. Donations for Rural and Urban Development

Any donation made by a person during a year of assessment for the purpose of development
of any rural or urban area and approved by the Government may be deducted in calculating
the person‘s chargeable income for the year. This will enable companies to undertake
development projects in their areas of operation. An application has to be made to the
appropriate governmental ministry or body for approval to make such expenditure tax
deductible.
d. Donations to Sports Development and Promotion

Any donation made by a person during a year of assessment for the purpose of sports
development or sports promotion and approved by the Government may be deducted in
calculating the person‘s chargeable income for the year.
e. Donations to Government for Worthwhile Causes

Any donation made by a person during a year of assessment to the government for
worthwhile causes approved by the Commissioner may be deducted in calculating the
person‘s chargeable income for the year. (E.g. - disaster management)
4. Rent Paid For Business Premises (S.15)

Rent paid for a business premises is deductible in computing taxable profits, even if the
premises are temporarily out of use. If premises are used partly for business and partly for
domestic purposes, the Internal Revenue Service will allow a deduction in respect of such
part of the rent as is attributable to the business but disallow the remainder.
5. Repairs Of Fixed Assets (S.16)

The purpose of repairs is to make an asset functional or bring it back to its normal state
before the damage. Repairs in this sense covers the repair of any premises, plant, machinery,
or fixtures, or the renewal, or alteration of any implement, utensil, or article to the extent that
the premises, plant, machinery, fixtures, implement, utensil, or article is employed by that
person in the production of the income.
However, if repairs involve improvement or additions then that element constitutes capital
expenditure and would be disallowed. Although the IRA Act 2000 (Act 592) does not define
what the terms ―repair‖ and ―improvement‖ mean, we can deduce from the judgment of
K.O. APPIAH 95
Buckley L.J. in Lurcott v. Wakely &Wheeler, the contrast in the terms. He indicated the
difference between repair and improvement thus:
Repair and renew are not words expressive of a clear contrast. Repair always involves
renewal; renewal of a part; of a subordinate part. A skylight leaks; repair is effected by
hacking out the putties, putting in new ones, and renewing the paint. A roof falls out of
repair; the necessary work is to replace the decayed timbers by sound wood; to substitute
sound tiles or slates for those which are cracked, broken, or missing; to make good the
flashings, and the like. Repair is restoration by renewal or replacement of subsidiary parts of
a whole. Renewal, as distinguished from repair, is reconstruction of the entirety, meaning by
the entirety not necessarily the whole but substantially the whole subject matter under
discussion.
Following from the judge‘s reference to the entirety, it becomes material for one to determine
what amounts to entirety in the determination of what constitutes repairs and what constitutes
renewal/improvement.
6. Defalcations
Defalcations on the part of employees are normally allowed but defalcation on the part of the
Managing Director is not allowed. This position is founded in the case Curtis v. Oldfield in
which the managing director of a company had taken moneys from the company‘s bank
account for his own purposes. It was held that this could not be treated by the company as a
bad debt. Rowlatt J. had this to say, which is important:
―If you have a business … in the course of which you have to employ subordinates, and
owing to the negligence or the dishonesty of the subordinates, some of the receipts of the
business do not find their way into the till, or some of the bills are not collected at all, or
something of that sort, that may be an expense connected with and arising out of the trade in
the most complete sense of the word.‖
7. Removal Expenses
Removal Expenses are not allowed if the removal is due to an expansion scheme. The cost of
forced removal or voluntary removal not connected with any expansion scheme may be
allowed. The cost of dismantling and re-erecting of fixtures, machinery, etc. are included in
such cases.
8. Subscriptions
Subscriptions are allowed if they are in connection with the business. For example, trade or
professional association subscriptions are normally deductible since they will be made
wholly, exclusively and necessarily for the purposes of the trade, e.g. Medical journals
subscribed by a doctor.
9. Welfare Expenditure
Welfare expenditure, e.g. recreational grounds, canteen, etc. but not structures. This is
because the structures are of a capital nature and can enjoy capital allowances.
10. Travelling Expenses

The cost of travelling on business is a deductible expense. The cost all private travelling
expenditure is disallowed. It is worthy of note that in Horton v. Young, it was held on the
facts that a self-employed bricklayer‘s home was his ―base of operations‖ and that the cost he
K.O. APPIAH 96
incurred in travelling between his home and building sites was an allowable deduction in
computing his profits.
t Salaries and Wages Formatted: Font: (Default) Times New Rom
Salaries and Wages are allowed as they are expenses incurred in earning income. In the case Formatted: Font: (Default) Times New Rom
of self-employed persons who pay these amounts to their wives and/or children, there is the
need to scrutinize the ages, qualifications and respective grades of such associates to see if
they do qualify; then these could be allowed. However, if the checks prove otherwise then
these should be disallowed. The same should necessarily apply to family relations.
11. General Expenses.

There is the need for a breakdown to show the details of this expenditure as capital items
included therein are not allowed neither are expenses of a private nature other than for
business purposes.
8.5.2 DEDUCTIONS NOT ALLOWED Formatted: Font: (Default) Times New

Expenditure may be disallowed because it is too remote from the purposes of the trade,
referred to as the remoteness test. This test regards the expenditure as being too remote from
the trade when it is incurred in some capacity other than that of a taxpayer.
Where the expenditure has more than one purpose and one of them is not trading, referred to
as the duality principle, the expenditure will be disallowed. An example of this principle is
where a self-employed unable to eat lunch in his house decides to eat at a restaurant and
charges the expense as a business expense. This will not be allowed as a deductible expense
because of the duality of purpose of the expenditure which lies in the fact that the taxpayer
needs to eat to live, not just to work. In practice, however, some types of expenditure with a
dual purpose, example travelling expenses that contain both a private and business element,
have the expenditure being apportioned between the amounts that relate to business and the
private component, with the business element treated as being allowable for tax purposes.
Internal Revenue Act, 2000 (Act 592) section 23(1) states that for the purposes of
ascertaining the income of a person for a basis period from any business or investment a
person shall not be allowed a deduction of the following:
1. Any domestic or private outgoing or expense incurred by the person. ―Domestic or

private outgoing or expense‖ incurred by a person includes outgoings or expenses
incurred by that person:
a. In traveling between that person‘s home and place of business;
b. In the maintenance of that person, or that person‘s family or home;
c. In acquiring clothing worn to work, other than clothing that is not suitable for
wearing outside of work; and
d. In the education of that person not directly relevant to that person‘s business, and
education leading to a degree, whether or not it is directly relevant to that person‘s
business.
2. Any outgoing or expense of a capital nature incurred by the person
3. Any outgoing or expense incurred by that person during a basis that is recoverable
during the period under any insurance or contract of indemnity
K.O. APPIAH 97
4. Any income tax, profits tax, or other similar tax incurred by that person during the
year in Ghana or elsewhere other than as provided for by relief for Double Taxations
(sec 68(1))
5. Depreciation of fixed assets
8.5.3 OTHER DEDUCTIONS NOT ALLOWED Formatted: Font: (Default) Times New
THInfraction of the Law
Cost incurred (e.g. legal fees, fines, penalties etc) as a result of contravening the laws of the
land in the course of business activities are not allowed
alDefalcation Formatted: Font: (Default) Times New Rom
If a subordinate officer (e.g. cashier) pilfers some money from the till it can be allowed but if Formatted: Font: (Default) Times New Rom
a Chief Executive Officer or a Manager is involved in misappropriation or embezzlement the
loss is not allowed
1. Legal Expenses
Disallow legal expenses incurred in respect of the following:
i) Formation costs of a company, partnership or business
ii) Cost of debentures, loans, mortgages
iii) Cost for increased capital of a company
iv) Dissolution expenses of a partnership or liquidation of a company
v) Income tax appeals
vi) Sale of property or acquisition of new assets
vii) Breaches of the law
2. Betting & Gambling

a. Chargeable if they form part of a trade, profession or vocation
b. Not chargeable if they are derived by an individual from his private betting (if not
habitual)
8.6 INCOME EXEMPTED FROM TAX Formatted: Font: (Default) Times New
The various types of income exempt from tax are listed under sections 10 and 11 of the Act
592. Roman, 12 pt
8.6.1 Section 10—Exempt Income Formatted: Font: (Default) Times New

The following incomes are exempt from tax:
a. the salary, allowances, pension and gratuity of the President;
b. the income of a local authority, other than income from activities which are only
indirectly connected with the local authority's status as a local authority;
c. the income of a statutory or registered building society or statutory or registered

friendly society, other than income from any business carried on by the society;
d. income accruing to or derived by an exempt organisation other than income from any
business;
e. interest paid
i. to an individual by a resident financial institution; or
K.O. APPIAH 98
ii. to an individual on bonds issued by the Government of Ghana;
f. capital sums paid to a person as compensation or a gratuity in relation to

i. personal injuries suffered by that person; or
ii. the death of another person;
g. the interest, dividend or

i) any other income of an approved unit trust scheme or mutual fund,
ii) any other income payable under an approved unit trust scheme or mutual fund to a
holder or member of that scheme;
the dividend of a venture capital financing company that satisfies the eligibility requirements
for funding under the Venture Capital Trust Fund Act, 2004 (Act 680) for a period of five
years of assessment commencing from and including the year in which the basis period of the
company ends, being the period in which operations commenced. [Inserted by Internal
Revenue (Amendment) Act, 2006 (Act 700), s.1.]
h. the income of a non-resident person from any business of operating ships or aircraft,
provided the Commissioner is satisfied that an equivalent exemption is granted by that
person's country of residence to persons resident in Ghana;
i) the income of a public corporation or institution exempted from tax under any
enactment;
ii) the income of a person receiving instruction at an educational institution from a
scholarship, exhibition, bursary, or similar educational endowment;
i. the income of an individual entitled to privileges under the Diplomatic Immunities

Act, 1962 (Act 148) or a similar enactment to the extent provided in that Act or
similar enactment or under Regulations made under that Act or similar enactment;
j. the income of an individual entitled to privileges under an enactment giving effect to

the Convention on the Privileges and Immunities of the United Nations and the
Convention on the Privileges and Immunities of the Specialised Agencies of the
United Nations to the extent provided in that enactment;
k. the income of an individual to the extent provided for in an agreement between the
Government of Ghana and a foreign government or a public international organisation
for the provision of technical service to Ghana where
i. the individual is a non-resident person or an individual who is resident solely by
reason of performing that service; and
ii. the President has concurred in writing with the tax provisions in the agreement;
and
iii. it is in accordance with the Constitution of the Republic of Ghana; or
l. the income of a person from an employment in the public service of the government
of a foreign country provided
K.O. APPIAH 99
i. that person is either a non-resident person or an individual who is resident solely
by reason of performing that service;
ii. that person does not exercise any other employment or carry on any business in
Ghana;
iii. the income is payable from the public funds of the foreign country; and
iv. the income is subject to tax in the foreign country.
The Minister responsible for Finance in consultation with the Commissioner may, subject to
the prior approval of Parliament by resolution in accordance with clause (2) of article 174 of
the Constitution grant a waiver or variation of tax imposed by this Act in favour of any
person or authority.
Some Public Corporations / Institutions Exempted from Tax (Under 1st Schedule of
SCMD 5)
 Bank of Ghana
 Ghana Cocoa Marketing Board
 State Housing Corporation
 Ghana Broadcasting Corporation
 Ghana Library Board
 National Food and Nutrition Board
8.6.2 Section 11—INDUSTRY CONCESSIONS Formatted: Font: (Default) Times New

1. Agriculture and its processing industries
The income of a person from a farming business in Ghana is exempt from tax. The exemption
is time-bound and thus depends on cultivation periods of the products. The waiver of tax may
benefit farming enterprises engaged in the production or processing of crops, fish or livestock
in Ghana.
a. in the case of farming tree crops such as coffee, oil palm, shea nuts, rubber and
coconut; for the period of ten years of assessment commencing from and including
the year in which the basis period of that person ends, being the period in which the
first harvest of those crops by the business occurs;
b. in the case of farming livestock (other than cattle), fish, or cash crops (include
cassava, maize, pineapple, rice, and yam), for the period of five years of assessment
commencing from and including the year in which the basis period of that person
ends, being the period in which the business commences; or
c. in the case of farming cattle, for the period of ten years of assessment commencing
from and including the year in which the basis period of that person ends, being the
period in which the business commences.
K.O. APPIAH 100

d. The income of a company from an agro processing business in Ghana is exempt from
tax for the period of three years of assessment commencing from and including the
year in which the basis period of the company ends, being the period in which
commercial production commences. [Amended by Internal Revenue (Amendment)
Act, 2004 (Act 669), s.1(a)]. Agro processing business" means the business of
converting crops, fish, or livestock produced in Ghana into edible canned or other
packaged product other than in their raw state; [Amended by Internal Revenue
(Amendment) Act, 2004 (Act 669), s.1(c)]
i. The income of a company from an agro processing business established in

Ghana in or after the financial year commencing 1st January 2004 is exempt
from tax for a period of five years of assessment commencing from and
including the year in which the basis period of the company ends being the
period in which commercial production commences.
ii. The income of a company which produces on commercial basis cocoa by-
products derived from substandard cocoa beans, cocoa husks and other cocoa
waste as its main raw materials is exempt from tax for a period of five years of
assessment commencing from and including the year in which the basis period
of the company ends being the period in which commercial production
commences.
iii. The income of a company whose principal activity is the processing of waste
including recycling of plastic and polythene material for agricultural or
commercial purposes is exempt from tax for a period of seven years of
assessment commencing from and including the year in which the basis period
of the company ends being the period in which commercial production
commences. [Inserted by Internal Revenue (Amendment) Act, 2004 (Act 669),
s.1(b)].
Where a company conducts both farming and agro processing business, the company may
elect to be treated as if the business were a farming business or an agro processing business
and claim the exemption for which it is eligible under subsection (1) or (2). [Amended by
Internal Revenue (Amendment) Act, 2004 (Act 669), s.1(c)]
For companies, engaged in agro-processing, or cocoa by-products, after the five-year tax
holiday, the additional incentive to them is that the income tax rate applicable to their
chargeable income is as follows:
Location Rate of Income Tax

Accra and Tema 20%
Other regional capitals except Northern, Upper East and Upper West 10%
Northern, Upper East and Upper West 0%
Outside regional capitals 0%
K.O. APPIAH 101

2. Profits of Rural Banks
The income of a rural bank from a business of banking is exempt from tax for the period of
ten years of assessment commencing from and including the year in which the basis period of
the bank ends, being the period in which operations commence.
3. Venture Capital Financing Companies

The income of a venture capital financing company that satisfies the eligibility requirements
for funding under the Venture Capital Trust Fund Act, 2004 (Act 680) is exempt from tax for
the period of five years of assessment commencing from and including the year in which the
basis period of the company ends, being the period in which operations commenced.
[Amended by the Internal Revenue (Amendment) Act, 2006 Act 700), s.2]
More specifically, the tax holiday is enjoyed in such manner:

Five years tax holiday on corporate income
Five years tax holiday on dividend earned
Five years tax holiday on capital gains
In addition to, any bank and other financial institutions which invest in venture capital
financing firms are permitted to deduct in full such investments from their income in the year
of assessment. Also, the losses from disposal of shares acquired from venture capital
financing firms during the five-year tax holiday period can be carried forward for five years.
4. Income from Real Estate

The income of a company from a business of construction for sale or letting of residential
premises is exempt from tax for the period of five years of assessment commencing from and
including the year in which the basis period of that company ends, being the period in which
operations commenced. [Amended by the Internal Revenue (Amendment) Act, 2006 (Act 700),
s.2(b)]
5. Cocoa farmer
The income from cocoa of a cocoa farmer is exempt from tax. It should be noted that it is
only the farmer‘s income from cocoa, so any other income, which is not specifically exempt
under the laws will be subject to tax. Notice also that the incentive is for cocoa farmer and
not any farmer, so for a farmer to enjoy, he/she should be a cocoa farmer.
6. Ghana Stock Exchange

The income of the Ghana Stock Exchange is exempt from tax for the period of twenty years
of assessment commencing from and including the year in which the basis period of the
Ghana Stock Exchange ends, being the period in which operations commenced. In 2010, the
tax holiday was extended by five more years. Thus, the income of the Ghana Stock Exchange
is exempt from tax for the period of twenty-five years.
7. Real Estate Business.

The income of a company from a business of construction for letting of residential premises
is exempt from tax for the period of five years of assessment commencing from and including
the year in which the basis period of that company ends, being the period in which operations
commenced. Here the focus is on rentals.
K.O. APPIAH 102

The income of a company from a business of construction for sale of residential premises is
exempt from tax for the period of five years of assessment commencing from and including
the year in which the basis period of that company ends, being the period in which operations
commenced. The focus here is on sale.
It is pertinent to note, therefore, that individuals do not qualify under these provisions since
they are in respect of (i.e. these provisions) companies, unlike the initial provision in Act 592
that made reference to ―a person‖ which could qualify individuals. Notice should also be
taken of the fact that construction for letting or the sale of ―commercial premises‖ does not
also qualify, as was previously the case.
8.6.3 Summary of Industrial Concessions Formatted: Font: (Default) Times New

BUSINESS TAX HOLIDAY
Tree Crop 10 years from first harvest
Cattle 10 ears from when business
commenced
i) Livestock (other than cattle) 5 years from when business commenced
ii) Fish or cash crop
Cocoa Indefinite
Company in agro processing business 3 years from when commercial production
commenced
i) Company in agro processing
business established in Ghana in
or after 2004
ii) Company which produces on 5 years from the year of assessment when
commercial basis cocoa by-
product derived from commercial production commenced
substandard beans, husks and
other cocoa waste
Company whose principal activity is the 7 years from the year of assessment when
processing of waste including recycling of commercial production commenced
plastic and polythene material for
agricultural or commercial purposes
Company in both agro processing and Elect to be treated as agro processing
farming business or tree crop farming business and
claim eligible exemption
Rural banking 10 years from when operations commenced
K.O. APPIAH 103

i) Company engaged in 5 years from when operations commenced
construction for letting of
residential premises
ii) Company engaged in
construction for sale of
residential premises
Income of Ghana Stock Exchange 25 years from when operations commenced
Applicable Rates after Tax Holidays
Income tax rates applicable to companies include:
Entity 2013%
Companies listed on GSE on or after 1 January 2004 for the first 3 22

years only.
Companies (not listed or listed on GSE before 1 January 2004) 25
Rural Banks after first 10 years 8
Free Zone Enterprise /Developers – first 10 years in operation 0
Free Zone Enterprise/Developers – after first 10 years in operation Up to 8
Manufacturing companies located:
i. In Accra/Tema 25
ii. In all other regional capitals 18.75
iii. Elsewhere 12.5
Hotels (a company principally engaged in the hotel industry) 20
Financial Institutions – income derived from loans granted to 20

farming enterprises or leasing companies
Companies engaged in mining 35
Companies engaged in non-traditional exports 8
Real estate companies
Income derived from construction for sale or letting of low cost affordable residential
K.O. APPIAH 104

premises (but subject to approval from the Ministry of Works and Housing):
after first 5 years 25
Agro-processing companies
i) after first 5 years and located in Accra/Tema 20
ii) after 5 years and located in other Regional Capitals, 10

excluding Tamale, Wa and Bolgatanga
iii) after 5 years and located outside Regional Capitals 0
iv) located in Northern, Upper East and Upper West 0
Ghana Tax Facts and Figures 2013 – PwC
8.6.4 Comprehensive Examples Formatted: Font: (Default) Times New

Question One
Justin plc has no associated companies and makes up accounts to 31 st December annually.
For the year to 31st December 2013, the net profit before taxation was GHS2million. The
following information has been provided (all appropriate VAT adjustments have been made
in the figures provided).
1. The following items of investment income have been included in the profit:
Interest receivable – gross amount:
Ahodwo Building Society 8,500
Taxed interest on government stocks 6,800
15,300
Dividends – gross 20,000

Rent:
Rent received is shown as GHS3,100. GHS1,600 of this amount was rent received
from a cottage behind the factory which is let furnished. The company paid GHS150
insurance premium for the cottage on 1st January 2013 and this has been included in
the general charge for premium.
The remaining GHS1,500 was received in respect of a block of garages. In the
accounts a deduction has been taken for GHS200 of rent arrears on the garages. The
company has not yet taken steps to recover the overdue rents.
2. In January 2013, the company had sold some shares resulting in a chargeable gain of
GHS5,330. A freehold investment property which cost GHS150,000 in January 1999
was sold for GHS278,500 in March 2013. The profit figure above is before taking
these transactions into account.
3. On 30th August 2013, the company acquired a leasehold factory premises at Pataasi to
be used in its trade. The term of the lease is 30 years. No premium was payable.
4. An analysis of the salaries and wages account shows the following payments were
made during the year:
K.O. APPIAH 105

GHS
Removal expenses of new employees 1,400
Expenses of employee seconded to Housing Charity 2,000
Misappropriation of funds by former employees 6,000
Ex gratia payment to former director to settle claims made by him upon the company 10,000
Statutory redundancy payment 7,200
5. An analysis of legal charges shows that the following amounts have been expended@
GHS
Debt recovery 700
Sale of property March 2013 2,160
Lease of factory at Pataasi 1,500
Fine for Health and Safety at work regulations 1,680
Penalty for infringement of a patent 600
Legal costs of successfully defending action for breach of contract 1,800
Preparation of service agreement for new chartered accountant 150
6. The entries in the bade debt account can be summarised as under:
GHS
Debts written off 1,750
Debts recovered (750)
Decrease in specific bad debt provision (400)
Increase in general bad debt provision 450
1,050
7. Sundry expenses include the following:

GHS
Fee for apprentice training course 800
Contribution to Pataasi Enterprise Agency 300
Donation to political party 1,000
Gift aid payment to Asokwa Deportivo – gross 2,400
Trade association subscription 100
Interest on late payment of VAT 1,800
8. Entertaining and gifts were made up as follows:

Entertaining and gifts – Ghana customers 8,940
Foreign customers 2,680
Staff dinner 2,460
Pocket diaries for Ghana customers – customised for the company 3,750
9. Depreciation charged for the year was GHS221,700. Capital allowances of

GHS217,400 are available on assets used in the factory.
10. Repairs comprise:
Work on staff toilets 400

Redecoration of showroom 850
Division of large room into 3 private offices 5,000
K.O. APPIAH 106

The toilets, although usable, were in a very bad state of repair which the premises
were purchased in March 2013. Had the room not been converted into 3 private
offices, the ceiling would have required repairing at a cost of GHS1,000.
Calculate the amounts assessable for the year to 31st December 2013.
SOLUTION
JUSTIN PLC
+ -
Profit per account 2,000,000
Interest receivable 15,300
Ghana dividends 20,000
Rent (3,100 – 150) 2,950
Capital allowances 217,400
Legal expenses on sale of factory 2,160
Legal expenses on lease of factory 1,500
Fine 1,680
Penalty for patent infringement 600
Increase in general bad debt provision 450
Donation to political party 1,000
Donation to Asokwa Deportivo 2,400
Interest on late tax payment 1,800
Entertaining and gifts 11,620
Depreciation 221,700
Repairs 5,000
2,249,910 255,560
(255,560)
Chargeable Income 1,994,260
Question 2
Kolon plc is a Ghana resident company that makes up accounts to 30 th June annually. It has
now changed its accounting date and makes up accounts to 30 th September 2013. The
company has the following results for the 15month period to 30 th September 2013:
GHS
Adjusted trading profits before capital allowances 1,250,000
Debenture interest receivable – notes 3 and 6 20,000
Bank interest receivable – note 4 6,000
Patent royalties receivable – notes 5 and 6 70,000
Chargeable gain – notes 7 and 8 10,000
Gift and payment – notes 6 and 9 5,000
K.O. APPIAH 107

Dividends received from UK companies – note 10 33,750
Notes:
1. On 1st July 2012, the tax written down value of plant and machinery in the capital
allowances pool was GHS100,000. There were no additions or disposals in the period
to 30th September 2013.
2. On 1st July 2010, the company had trading losses brought forward of GHS800,000.
3. Debenture interest receivable:
22nd September 2013 – received 18,000
30th September 2013 – accrued 2,000
The debenture had been acquired in July 2013.
4. Bank interest receivable:
31st December 2012 – received 3,000
30th June 2013 - received 2,000
5. Royalties receivable:
31st December 2012 – received 30,000
30th June 2013 - received 25,000
6. The gross amounts of debenture interest receivable, royalties receivable and gift aid
shown. The royalties are liable to tax when received.
7. The chargeable gain is in respect of a disposal on 31 st December 2012.
8. The company had capital losses brought forward on 1 st July 2012 of GHS12,500.
9. The gift aid payment was made on 31st December 2012.
10. Dividends received:
25th March 2013 20,250
29th September 2013 13,500
Required:
Calculate all corporation tax liabilities based on the above clearly showing any unused
amounts brought forward.
Example 2
KOLON PLC
12 months to 3 months to
30/6/2013 30/9/2013
Trading profits 1,000,000 250,000
TWDA of plant b/f 100,000
WDA – 30% 30,000 30,000
75,000
WDA – 30% ×3/12 5,250 5,250
970,000 244,750
K.O. APPIAH 108

Trade losses b/f (800,000)
170,000
Debenture interest receivable 20,000
Bank interest receivable 5,000 1,000
Royalties received 55,000
Capital gain 10,000
Less: loss brought forward 12,500
Nil
Carried forward 2,500 230,000 265,750
Less charge 5,000
PCTCT 225,000 265,750
FII 22,500 15,000
247,500 280,750
Example Three
The following is the Profit and Loss Account of Naali Business Consultancy Ltd for the year
ended 31/12/2013.
GHS GHS
Gross Profit b/d 23,000,000
Rent income 600,000
23,600,000
Expenses:
Salaries and wages 5,200,000
Subscriptions and donations 310,000
Audit fees 540,000
Depreciation 1,500,000
Legal fees 200,000
Office rent 850,000
Repairs and maintenance 750,000
Bank charges 650,000
Registration and license 150,000
Electricity and water 850,000
Sundry expenses 500,000
11,500,000
Net Profit 12,100,000
Notes:
1. Bank charges include loss on exchange rate adjustment of GHS520,000

2. Sundry expenses include Quarterly Income Tax paid amounting to GHS350,000.
3. Subscriptions and donations include miscellaneous donations of GHS75,000.
4. Capital allowances for the year amounted to GHS2,250,000.
5. Unutilised capital allowance brought forward was GHS1,600,000.
You are required to compute the company‘s chargeable income and tax payable for the year
2013 basis period given that the corporate tax rate is 25%.
K.O. APPIAH 109

Solution
NAALI BUSINESS CONSULTANCY LTD
COMPUTATION OF CHARGEABLE INCOME AND TAX PAYABLE
BASIS PERIOD: 1/1/13 – 31/12/13
GHS GHS
Net profit 12,100,000
Less Rent Income 600,000 11,500,000
Add back:
Miscellaneous donations 75,000
Depreciation 1,500,000
Loss on exchange 520,000
Quarterly Income Tax Paid 350,000 2,445,000
Adjusted Profit 13,945,000
Less: Capital Allowance
Bal b/f 1,600,000
Current 2,250,000 3,850,000
Chargeable trading income 10,095,000
Add: Chargeable Rent Income
Gross Rent Income 600,000
Less allowance @30% 180,000 420,000
Total Chargeable Income 10,515,000
Tax thereon @25% 2,628,750
Example Four
Tagore Ltd declared profit before tax as per its financial statements for the year ended
31/12/12 to the tune of GHS5 million. Included in its operating expenses are the following:
GHS
Audit fees 8,000
Directors remuneration 24,000
Provision for bad and doubtful debts 300,000
Occupancy costs 70,000
Provident fund: Employers‘ contribution 40,000
Provision against long outstanding items 129,000
Salaries 360,000
Medical benefits 16,000
Exchange gains 362,000
Tagore Ltd has capital allowances brought forward from 2011 to the tune of GHS250,000
and that for the current year is GHS65,000. Included in the reported profit is an amount of
GHS9,000 received as net dividend from the company‘s investment in ETI. The exchange
gain is unrealised as at the end of the year.
You are required to compute Tagore Ltd‘s tax liability for the year 2012 year of assessment.
Corporate tax rate is 25%.
K.O. APPIAH 110

Solution
TAGORE LTD
COMPUTATION OF TAX LIABILITY
2012 YEAR OF ASSESSMENT – 1/1/12 – 31/12
GHS GHS
Profit before tax per the account 5,000,000
Add back:
Provision for bad and doubtful debts 300,000
Provident funds 40,000
Provision against long outstanding items 129,000 635,000
5,635,000
Deduct:
Exchange gain (unrealised) 362,000
Net dividend received 9,000 371,000
Adjusted profit/Assessable Income 5,264,000
Less: Capital Allowance
Unutilised balance 250,000
Current year 65,000 315,000
Tax thereon @25% 1,237,250
8.7 GROUPS AND TRADING LOSSES Formatted: Font: (Default) Times New
8.7.1 INTRODUCTION Roman, 12 pt
For Group Loss relief (Group Relief) there are two basic conditions that need to be satisfied: Formatted: Font: (Default) Times New
1. there must be a group Roman, 12 pt, Font color: Accent 1
There will arise where the holding company controls directly or indirectly: Formatted: Font: (Default) Times New Rom
i) at least 75% of the ordinary share capital (OSC) of the subsidiary company.
Shares held as trading stocks are ignored
ii) at least 75% of the distributable profits of the subsidiary company and
iii) at least 75% of the subsidiary‘s net assets in a winding up.
OSC is broadly all share capital, other than fixed interest preference shares.
K.O. APPIAH 111

2. The companies involved in the operation must all be Ghana resident
Group members can be fiscally resident in any country in the world however it is only
possible to transfer losses between entities that are fiscally resident in Ghana; therefore group
relief can be given between:
a. Companies which are Ghana resident, and
b. Ghana branches which are chargeable to Ghana corporation tax
8.7.2 ITEMS QUALIFYING FOR RELIEF Formatted: Font: (Default) Times New
Group relief is available for:
a. Trading losses;
b. Non-trading deficits arising from loan relationships;
These two items can be surrendered without any prior offset against the company‘s other
profits of the same accounting period.
c. Unrelieved charges;
d. Unrelieved management expenses
Unrelieved means that the items must exceed the company‘s other profits liable to
corporation tax. If there is a mixture of these items, they are surrendered in the order given.
8.7.3 GROUP RELATIONSHIPS Formatted: Font: (Default) Times New

The companies contained within a group broadly fall into two classes:
1. Surrendering companies
These give a loss etc. broadly, these companies can give as much or as little loss etc to
whichever group company that they wish, BUT
a. Only current losses can be surrendered;
b. If trading losses are surrendered, they must be commercial losses;
c. The maximum surrender is restricted to the available profits of the claimant company.
2. Claimant companies
These take a loss etc. before taking a loss etc, they must offset:
a. Losses and unused trade charges brought forward;
b. Losses of the same accounting period;
c. Charges (both trade and non-trade) of the current accounting period;
d. Deficits on non-trading loan relationships of the current accounting period
When a company is a member of a 75% group, 100% of any available loss etc is capable of
surrender. Obviously this can give problems where there are minority interests and, in these
cases, it is common for the claimant company to compensate the surrendering company for
what it takes. Provided that this is reasonable (up to GHS1 for every GHS1 loss surrendered),
it is ignored for tax purposes, nor is VAT chargeable on any payment.
A claim to surrender (or vary) group relief may generally be made up to the later of:
a. The first anniversary of the filing date of the company‘s tax return, or
b. 30 days after the closure of any enquiry into that return, or
c. At any later time, with the agreement of the Inland Revenue.
It is possible to make claims on a group basis, the consent of the surrendering company must
also be obtained.
K.O. APPIAH 112

8.7.4 PLANNING POINTS FOR GROUP RELIEF Formatted: Font: (Default) Times New
8.7.4.1 Maximum tax savings Formatted: Font: (Default) Times New

Roman, 12 pt, Bold, Italic, Font color: Accen
To obtain the maximum value for a loss etc, surrender it:
a. To upper marginal companies to bring them to the small companies limit – relief at Roman, 12 pt
32.75%
b. To large companies to bring them to the small companies limit - relief first at 30%
then at 32.75%
c. To lower marginal companies to bring them down to the starter limit – relief at
23.75%
d. To small companies to bring them down to the starter limit – relief at 19% then at
23.75%
e. Once each potential claimant company is at the starter limit and the rate of
corporation tax is nil, the possibility of carry back or carry forward should be
considered.

8.7.4.2 Foreign tax credits Roman, 12 pt, Bold, Italic, Font color: Accen
A void surrendering a loss if it would result in unused foreign tax credits. Formatted: Font: (Default) Times New
Roman, 12 pt
8.7.5 NON-COTERMINUOUS ACCOUNTING PERIODS Formatted: Font: (Default) Times New

If the accounting period of the claimant and the surrendering companies are non-coterminous
and there are overlapping periods:
a. Losses etc will be apportioned on a strict time basis into the relevant accounting
periods of the claimant company
b. The losses that can be so surrendered are restricted to the available profits of the
claimant company also apportioned on a strict time basis.
8.8 GROUPS AND CAPITAL GAINS Formatted: Font: (Default) Times New
Very broadly, there are two possible group situations: Roman, 12 pt
1. Beneficial ownership of 75% or more of the ordinary share capital
Transfer of assets between companies are made at no gain/no loss value i.e. on a tax neutral
basis – essentially cost plus an indexation allowance.
A group is: a principal (or holding) company, together with any 75% subsidiaries (direct or
indirect) and any 75% subsidiaries of 75% subsidiaries. Although non-resident companies
can be members of the CGT, assets may only be transferred at NGNL between companies
and branches which are Ghana resident.
2. Beneficial ownership of ˃50% but ˂75% of the ordinary share capital.
K.O. APPIAH 113

Transfers of assets are made under the connected persons rule – disposal proceeds or market
value if greater.
WATCH FOR:
Losses on intra group transfers as these will be sterilised under the connected persons‘ rules
and can only be offset against gains on other disposals made to the same transferee company
in the current or future accounting periods.
8.8.1 GROUP ROLL-OVER AND HOLD-OVER RELIEF Formatted: Font: (Default) Times New
All the companies in the group are treated as a single person and therefore it is possible to
obtain rollover and holdover relief between members of a 75% group of companies. A joint
election must be made by both companies within 2 years of the end of the accounting period
in which the transfer was made. Any new asset for the purpose must be new to the group as a
whole and not merely new to an individual group member. Therefore an asset transferred
from one group member to another will not be a new asset to the transferee company. The
same conditions and time limits for rollover and holdover relief apply to groups as apply to
individuals or single companies.
8.8.2 CAPITAL LOSSES Formatted: Font: (Default) Times New

There is no group relief for capital losses within a group, therefore within a 75% group an
election can be made to have a deemed transfer of assets at NGNL into one group company
prior to disposal so that gains and losses, can be matched up in that company. The company
that will be chosen for the disposal should normally be the one bearing the lowest rate of
corporation tax. A joint election for the deemed transfer must be made within 2 years of the
end of the accounting period in which the disposal of the asset(s) took place. Where a
payment is made for the transfer of the asset, it will be ignored for tax purposes
8.9 EXERCISE Formatted: Font: (Default) Times New

1. Below is an extract of the Profit and Loss Account of a manufacturing company
located in Essuehyia for the year ended 31/12/2014. Roman, 12 pt
GHS GHS
Gross profit b/d 495,000
Rent income 125,000
620,000
Deduct:
Management salaries 35,000
Staff salaries 17,000
Hire of equipment 14,500
Depreciation 6,000
Casual labour 8,400
K.O. APPIAH 114

Office rent 7,200
Vehicle repairs 15,600
Business promotion 4,200
Donations 9,100
Repairs to factory premises 22,800
Office expenses 18,000
Bad debts 59,000
Advertisements 1,200 218,000
Net profit 402,000
Notes:
1. Casual labour is made up as follows:
Factory hands 5,000
Wages for M.D.‘s private house 3,400
2. Vehicle Repairs is made up as follows:

Cost of new engine 3,600
Fuel &lubricants 7,000
Tyres and tubes 5,000
3. Business Promotions is made up as follows:

Wedding reception for MD on his wedding day 2,800
Cost of entertaining business partners 1,400
4. Donations:
Kotoko FC 6,000
National Trust Fund 100
Bereaved members of staff 3,000
5. Repairs to factory premises:

Cost of new terrazzo floor 12,800
New iron gates of factory 8,000
Cracks in the wall 2,000
6. Office expenses:
New Personal Computer 15,000
Stationery and stores 3,000
7. Advertisement:
Cost of neon sign 2,500
8. The company commenced business on 1/1/2013 and has only one second-hand
delivery van which was bought on 1/7/2013 at a cost of GHS18,000. During the year,
a new engine was purchased for the vehicle at a cost of GHS3,600 as indicated in
Note 2 above.
9. Office rent paid is two years‘ advance.
10. The company‘s factory building was constructed in 2013 at a cost of GHS5million.
K.O. APPIAH 115

11. The company is located at Ntensere in the Ahafo District of the Brong Ahafo Region.
REQUIRED:
Determine the company‘s tax liability for the 2014 year of assessment.
2.
a. What is the definition of trade for tax purposes?
b. State and explain six badges of trade.
3. Discuss the two tests used to decide whether or not expenditure is incurred wholly and
exclusively for trading purposes.
4. Discuss the differences that exist in the mode of assessment of an employee and a
company.
5. What is the general guiding principle for the allowability of expenses for tax
purposes?

CHAPTER NINE

9.0 CAPITAL GAINS TAXATION Roman, 12 pt, Bold, Font color: Accent 1
9.1 BASIC PRINCIPLES OF CAPITAL GAINS TAX (CGT) Formatted: Font: (Default) Times New
Capital gain tax is the taxation of the increase in the capital value of an asset between the date Roman, 12 pt
of acquisition and the date of disposal. Capital Gains Tax is self-assessment based and tax Formatted: Font: (Default) Times New
payers are obliged to report any Capital Gains that accrue to or are received by the person
within the Year of Assessment to the Commissioner within 30 days of the receipt. Capital Roman, 12 pt
Gains tax is payable by every person from the realization of a chargeable asset owned by that
K.O. APPIAH 116

person. Capital Gains Tax is imposed at the rate of 10% (for the period 2001-2006 under Act
592; [5% (Act 731 of 2007)] 15% (Act 797 of 2010). It is to be noted that:
 Capital Gains Tax is not imposed until a chargeable asset is realized
 Capital Gains tax is not payable on capital gain of a foreign based chargeable asset
unless and until those gains are brought into or received in Ghana
9.1.1 Imposition and Rate of Capital Gains Tax Formatted: Font: (Default) Times New
(1) Subject to subsection (2), capital gains tax is payable by a person at the rate of fifteen per
cent of capital gains accruing to or derived by that person from the realisation of a chargeable
asset owned by that person.
(2) Capital gains tax is not payable on capital gains from the realisation of a chargeable asset
falling within paragraph (b) of subsection (1) of section 97 unless and until those gains are
brought into or received in Ghana.
9.2 Chargeable Assets Formatted: Font: (Default) Times New

(1) Subject to subsection (3), chargeable asset means, any of the following assets:
 buildings of a permanent or temporary nature situated in Ghana; Roman, 12 pt
 business and business assets, including goodwill, of a permanent establishment
situated in Ghana;
 land situated in Ghana;
 shares of a resident company;
 part of, or any right or interest in, to or over any of the assets referred to in
subparagraphs (i) to (iv); and
(b) to the extent that they are not chargeable assets as a result of paragraph (a), any of the
following assets of a resident person:
 buildings of a permanent or temporary nature wherever situated;
 business and business assets, including goodwill, wherever situated;
 land wherever situated;
 shares of a company;
 part of, or any right or interest in, to or over any of the assets referred to in
subparagraphs (i) to (iv).
Regulations made under section 114 may add to the categories of chargeable asset in either
paragraph (a) or (b) of subsection (1).
9.2.1 Chargeable asset does not include Formatted: Font: (Default) Times New
 securities of a company listed on the Ghana Stock Exchange during the twenty-five
years after the establishment of the Ghana Stock Exchange;
 agricultural land situated in Ghana; and
 trading stock or a Class 1, 2, 3, or 4 depreciable asset.
9.3 DISPOSAL/REALISATION Formatted: Font: (Default) Times New

A charge to tax can arise whenever there is a disposal. A person who owns a chargeable asset
is treated as realising the asset where Roman, 12 pt
a) that person parts with ownership of the asset including where the asset is
ii) sold, exchanged, surrendered, or distributed by the owner of the asset, or
K.O. APPIAH 117

iii) redeemed, destroyed or lost;
b) that person begins to use the asset in such a way that it ceases to be a chargeable asset;
or
c) that person is a resident who becomes a non-resident but only with respect to
chargeable assets referred to in paragraph (b) of subsection (1) of section 97.
For the purposes of this Act, a realisation of a chargeable asset does not include a realisation
by way of gift within the meaning of Chapter III or a realisation involving the disposal of
shares in the course of the liquidation of a company.
9.3.1 THE TIMING OF A DISPOSAL Formatted: Font: (Default) Times New

This is normally the date of an unconditional contract for the disposal not the date of receipt
of the proceeds. There are some special rules:
A gift is made at the date it is made
An asset lost is disposed of at the time of loss but, if compensation is received, the date of
disposal is normally the date of the compensation.
9.4 THE FORMAT OF A COMPUTATION Formatted: Font: (Default) Times New

A capital gains tax computation follows the following format:
Roman, 12 pt
Disposal Proceeds/Consideration Received XXX
Less:
Incidental costs of disposal XXX
Allowable expenditure XXX
Indexation allowance XXX
Losses offset XXX
Taper relief XXX
Annual Exemption XXX (XXX)
Chargeable Income XXX
The costs of disposal include fees and commissions of professional advisers together with
advertising costs and transfer charges. They will also include the costs of obtaining any
valuations but not the costs of agreeing those valuations with the Revenue Authority.
9.4.1 Allowable Expenditure Formatted: Font: (Default) Times New

This includes:
a) Cost
b) The incidental costs of acquisition
c) Enhancement costs so long as they are reflected in the nature of the asset at the date of
disposal
d) The costs of defending title to the asset.
Incidental costs of acquisition costs include fees, commission etc paid to a professional
adviser including transfer costs and stamp duty. Costs include VAT when it is not
recoverable. It is not possible to deduct expenditure that is allowable as a trade expense,
interest on loans taken out to acquire the asset and expenditure that is recoverable from a
third party.
K.O. APPIAH 118

9.5 CONNECTED PERSONS Formatted: Font: (Default) Times New
Connected persons are broadly:
a) A taxpayer‘s spouse or relative (brother, sister, lineal ancestor or descendant) or a Roman, 12 pt
relative of the taxpayer‘s spouse. Separated spouses are connected, divorced spouses
are not.
b) The trustees of a settlement created by the taxpayer
c) Persons (and their spouses and relatives) in partnership with the taxpayer
d) A company controlled by the taxpayer
Effects of disposals to connected persons

If a disposal to a connected person is not made on an arm‘s length basis, then market value
must be substituted for the actual consideration. If this results in a capital loss, it can only be
offset against gains on disposals made to the same connected person in the current, or future,
chargeable periods.
9.6 Shares and securities Formatted: Font: (Default) Times New

9.6.1 Securities Roman, 12 pt
Government stocks and most commercial securities i.e. debentures, loan stocks etc. are Formatted: Font: (Default) Times New
exempt from capital gains tax where they are held by individuals. For companies, capital Roman, 12 pt, Font color: Accent 1
gains and losses on government and commercial securities would normally be part of a non- Formatted: Font: (Default) Times New Rom
trading loan relationship and be treated as profit or loss.
To prevent individuals from bond washing – i.e. buying securities ex-interest and selling
cum-interest so that the taxable interest element is converted into a tax free capital gain, the
accrued income scheme segregates the income element included in the selling price of a
security and charges it to income tax.
9.6.2 Shares Formatted: Font: (Default) Times New

For individuals and companies, shares (including preference shares) are liable to CGT. For
individuals, the order of identification of disposals is:
a) With shares acquired on the same day, then
b) With acquisitions within 30 days after the disposal on FIFO basis, then
c) With other acquisitions, the basis can be LIFO
d) Others are identified in pool
9.6.3 Scrip and Rights Issues Formatted: Font: (Default) Times New
Scrip issues are a free issue of shares. They are not an operative event and will just increase
the number of shares held.
A right issue increases both:
a) The number of shares held, and Formatted: Numbered + Level: 1 +
Numbering Style: a, b, c, … + Start at: 1 +
b)a) Their cost Alignment: Left + Aligned at: 0.25" + Inden
It is effectively treated as an acquisition of shares. The shares received however are related at: 0.5"
with the holding from which they derive, therefore the cost of the rights is added to the cost
of the original holding. However, if the original holding is in the pool, the cost of the rights is
treated as a simple acquisition of shares.
K.O. APPIAH 119


Roman, 12 pt
9.7 Take-overs Formatted: Font: (Default) Times New
Take-over bids can be either: Roman, 12 pt, Font color: Accent 1
a) Share exchange, or Formatted: Font: (Default) Times New
b) Cash for shares Roman, 12 pt
c) Or a mixture of the two Formatted: Numbered + Level: 1 +
An entirely share for share bid is not a disposal provided that as a result of the bid the Alignment: Left + Aligned at: 0.25" + Inden
acquiring company controls either: at: 0.5"
a) More than 25% of the ordinary share capital of the target company, or Formatted: Numbered + Level: 1 +
b) More than 50% of the voting power of the target company. Numbering Style: a, b, c, … + Start at: 1 +
Alignment: Left + Aligned at: 0.25" + Inden
The new shares received in the acquiring company will ‗step into the shoes‘ of those at: 0.5"
originally held in the target company and take their costs and dates of acquisition.
If cash is received, there is a disposal of the old holding with a resulting capital gain or loss
Roman, 12 pt
9.8 Calculation of Capital Gain Formatted: Font: (Default) Times New
The amount of a capital gain accruing to or derived by a person from the realisation of a Roman, 12 pt, Font color: Accent 1
chargeable asset owned by that person is the excess of the consideration received by that Formatted: Font: (Default) Times New
Roman, 12 pt
person from the realisation over the cost base at the time of realisation.
9.8.1 Cost Base Formatted: Font: (Default) Times New

The cost base of a chargeable asset owned by a person at a particular time equals the sum of:
a) the costs, including incidental costs and, where relevant, the cost of construction or
production, incurred by the person in acquiring ownership of the asset,
b) the costs incurred by that person on alteration and improvement of the asset between
the date of its acquisition and the date of its realisation, and
c) the costs incurred by that person in realising the asset.
For the purposes of subsection (1), where, as a result of a person acquiring ownership of a
chargeable asset, that person is treated under Chapter I as deriving an amount of income, that
person shall be treated as having incurred in acquiring ownership of the asset an additional
cost equal to the amount of the income.
Where a person who owns an asset, which is not a chargeable asset, begins to use the asset in
such a way that it becomes a chargeable asset, that person is treated as having incurred in
acquiring ownership of the asset a cost equal to the market value of the asset at the date that
person begins to so use the asset.
Where a non-resident person who owns one or more assets, which are not chargeable assets,
becomes a resident and, as a result, the assets become chargeable assets, that person is treated
as having incurred in acquiring ownership of each asset a cost equal to the market value of
the asset at the time of becoming resident.
Where a capital gain is exempt as a result of paragraph (b), (c), or (d) of subsection (1) of
section 101, the person acquiring ownership of the asset is treated as having incurred in
acquiring that ownership a cost equal to the cost base of the asset of the former owner at the
time of realisation.
K.O. APPIAH 120

Where a capital gain, or part thereof, is exempt as a result of paragraph (e) or (f) of
subsection (1) of section 101, the person acquiring ownership of the replacement asset is
treated as having incurred in acquiring that ownership a cost equal to the cost base of the
asset realised at the time of realisation.
Where a part of a chargeable asset owned by a person is realised, the cost base of the asset is
apportioned between the part of the asset retained and the part realised in accordance with
their respective market values at the time of realisation but the costs incurred in realisation
shall not be so apportioned.
9.8.2 Consideration Received Formatted: Font: (Default) Times New

1. The consideration received or receivable by a person from the realisation of a
chargeable asset owned by that person is equal to the sum of all amounts received or
receivable by that person or an associate in respect of the realisation.
2. Where a person who owns a chargeable asset realises it by way of transfer to an
associate or in a non-arm's-length transaction, that person is treated as having received
consideration from the realisation of an amount equal to the market value of the asset
at the time of realisation.
3. Where a resident person becomes a non-resident and, as a result, is treated as realising
a chargeable asset in accordance with paragraph (c) of subsection (1) of section 96,
that person shall be treated as receiving as consideration from the realisation the
market value of the asset at that time.
4. Where a chargeable asset and one or more other assets are realised in a single
transaction and the consideration received for each asset is not specified, the total
consideration received from the realisation is apportioned among the assets in
proportion to their market values at the time of the transaction.
9.9 Exemption from Capital Gain Formatted: Font: (Default) Times New
The following capital gains from the realisation of a chargeable asset are exempt:
a. capital gains of a person up to a total of fifty currency points per year of assessment; Roman, 12 pt
b. capital gains accruing to or derived by a company arising out of a merger,

amalgamation, or re-organisation of the company where there is continuity of
underlying ownership in the asset of at least twenty five per cent;
c. capital gains resulting from a transfer of ownership of the asset by a person to that
person's spouse, child, parent, brother, sister, aunt, uncle, nephew or niece;
d. capital gains resulting from a transfer of ownership of the asset between former
spouses as part of a divorce settlement or a genuine separation agreement;
e. capital gains where the amount received on realisation is, within one year of
realisation, used to acquire a chargeable asset of the same nature (referred to as the
"replacement asset"); and
f. Where part only of the amount received on realisation is used in the manner referred
to in paragraph (e), any part of the capital gain represented by the amount used to
K.O. APPIAH 121

acquire the replacement asset less the cost base of the asset realised at the time of
realisation.
g. capital gains accruing to or derived by a venture capital financing company that

satisfies the eligibility requirements of the Venture Capital Trust Fund Act 2004 (Act
684) for a period of five years of assessment commencing from and including the year
in which the basis period of the company ends, being the period in which operations
of the subsidiary company commenced. The Commissioner may extend the period of
one year for the purposes of paragraphs (e) and (e) of subsection (1) where, having
regard to the circumstances of a particular case, it is fair and reasonable to do so.
9.10 Returns and Payment of Tax Formatted: Font: (Default) Times New
1. Subject to subsection (3), a person who accrues or derives a capital gain from the
realisation of a chargeable asset shall, thirty days after the realisation, furnish the Roman, 12 pt
Commissioner with a return in writing containing the following information:
a. the description and location of the chargeable asset;
b. b. the cost base of the asset immediately prior to the realisation and how that
cost base is calculated;
c. the consideration received by that person from the realisation;
d. the amount of any capital gain and tax payable with respect to that capital
gain and tax;
e. the full name and address of the new owner of the asset; and
f. other information prescribed by Regulations made under section 114.
2. Subject to subsection (3), a person who brings into or receives in Ghana a capital gain
of the type referred to in subsection (2) of section 95 shall, within thirty days, furnish
the Commissioner with a return in writing containing the following information: the
amount of the capital gain brought into or received in Ghana and tax payable with
respect to that amount; and other information prescribed by Regulations made under
section 114.
3. Subsections (1) and (2) do not apply where the capital gain referred to in those
subsections together with any other capital gains from the realisation of chargeable
assets referred to in
a. subsection (1) of section 95 accruing to or derived by, and
b. subsection (2) of section 95 brought into or received in Ghana by, that person
during the same year of assessment does not exceed in total fifty currency points.
4. Where a person is required to furnish a return under subsections (1) or (2); that person
shall remit to the Commissioner the amount of tax calculated as payable and the
payment of tax is due at that time.
9.11 Assessments and Application of Income Tax Procedure Formatted: Font: (Default) Times New
Subject to subsection (2), the Commissioner shall, based on a person's return furnished under
section 102 and on any other information available, make an assessment of the amount of any Roman, 12 pt
capital gain of that person and the tax payable on that amount within one year from the date
the return is furnished.
Where section 78 applies to a person and that person furnishes a return under section
102, the Commissioner is deemed to have made an assessment of any capital gain of that
person and the tax payable on that assessment, being those respective amounts shown in the
return.
K.O. APPIAH 122

Except to the extent that they are inconsistent with section 102 and subsections (1) and (2) of
this section, sections 72 to 79 apply, with the necessary modifications to give full effect to
this Chapter, to returns and assessments under that section and those subsections as though
references to a return of income were replaced with references to a return under section 102;
and references to chargeable income were.
9.12 ILLUSTRATIVE QUESTIONS Formatted: Font: (Default) Times New

QUESTION ONE Roman, 12 pt
Bernard was born and raised in the USA; his father was American. He has been resident in
Ghana for the last 7 years but he intends to return to the UK within the next few years and to
resume permanent residence there.
During 2012/13, he sold an investment property in the UK. The sales proceeds (after
expenses) were $100,000 and he realised a gain of $20,000 after an indexation allowance.
Bernard placed all the disposal proceeds in a US bank account. It is now 1 st December, 2013
and he wants to withdraw $50,000 of his capital to purchase a house in Ghana.
Advise him of his capital gains tax implications of the above operations.
SOLUTION
The assessable income of a resident person shall be all incomes accruing in, derived from,
brought into, or received in Ghana during the basis period of the person ending in the year of
assessment. Bernard is a resident person of Ghana. He has disposed off an investment
property. However, the proceeds were put in a US bank account. Hence, the capital gain will
not be subject to tax in Ghana since none of the proceeds was remitted into Ghana in any
form.
QUESTION TWO
Rupert has recently approached you for tax advice. He has provided the following
information:
It is just coming to the end of the fiscal year and he wishes to make a contribution into his
personal pension plan and other investments. As he has little available cash, he has decided to
sell a number of his personal assets. Firstly he has sold his car for GHS10,000, then his
collection of signed Beatles photographs for GHS2,000 and Rolex wrist watch for
GHS18,000. He also sold his shares in UT Ltd for GHS3,000, his Armani suit for GHS500
and his 3-week timeshare in an East Legon apartment complex for GHS7,000. As he had a tip
for a horse race, he sold the euros that he bought when he went for his winter skiing holiday
in Italy realising GHS400 (and making an exchange gain of GHS50) and makes an each way
bet. The horse wins and he makes GHS2,500. Finally, he cashes in a life assurance policy on
his own life for GHS6,000 and sells the George Cross that he won for bravery for GHS40,000
and a matching Distinguished Flying Cross for GHS20,000 that he bought at auction to
himself for conspicuous achievement in passing his ACCA having done minimum work.
Advise him which of the above disposals could give him a liability to CGT.
QUESTION THREE
Billy has consulted you regarding a number of disposals that he has made during the current
fiscal year.
 He has given a valuable antique clock to his wife, she is not a clock dealer
K.O. APPIAH 123

 He has given shares to his favourite charity on which there is a large capital gain
 He has made a similar disposal to his old college at Cambridge University
 He sold shares in ETI Ltd making a substantial capital gain
 The shares that he bought last year in Time-Warner Inc. are now worth double their
cost price.
Advise him whether any of these constitutes a chargeable disposal for capital gains tax.
Would it make any difference if:
a. The shares gifted to his favourite charity produced a large capital loss on disposal
b. His wife was a clock dealer and took the clock into trading stock
Base your answers purely on your knowledge of CGT.
QUESTION FOUR
KK Ltd. bought a building at Asokwa at a cost of GHS40,000 in 2010. He incurred the
following before acquiring the building:
Search at Lands Department GHS200
Paid to lawyer to draft document GHS2,500
The land was susceptible to flood; and so the firm spent GHS2,000 on the construction of
drains. On January 6, 2014, the company disposed of the asset for GHS70,000. Determine the
capital gains accruing to the firm and compute the resultant tax if any.
Solution
GHS GHS
Proceeds from Realisation 70,000
Less cost base of building:
Purchase price 40,000
Search cost 200
Legal fees 2,500
Drainage costs 2,000 (44,700)
Capital gain 25,300
Less exempt income (50)
25,250
Tax: 15%×25,250 3,787,50
QUESTION FIVE
Professor Frimpong bought a house at Danyame at the cost of GHS160,000 in the year 2011.
He spent GHS8,000 to repair the house. In 2013 he decided to sell the house and therefore
engaged a contractor to renovate the house so as to attract buyers. The renovation cost him
GHS60,000. He engaged the services of a sales agent who was able to sell the house in
February, 2014 for GHS900,000 but charged a commission of 10% of the sales value.
Required:
a. Compute any tax payable.
b. Assuming Professor Frimpong used all the proceeds he realised from the sale to buy a
new building at Danyame in May, 2014; compute any tax payable.
K.O. APPIAH 124

c. Assuming Professor Frimpong used all the proceeds he realised from the sale to buy a
parcel of land at Ayeduase with the aim of building a hostel in May, 2014; compute
any tax payable.
d. Assuming Professor Frimpong used GHS600,000 out of the amount to buy a new
building at Danyame in May, 2014; compute any tax payable.
Solution
Professor Frimpong
a.
GHS GHS
Consideration received 450,000
Less cost base:
Cost of building 160,000
Repairs 8,000
Renovation 60,000
Commission 45,000 273,000
Capital gains 177,000
Exempt income 50
Taxable gain 176,950
CGT @15% 26,542.50
b.
Less cost base (as above) 273,000
Less Roll-over relief:
Cost of replacement 450,000
Less cost base of realised asset 273,000 177,000
Taxable gain Nil
c.
Less Roll-over relief: 0
Exemption (50)
Taxable gain 176,950
CGT @15% 26,542.50
d. Consideration received 450,000

Less Roll-over relief:
Cost of replacement 400,000
Less cost base of realised asset 273,000 127,000
K.O. APPIAH 125

Adjusted capital gain 50,000
Exemption (50)
Taxable gain 49,950
CGT thereon @15% 7,492.50
EXAMPLES ON SHARES AND SECURITIES

Question 1
In each of the following situations, identify which shares have been disposed of and what the
taxpayer‘s remaining shareholding consists of:
a) Formatted: Numbered + Level: 1 +
Appiah acquired the following shares in ABC Ltd: Alignment: Left + Aligned at: 0.25" + Inden
11th June, 2012 1,000 shares at: 0.5"
10th August, 2012 2,000 shares
28th November, 2012 1,000 shares
On 3rd March, 2013, he sold 2,000 shares in ABC Ltd.
b) Formatted: Numbered + Level: 1 +

Bee acquired the following shares: Alignment: Left + Aligned at: 0.25" + Inden
1st April, 2012 1,000shares in ETI Ltd at: 0.5"
1st May, 2012 1,000 shares in FanMilk Ltd
1st June, 2012 1,000 shares in AGA Ltd
On 1st December, 2012 she sold 500 shares in FanMilk Ltd.
c) Formatted: Numbered + Level: 1 +

On 5th February, 2013, Abena sold 10,000 shares in an unquoted trading company for Alignment: Left + Aligned at: 0.25" + Inden
GHS50,000. The history of his acquisitions has been as under: at: 0.5"
1st June, 2011 3,000 shares cost GHS7,000
1st January, 2012 2,000 shares cost GHS14,000
5th February, 2013 400 shares cost GHS1,950
20th February, 2013 1,000 shares cost GHS2,000
At 5th April, 2008, there were 8,000 shares in the pool with a value of GHS35,000.
Calculate the chargeable gain assessable on Abena.
d) Lucy bought 10,000 shares in A Ltd on 1st January, 2005 for GHS30,000. The Formatted: Numbered + Level: 1 +
indexation allowance to 5 th April, 2008 was 0.234. On 1st January, 2011, A Ltd was Alignment: Left + Aligned at: 0.25" + Inden
acquired by B Ltd on the following terms: at: 0.5"
1 B Ltd ordinary share and 3 B Ltd preference shares for every 2 shares in A Ltd.
On the first day of dealing in the shares following the successful takeover bid, the
market value of the shares in B Ltd was:
Ordinary shares GHS10 each
Preference shares GHS4 each
On 5th April, 2013, Lucy sold all her ordinary shares in B Ltd for GHS37,000.
Show the capital gain arising. The shares are investments.
K.O. APPIAH 126

SOLUTION
i)a) The matching of Appiah‘s disposal are on a LIFO basis. He is treated as disposing of Formatted: Numbered + Level: 1 +
all the shares acquired on 28th November, 2012 and 1,000 of the shares acquired on Alignment: Left + Aligned at: 0.25" + Inden
10th August, 2012. He now owns 2,000 of which 1,000 were acquired on 11 th June, at: 0.5"
2012 and 1,000 on 10th August, 2012.
ii)b) The second part of the question was to goof you off!. The three acquisitions
related to different companies and therefore will not be matched on a LIFO basis.
After the disposal, she will be left with 500 shares in FanMilk Ltd and all of her
shares in other two other two companies.
iii)c) The third part is rather tricky. However, do not panic. Just follow diligently
through the following steps.
For individuals, the order of identification of disposals is:
i) With shares acquired on the same day, then Formatted: Numbered + Level: 1 +
Numbering Style: i, ii, iii, … + Start at: 1 +
ii) With acquisitions within 30 days after the disposal on FIFO basis, then Alignment: Left + Aligned at: 0.25" + Inden
iii) With other acquisitions, the basis can be LIFO at: 0.5"
iv) Others are identified in pool
Step 1 will result in the following: GHS

Disposal proceeds – 400/10,000×50,000 = 2,000
Cost 1,950
Gain 50
Step 2
Disposal proceeds – 1,000/10,000×50,000 = 5,000
Cost 2,000
Gain 3,000
Step 3a
Cost 14,000
Gain (4,000)
Step 3b
Cost 7,000
Gain 8,000
Step 4
Cost - 3,600/8,000×35,000 15,750
Gain 2,250
In summary,
GHS
Total Assessable Gain will be 9,300
Less exempt income 50
Chargeable gain 9,250
Tax thereon @15% 1,387.50
K.O. APPIAH 127

iv)d) Shares acquired 10,000 Formatted: Numbered + Level: 1 +
Cost 30,000 Alignment: Left + Aligned at: 0.25" + Inden
Indexation to April, 2008 (@0.234) 7,020 at: 0.5"
37,020
Received on acquisition value on first day of dealing

GHS
5,000 B Ltd ordinary shares @ GHS10 50,000
15,000 B Ltd preference shares @GHS4 60,000
110,000
Split cost pro rata for value of items received:

Ordinary shares - 50,000/110,000×37,020 16,827
Preference shares - 60,000/110,000×37,020 20,193
Sale of ordinary shares:

Disposal proceeds 37,000
Cost and indexation 16,827
Capital Gain 20,173
Exempt income 50
Chargeable gain 20,123
CGT @15% 3,018.45
PAST QUESTIONS
Question One
(a) Nii Bortey a businessman in Kumasi owned the following assets as at July 2003.
¢
Building 450,000,000
Toyota Land Cruiser 52,650,000
Set of Furniture 23,700,000
Land 167,800,000
On deciding to relocate in Accra in June 2007 he sold the entire assets at a price of
¢5,350,000,000 to his friend Kwesi Amofa.
Before the sale, he contracted Twum & Associate, a valuation firm that put the market values
of the assets as follows:
¢
Building 620,000,000
Toyota Land Cruiser 75,000,000
Set of Furniture 15,000,000
Land 240,000,000
You are required to calculate the capital gains payable by Nii Bortey if any (15 marks)
K.O. APPIAH 128

ICA, May 2008
SOLUTION
Nii Bortey
Apportionment of the realised amount using the Market Value
¢‘000 ¢‘000
Building 620,000 3,491,579
Toyota Land Cruiser 75,000 422,368
Set of Furniture 15,000 84,474
Land 240,000 1,351,579
Total 950,000 5,350,000
Computation of Capital Gains

Building Land Total
Realisation 3,491,579 1,351,579 4,843,158
Less Cost base of the assets
Cost of acquisition (450,000) (167,800) (617,800)
Capital Gain 3,041,579 1,183779 4,225,358
Exemption (500)
Taxable Gain 4,224,858
CGT @15% 633,729
9.13 TRIAL QUESTION Formatted: Font: (Default) Times New

a. The amount of a capital gain accruing to or derived by a person from the realization of Roman, 12 pt
a chargeable asset owned by that person is the excess of the consideration received by
that person from the realization over the COST BASE at the time of realization.
Briefly explain what constitutes the cost base of a chargeable asset. (10 marks)
b. John Twum bought a building at Tema Community 10 for GH¢20,000 in 2006, and
sold it for GH¢65,000 in 2008. Legal expenses on the sale were GH¢2,500 and the
estate agent‘s fee was GH¢2,000.
Calculate the capital gains tax payable on this transaction. (5 marks)
ICA, May 2009
c. Vikileak Co. Ltd sold its factory building which also houses its offices in March 2011
for GHS66,000. Cost of construction was GHS45,000. The company continued to
operate in the same factory building as a tenant of the purchaser until it finally moved
into its own newly constructed premises in January 2012. The company furnished the
following information in response to an enquiry on the use of the sum realised from
the sale of the factory.
K.O. APPIAH 129

GHS
a. Cost of new factory building 36,000
b. Cost of new warehouse building 11,500
c. Cost of new office building 16,000
d. Removal and installation of machinery 700
e. Transport charges 300
f. Rent paid 1,500
66,000
a. Comment briefly on the above account for the purposes of Capital Gains Tax and
determine any liability to be taxed.
b. Assuming the cost of the new office building was GHS30,000 would your
computation be the same? Explain.
Assume Capital Gains Tax Rate of 10%. (MBA 2 (Accounting) Dec, 2013)

CHAPTER TEN

10.0 GIFT TAX (SECTION 105 – 110 OF ACT 592) Formatted: Font: (Default) Times New
Roman, 12 pt
10.1 INTRODUCTION Formatted: Font: (Default) Times New

The Oxford Advance Learner‘s Dictionary defines a gift as ―a thing given willingly without
payment; a present‖. Taxes are imposed on gifts as an anti-avoidance scheme designed to Roman, 12 pt
bring into the tax net any income that has been deliberately concealed and clothed as a gift.
Gift Tax is Self-Assessment in character and taxpayers are obliged to report any taxable gifts
received within the Year of Assessment to the Commissioner within 30 days of the receipt.
Gift Tax was first introduced in Ghana in 1975 by the Gift Tax Law (NRCD 348 of 1975)
K.O. APPIAH 130

Subsequent amendments are: PNDCL 195 of 1988; PNDCL 233 of 1990; and IRA, 2000
(Act 592)
10.1.1 Definitions (Section 110) Formatted: Font: (Default) Times New

A gift is defined to mean a receipt without consideration or for inadequate consideration. It is
important to distinguish between gifts taxable under section 8(3) of Act 592 and gifts taxable
under section 105 of the same Act. The distinction is as follows:
i) Gifts under section 8(3) arise out of one‘s employment, donated by the employer,
as associate of the employer, or a third party under an arrangement with the
employer or an associate of the employer, whereas gifts under section 105 are
taxable gifts provided by the tax law.
ii) The tax payable on gifts under section 8(3) is at a graduated rate (employee tax
schedule) whereas gifts under section 105 are taxed at a flat rate of 5%. [10%
from 2001 to 2006]
iii) Under section 8(3) the whole amount of the gift is taxable whereas under section
105 if the gift does not exceed GH50, no tax is payable. Where the gift under
section105 exceeds GH¢50, it is only the amount in excess of the threshold of
GH¢50 that is taxable.
iv) The value of a gift by way of perquisite under section 8(3) is determined as either
the cost to the donor or how much it would yield when sold. With gifts under
section 105, however, the value is determined as the market price at the time or
date of receipt.
10.2 IMPOSITION OF TAX (SEC. 105(1)) Formatted: Font: (Default) Times New
A gift, which is taxable under the Act, shall be taxed at the rate of 5% on the total value of
taxable gifts received by a person within a year of assessment. [The rate was 10% from 2001 Roman, 12 pt
to 2006].
10.2.1 Gifts Exempt from Tax (Sec. 105 (2) as amended by Act 644) Formatted: Font: (Default) Times New
Certain gifts are excluded from the total value of taxable gift. These include taxable gift
received:
a) by a person under a will or upon intestacy;
b) by a person from that person‘s spouse, child, parent, brother, sister, aunt, uncle,
nephew or niece;
c) by a religious body which uses the gift for the benefit of the public or a section of the
public; or
d) for charitable purposes.
A gift that passes in any of the above circumstances or cases does not attract gift tax.
10.2.2 Taxable Gift (Sec. 106 as amended by Act 644) Formatted: Font: (Default) Times New
―Taxable gift‖ means
a) Any of the following assets situated in Ghana:
i) buildings of a permanent or temporary nature;
ii) land;
iii) shares, bonds, and other securities,
iv) money, including foreign currency,
K.O. APPIAH 131

v) business and business assets,
vi) any means of transportation (that is, by land, air or sea)
vii) goods or chattels not included in the means of transportation (vi); and
viii) part of, or any right or interest in, to or over any of the assets referred to
subparagraphs (i) to (vii), or
b) an asset or a benefit whether situated in Ghana or outside Ghana, received by a

resident person as a gift by or for the benefit by that person, or
c) an asset or a benefit, whether situated in Ghana or outside Ghana, received by or for
the benefit of a resident person as a gift where the asset has been or is credited in an
account or has been or is invested, accumulated, capitalized or otherwise dealt with in
the name of or on behalf or at the direction of that person, or
d) a favour in money or money‘s worth or a consideration for an act or omission or the
forbearance of an act or omission that inures for or to the benefit of a resident person.
For the purposes of paragraphs (b) and (c), ―assets‖ means an asset referred to in
subparagraphs (i) to (viii) of paragraph (a). For the purpose of this section, It is worthy of
note that it is immaterial whether or not the person being taxed physically received the asset
so long as the act, omission or transaction inured or inures to the benefit of that person.
10.2.3 Valuation (Sec. 107) Formatted: Font: (Default) Times New

The value of taxable gift is the market value of the gift at the time of the receipt. This thus
presupposes that the actual cost to the donor is irrelevant in the determination of the value of
a gift for tax purposes as the market value is what would be resorted to.
10.3 RETURNS & PAYMENT OF TAX (SEC. 108) Formatted: Font: (Default) Times New
10.3.1 Procedural relating to Gift Tax Roman, 12 pt
A person who receives a taxable gift shall, within thirty (30) days of receipt, furnish the Formatted: Font: (Default) Times New
Commissioner with a return in writing containing the following information: Roman, 12 pt, Font color: Accent 1
a) The description and location of the taxable gift; Formatted: Font: (Default) Times New Rom
b) The total value of the gift, how it is calculated and tax payable with respect to that
gift;
c) The full name and address of the donor or of the gift; and
d) Any other information required by the Commissioner.
A person is not required to furnish a return where the gift received together with any other
taxab le gifts received by that person during the same Year of Assessment does not exceed
in total GH¢50. The person shall remit to the Commissioner the amount of tax calculated as
payable and the payment of tax is due at that time
K.O. APPIAH 132

10.3.2 Assessment & Application of Income Tax Procedure (Sec. 109) Formatted: Font: (Default) Times New
The Commissioner shall, based on the return furnished by the person and on any other
information available, make an assessment of the value of the taxable gift received by that
person and the tax payable thereon within one year from the date the return is furnished.
10.4 ILLUSTRATIONS Formatted: Font: (Default) Times New

(a) Mama Luu gave a golden ear ring and a necklace as a parting gift to her pastor‘s wife on
26th June, 2002. The market value of the items at the time of receipt was GH¢ 50. The items Roman, 12 pt
were purchased on 10th October, 1997 at the cost of GH¢ 20. Required: Compute any tax
payable
Solution
Tax payable is NIL (Sec 108 (2). The value of the gift is GH¢ 50 and so exempt from tax
(b) Kwabena bequeathed a piece of land valued at GH¢10,000.00 to his son, Solo.
What is the tax liability of Kwabena‘s son?
Solution
Solo has no tax liability as the land passed from a father to a child; more so the land was
passed under a will or intestacy.
(c) The Board of Directors of Rich Transport Ltd transferred a slightly used Kia Sportage
vehicle worth GH¢24,000.00 as a gift to the wife of Kwadwo Afoakwa, one of the directors
who lost his life through a motor accident. How much gift tax will the wife of the late
Kwadwo Afoakwa pay?
Solution
GH¢
Value of Gift 24,000.00
Less: Threshold (Not Taxable) 50.00
Net Taxable Amount 23,950.00
Tax thereon @ 5% 1,197.50
Example
Mr. Mckeown the finance director of AngloGold Ashanti retired on 25 th December 2013. He
received the following items from friends as gifts to enable him start a stationary store in
Kumasi.
1. Saloon car valued at GHS78,000 (cost GHS54,000).
2. Nissan pick up at GHS57,000 (cost GHS83,000).
3. An old warehouse valued GHS90,000 (GHS10,000).
4. Cash of GHS1,500 and shares valued at GHS2,300.
His father a cocoa farmer gave him land valued at GHS54,000 and cash of GHS500. Mr. Adu
an old friend of the family who died the previous year willed a land cruiser V8 valued at
GHS134,000 and a treasury bill with a maturity value of GHS18,000 to him.
You are required to determine the tax liability of Mckeown if any.
K.O. APPIAH 133

Solution
Mr. Mckeown
Computation of Tax Liability
GHS
Taxable gifts:
Saloon car 78,000
Nissan pick up 57,000
Old warehouse 90,000
Cash 1,500
Shares 2,300
228,800
Less non-taxable limit 50
Taxable value 228,750
Tax @5% 1143.75
Example
A person who receives a taxable gift shall within 30 days of receipt furnish the commissioner
with a return in writing.
a. Outline the content of such a return.
b. Tom Tee a loyal member of the government was appointed Municipal Chief
Executive of Aflao Municipality in the Volta Region on 4 th January 2014. On the
occasion of his induction to office he received the following:
Type of gift Donor Value (GHS)
Cash Son living in Legon 1,000
Wrist watch Daughter‘s boyfriend 10,000
Six plots of land Togbe of Aflao 40,000
Kente cloth Sister-in law 2,000
Cash Old fellows 1,000
Range Rover Rogue Nephew living in Croydon €135,000
You are required to compute any tax payable by Hon. Tom Tee. Assume the exchange
rate to be GHS3.
Solution
a. The content of a Gift Tax Return is contained in S. 108 of Act 592 and is as follows:
1. The description and location of the taxable gift;
2. The total value of the gift, how it is calculated and tax payable with respect to that
gift;
3. The full name and address of the donor or of the gift; and
4. Any other information required by the Commissioner.
b. Hon. Tom Tee

Computation of Tax Payable
GHS
Wrist watch 10,000
Six plots of land 40,000 Formatted: Font: (Default) Times New Rom
K.O. APPIAH 134

Kente cloth 2,000 Formatted: Font: (Default) Times New Rom
Cash from old fellows 1,000
Taxable gifts 53,000
Less exempt income 50
Chargeable gifts 52,950
Tax @10% 5,295 Formatted: Font: (Default) Times New Rom
10.5 PAST QUESTIONS Formatted: Font: (Default) Times New

Kokoase Nipa received the following gifts within the 2012 year of assessment,
Jan 15, received kente costing GHS5,000 from the father during his birthday party Roman, 12 pt
Jan 20, received 20,000 shares in ABC Co. Ltd from his wife costing GHS10 per share and
valued on the stock exchange as GHS12 per share
Jan 30, received gold necklace from a close friend at GHS10,500
Mar 15, received GHS50 from a friend in appreciation of good work done by Kokoase Nipa
Mar 30, received Treasury bill costing GHS40 and valued by the financial market at GHS5
from a friend
Jun 1, received land from a close associate valued at GHS102,000
Aug 20, received GHS20,000 from the son living abroad
K.O. APPIAH 135

Sept 30, received GHS25,000 cash from a staff of Kokoase Ltd as a token in appreciation of
his directorship
Nov 5, received $200 from a pal staying in the United States, at the time of the transfer of the
dollars the exchange rate stood at GHS2.20 to the dollar and at the time of receipt, the dollar
rate stood at GHS2.25 to a dollar
Dec 10, Kokoase Nipa inherited a three storey building from the late grandfather who died
ten years ago valued at GHS100,000 as against GHS50,000 ten years ago
Required:
a. For each of the above transactions explain why or why not the amount is taxable.
b. Determine the chargeable gifts received by Kokoase Nipa for each of the months.
c. Determine chargeable gift for the year of assessment 2012.
d. Determine the gift tax payable for the year of assessment 2012, assume a gift tax rate of
10%.
Solution
a. A gift is not taxable only when it is exempt by Act 592. Certain gifts are excluded
from the total value of taxable gift. These include taxable gift received:
1. by a person under a will or upon intestacy;
2. by a person from that person‘s spouse, child, parent, brother, sister, aunt, uncle,
nephew or niece;
3. by a religious body which uses the gift for the benefit of the public or a section of
the public; or
4. for charitable purposes.
i) The gift of kente cloth is not taxable as it is exempted by law. Any gift from a
sibling is not taxable, hence a gift from his father is not subject to tax.
ii) The gift of shares is also not taxable for similar reason as in (i) above.
iii) The gift of gold necklace is taxable
iv) The gift of cash received from the friend is taxable
v) The gift of treasury bill received from the friend is taxable
vi) The gift of land received from the close associate is taxable
vii) The gift of cash received from the son is not taxable
viii) The gift of cash received from the staff is taxable
ix) The gift of foreign currency received from the pal is taxable
x) The gift of building received from the grandfather is not taxable as it is a
property acquired under will.
b.
Kokoase Nipa
Determination of Chargeable Gifts for each month
GHS
January
Gold necklace 10,500
March
Cash 50
Treasury bill 5
K.O. APPIAH 136

June
Land 102,000
September
Cash 25,000
November
Foreign currency (200*2.25) 450
c.
Kokoase Nipa
Determination of Chargeable Gifts for 2012 Y/A
GHS
Gold necklace 10,500
Cash 50
Treasury bill 5
Land 102,000
Cash 25,000
Foreign currency (200*2.25) 450
Total chargeable gifts 138,005
d.
Determination of Tax Payable for 2012 Y/A
GHS
Total chargeable gifts 138,005
Exempt income 5
Net chargeable income 138,000
Tax @10% 13,800
K.O. APPIAH 137

CHAPTER ELEVEN

11.0 VALUE ADDED TAX Roman, 12 pt, Bold, Font color: Accent 1
Value Added Tax (VAT) is a general tax imposed on expenditure incurred in buying goods Roman, 12 pt
and services. It is also a general tax on consumption expenditure, hence the name expenditure
or consumption tax. VAT is a tax on the final consumer; but in practice it is charged as an
addition to the price of supplies at all stages in the chain of production and distribution.
11.1 REASONS FOR INTRODUCING VAT IN GHANA Formatted: Font: (Default) Times New
There are several reasons for introducing the VAT to replace the sales and service taxes. The
main reasons for introducing VAT include: Roman, 12 pt
1. Adopting a uniform basis for collecting the general consumption taxes

The sales and service taxes were collected under five different regimes. These different
regimes or methods depended on the way Customs, Excise and Preventive Service (CEPS)
and the Internal Revenue Service (IRS) treated purchase and expenses made by registered
persons or firms. As a result of the re-introduction of VAT, all the different regimes or
methods have been replaced by a uniform credit system. Hence the main advantage of
introducing VAT is that it will make the tax system easier to administer, more difficult to
manipulate and fairer for all taxpayers.
2. Expanding and diversifying the tax base

In general, consumption taxes are designed to have the broadest base compared with other
taxes. This was not the case with the tax system in Ghana. There were two main factors that
restricted or narrowed the base of the sales and service taxes. These were points of collection
and exemptions from the tax.
3. improving the efficiency and equity of revenue collection
4. Control of smuggling
Smuggling is unfair to local manufacturers; and also it hurts competition. VAT charges input
tax while it allows output tax to be deducted by the payer. When goods are smuggled, it
implies that the party cannot recover any output tax, yet it will pay the input tax. As such the
introduction of VAT scheme works to disincentivise parties from engaging in smuggling acts.
5. Making tax administration and compliance simpler

The replacement of five different methods with a single uniform regime would mean that the
regime itself would become simpler to comply with and administer. This is because there will
be fewer systems for taxpayers to comply with or even manipulate with a view to evading the
payment of taxes. The revenue authorities will therefore not waste too many resources in
checking these numerous tax malpractices.
K.O. APPIAH 138

6. Spreading the burden of taxation in a fairer manner
The implementation of a uniform tax system and over a wider base than what prevailed under
the sales and services taxes will mean that taxpayers will not be treated differently. Most tax
systems, like the personal income tax, are deliberately designed to be progressive in nature.
This was not the case with the sales and service tax regimes. For instance, most expensive
services such as video rental, telecommunication etc, were excluded from the tax regime,
making the system rather unfair. VAT as an effective expenditure tax is designed to cover
many goods and services.
7. Promotion of Exports
Exports from Ghana are subject are classified as zero-rated supplies. This means that the
credit on purchase and expenses allowed to firms will be set against a zero amount of output
tax. This will results in actual cash refunds to such businesses.
8. Reduction in the rates of inflation and interest

Recent analysis has shown that the main cause of inflation in the country is the deficit on the
government budget. This is mainly caused by insufficient amount of revenue accruing to the
government to meet developmental and recurrent expenditure needs. Government may decide
to borrow or print new money to meet its obligations. Such financing means can result in
increase in prices as a result of excess money in circulation. VAT provides another avenue
through which government can accrue revenue for its needs and thereby minimise the
tendencies of inflation rising up.
11.2 METHODS OF COMPUTING VAT Formatted: Font: (Default) Times New

There are two main methods of computing VAT: the single-stage method and the multi-stage
method. Roman, 12 pt
1. Single-stage Sales tax

VAT is collected at the retail point when products are sold to the final consumer.
The main problem with collecting general consumption taxes at a single stage is the possible
revenue leakage that can occur anytime the commodity does not make it to the retail point.
ACTIVITY 11.1
Using the following financial data, compute the amount of VAT payable (assumed VAT rate
of 17.5% (including 2.5 NHIL) -2014 BUDGET) under the single stage. Comment on your
answer.
GHs
a. Nana Manufacturing Limited
Imports of raw materials (subject to import VAT) 1,000
Other costs and profits 1,000
Selling price to distributor 2,000
b. King Wholesale/Distribution Limited

Cost from Manufacturer 2,000
Selling price to retailer 3,000
K.O. APPIAH 139

c. 40 Retailers Enterprise
Cost from Distributor 3,000
Selling price to consumer 4,000
SOLUTION TO ACTIVITY 11.1 Formatted: Font: Bold
Let‘s assume Tax is collected at the retail stage where the commodity is finally passed on to
the customer
(17.5% of 4,000,000) = GHs700, 000

Comment: The limitation is the possible revenue leakage that can occur anytime the Formatted: Font: Not Bold
commodity does not make it to the retail point. Formatted: Font: Not Bold
 Further, there are practical difficulties (i.e. illiteracy, informal operations, wide
geographical and often rural spread) in imposing all taxes at the retail stage. Formatted: Font: Not Bold
 For this reason, the, single stage taxes are often collected at the manufacturing Formatted: Font: Not Bold, English (U.S.)
stage. This said, at the manufacturing stage, the tax collected would be (17.5% of Formatted: Font: Not Bold
GHs2, 000,000) = GHs350, 000, whereas the distribution stage would be (17.5% or Formatted: Font: Not Bold
3,000,000) =GHs525, 000. The question is which stage is appropriate? The response Formatted: Space After: 8 pt, Line spacing
is quite complicated and thus not straight forward. Here, the GRA should consider the Multiple 1.08 li
trade-off between revenue leakage (i.e. if the tax is imposed at the retail stage) and the Formatted: Font: Not Bold
relatively lower amount of revenue (i.e. if the tax is imposed at the manufacturing or Formatted: Font: Not Bold
distribution stages). The multi-stage to some extent mitigates the downside of the Formatted: Font: Not Bold
single stage, the analysis of which we turn to in Activity 11.2.
2. Multi-stage method
Under this method, the transaction at each stage is defined into two distinct parts – purchases
and sales. Each business is likely to pay VAT on its purchases and expenses while it charges
VAT on its sales. In accounting for VAT, the registered business or individual deducts the
input VAT from the output VAT and pays the net to the local GRA tax office.
Activity 11.2Illustrative Example

Using the following financial data, compute the amount of VAT payable (assume all figures
are VAT exclusive).
GHS
a. a. Nana Manufacturing plcer Formatted: Normal, No bullets or numberin
Imports of raw materials (subject to import VAT) 1,000 Formatted: Font: (Default) Times New
Other costs and profits 1,0500 Roman, 12 pt, Bold
Selling price to distributor 2,0500
b. b, King Distributor limited Formatted: Font: (Default) Times New

Roman, 12 pt, Bold
Cost from Manufacturer 2,0500
Other costs and profits 1,000 Formatted: Normal, No bullets or numberin
Selling price to retailer 3,0500
c. c. Nanaking&Sons Retailer Enterprise Formatted: Normal, No bullets or numberin
Cost from Distributor 3,0500 Formatted: Font: (Default) Times New

Roman, 12 pt, Bold
K.O. APPIAH 140

Selling price to consumer 46,000
Solution
a. VAT payable by the Manufacturer
Output VAT – 17.5%×2,0500 35075
Less Input VAT -– 17.5%×1,000 17550
VAT payable 175225
b. VAT payable by the Distributor

Output VAT – 17.5%×3,0500 525
Less Input VAT – 17.5%×2,0500 35075
VAT payable 17550
c. VAT payable by the Retailer

Output VAT – 17.5%×46,000 7900
Less Input VAT – 17.5%×3,0500 525
VAT payable 175375
Activity 11.3
Using the following financial data in activity 11.2 above, compute the amount of VAT
payable (assume all figures are VAT inclusive).
11.3 REGISTRATION Formatted: Font: (Default) Times New

There are two types of registration: compulsory and voluntary
Roman, 12 pt
11.3.1 COMPULSORY REGISTRATION
A person is registrable as a taxable person if he is a person who makes a taxable supply of
goods or services and in the case of a retailer of goods he is a person whose business turnover
exceeds –
a. GHS12090,000 over a 12-month period; or
b. GH67,500 over a 9-month period; or
c.b. GHS45,000 over a 6-month period; or
d.c. GHS30220,500 over a 3-month period;
whichever is achieved earliest.
Remember
a. it is the person who is liable to be registered not the business, therefore aggregate all
taxable supplies made by a person to see whether the limits are exceeded.
b. Ignore disposals of capital assets in finding supplies for registration purposes, other
than taxable supplies of land.
c. Advance registration is available, provided the trader can satisfy that it is carrying on
a business and intends to make taxable supplies.
d. If a supply is made before a liability to registration arises but payment is made after
registration, no VAT is due.
K.O. APPIAH 141

Anyone who qualifies to register has to apply to the Commissioner-General for registration as
a taxable person. The registration form requires the following information:
a. Name of business or proprietor;
b. Trading name (if different);
c. Postal and physical address;
d. Telephone number;
e. Date of commencement of trading;
f. Tax identification number;
g. Type of business and description of business activity;
h. Value of total sales or turnover for the last 12 months, value of taxable sales and
turnover (including zero-rated) during the last 12 months;
i. A declaration by the person completing the registration form certifying that the
information provided is true and accurate to the best of his knowledge.
Once registration is made, VAT office will issue a certificate of registration which shows the
following information:
 The date of registration
 The registration number
 The date on which the first VAT period ends, and
 The length of future VAT accounting periods
11.3.2 VOLUNTARY REGISTRATION Formatted: Font: (Default) Times New

Even if a trader has not reached the compulsory limits, it may register voluntarily. There are
both advantages and disadvantages of doing this:
Advantages
1. It gives status to small businesses
2. If the taxpayer‘s customers are taxable traders or it makes zero rated supplies, it will
enable it to recover input tax without disadvantaging its sales.
Disadvantages
1. It generates compliance costs
ACTIVITY 11.4Example 4
AmpongL Ltd started trading on 1 Jan 20142. The monthly sales to date were:
GHS
Jan 20142 11,100
Feb 20142 11,300
March 20142 11,500
April 20142 11,700
May 20142 11,900
June 20142 21,100
July 20142 21,300
Aug 20142 21,500
Sept 20142 21,700
Oct 20142 41,900
Nov 20142 51,100
Dec 20142 81,300
K.O. APPIAH 142

Jan 20153 81,400
Feb 20153 51,500
March 20153 10,600
April 20153 12,700
When must the company register for VAT?
SOLUTION TO ACTIVITY 11.4

Ampong L Ltd
3months period
GHS
Jan 20142 11,100
Feb 20142 11,300
March 20142 11,500
Total 33,900
Ampong L Ltd must register in April, 20142 as its turnover over the first 3month period
meets the minimum threshold of GHs30,000
OpheliaY Ltd started to trade as a designer consultancy on 1 July 20143. The turnover was:
GHS
month to 31 July 20143 15,000
31 Aug 20143 16,000
31 Sept 20143 25,000

Ophelia Ltd
2months period
GHS
July 2014 15,000
Aug 2014 16,000
Total 31,000
Ophelia Ltd must register in September, 2014 as its turnover over the first 2month period
meets the minimum threshold of GHs30,000
Q Ltd makes golf balls which it supplies to standard-rated wholesalers. Its annual turnover is
GHS30,000 and standard-rated costs amount to GHS16,000 exclusive of VAT. What is the
effect of voluntary registration?
11.3.4 SPECIAL REGISTRATION ISSUES Formatted: Font: (Default) Times New

K.O. APPIAH 143

A. Exemption from registration
This is available if a trader makes wholly zero rated supplies or the vast majority of suppliers
are zero rated. It will mean that no input tax can be recovered but there will be no compliance
costs, incurred in making VAT returns etc. in deciding whether or not to apply for exemption
in this case, it will be necessary to calculate the trade-off between irrecoverable VAT and the
compliance costs.
B. Business splitting (disaggregation)

It is the person who is liable to register rather than the business (CCE v Glassborow).
Business splitting is the term used to describe the artificial splitting of a business over more
than one taxable person, with the aim of ensuring that each person‘s taxable turnover is below
the registration limit. This may be important when it is not possible to pass on the VAT as in
a sale to the general public.
To counter this, Ghana Revenue Authority Customs have powers to direct that the separate
businesses are in fact one. They must consider whether:
a. Each person contributes to overall economic activity;
b. The taxable turnover of the entire business exceeds the registration limits;
c. The businesses are linked together in a financial, economic or organisational way.
There is not normally any backdating of the direction.
C. Pre-registration VAT
This is recoverable:
a. On goods including capital goods and trading stock provided:
 They are still owned at the date of registration, and
 They were purchased within the 6 month3 year period to registration (this is
applicable since 2014, implying that the previous 3years provision has been
abolished).
b. On services, if they were supplied within 6months of registration. The goods or
services must have been used for business purposes and invoices must be available to
support the claims for VAT recovery.
Formatted: Normal, Indent: Left: 0.5", No
bullets or numbering
ACTIVITY 11.7
Akosua Dufie Ltd registered for VAT from 1 Oct 2014. It has traded since 1 Jan 2014. At the
date of registration it had trading stock costing GHs10,000 and plant costing GHs4,000. It
paid rent of GHs120 per month on the first of each month. All these amounts include VAT at
17.5%. Akosua Dufie Ltd will be able to recover VAT on?
ACTIVITY 11.8
Bridget Appiah Ltd registered for VAT from 1 Oct 2014. It has traded since 1 Jan
2014. At the date of registration it had trading stock costing GHs10,000 and plant costing
GHs4,000. It paid rent of GHs120 per month on the first of each month. All these amounts
excludes VAT at 17.5%. Bridget Appiah Ltd will be able to recover VAT on?
b. Formatted: Font: (Default) Times New

Roman, 12 pt
Formatted: Normal, No bullets or numberin
K.O. APPIAH 144

11.4 MAKING SUPPLIES Formatted: Font: (Default) Times New
A supply is broadly a transfer of goods and services. It may be liable at:
a. The standard rate of VAT – 17.5%(inclusive of NHIL of 2.5%); this is the normal rate Roman, 12 pt
of VAT
b. The lower rate of VAT; this is charged on supplies of fuel and power, energy savings
and materials and certain security products.
c. The zero rate of VAT.
Some supplies are exempt; this means that they are totally outside VAT.
ACTIVITY 11.9-STANDARD RATED SUPPLIES(17.5%)Example 3

NaanaX Ltd makes standard-rated supplies of GHS100,000 exclusive of VAT. It has
standard-rated inputs of GHS40,000 exclusive of VAT. What If X Ltd‘s supplies were zero-
rated,is the VAT due would be?
Again using X Ltd above, if its supplies were all exempt, the position would be?

Since X Ltd makes standard zero-rated supplies, its output VAT is
GHs100,000*17.5%=17,500nil. Naana‘s However, the firm can claim its input VATis .
Input VAT = 17.5%×GHS40,000 = GHS76,000
The input VAT of GHS76,000 is substracted from the output VATcan be reclaimed by X Ltd
within a period of 6months, resulting in VAT due of GHs10,000..
ACTIVITY 11.10-STANDARD RATED SUPPLIES (17.5%)

Naana Ltd makes standard-rated supplies of GHS100,000 inclusive of VAT. It has standard-
rated inputs of GHS40,000 exclusive of VAT. What is the VAT due………………………
ACTIVITY 11.11-ZERO RATED SUPPLIES (0%)

Maame Ltd makes standard-rated supplies of GHS100,000 exclusive of VAT. It has standard-
rated inputs of GHS40,000 exclusive of VAT. If Maame Ltd‘s supplies were zero-rated, the
VAT due would be?

Since Maame Ltd makes zero-rated supplies, its output VAT is nil. However, the firm can
claim its input VAT.
Input VAT = 17.5%×GHS40,000 = GHS7,000
The input VAT of GHS7,000 can be reclaimed by Maame Ltd within a period of 6months.
ACTIVITY 11.12-ZERO RATED SUPPLIES (0%)

Maame Ltd makes standard-rated supplies of GHS100,000 inclusive of VAT. It has standard-
rated inputs of GHS40,000 exclusive of VAT. If Maame Ltd‘s supplies were zero-rated, the
VAT due would be?.................................................................................................................
ACTIVITY 11.13-EXEMPT RATED SUPPLIES (NIL%)
K.O. APPIAH 145

Maame Nyarko Ltd makes standard-rated supplies of GHS100, 000 exclusive of VAT. It has
standard-rated inputs of GHS40,000 exclusive of VAT. If Maame Nyarko‘s supplies were all
exempt, the position would be?

Since Maame Nyarko Ltd makes exempt-rated supplies, its output VAT is nil. However, the
firm cannot claim its input VAT.
Input VAT = 17.5%×GHS40,000 = GHS7,000
The input VAT of GHS7,000 cannot be reclaimed by Maame Nyarko Ltd within a period of
6months. Accordingly, Maame Nyarko must add it as cost of input or purchases.
ACTIVITY 11.14-EXEMPT RATED SUPPLIES (NIL%)

Maame Nyarko Ltd makes standard-rated supplies of GHS100, 000 inclusive of VAT. It has
standard-rated inputs of GHS40,000 inclusive of VAT. If Maame Nyarko‘s supplies were all
exempt, the position would be?
11.4.1 TYPES OF SUPPLIES Formatted: Font: (Default) Times New

Supplies can be of:
1. GOODS
This is where there is a supply of tangible property. In other words, supply of goods means
any arrangement under which the owner of the goods parts with or will part with possession
of goods by sale, barter, lease, transfer, exchange, gift or similar disposition. It can include
gifts and goods taken out of business for private use together with certain supplies of land.
2. SERVICES
This is where there is a supply made for a consideration which is not a supply of goods. It
would include hire or lease of assets and the private use of business assets.
Where a supply consists of a mixture of elements, such as a combination of goods and

services and possibly at different rates of VAT, they can be either:
 Composite supplies, or
 Mixed supplies
i) Composite supplies
This is the position where there are both dominant and subsidiary elements to a supply. In
this case, the supply must be considered as a whole and the rate of VAT attributable to the
dominant element must be applied to the entire supply. Therefore in British Airways plc v
CCE (1990) the cost of catering provided during an airplane flight was considered to be a
single supply of transport.
ii) Mixed supplies

In this case the various elements of a supply are independent and clearly identifiable. Under
normal circumstances therefore each element of the supply will be separately charged to
VAT potentially at different rates. Therefore in Thorn, EMI plc and Granada plc v CCE
(1993) the hire and insurance of a television set were separate elements each attracting
different rates of VAT. In a situation where a taxable person has made both taxable and
exempt supplies, but cannot distinctly attribute the input tax to each supply, he may be
K.O. APPIAH 146

permitted to deduct as an input tax an amount that bears the same ratio as the taxable supplies
bear to the total supplies.
Schedule 4 of the VAT Act specifies the apportionment formula to be used in situations of
indeterminate supplies.
Where: A is the total amount of input tax for the period

B is the total amount of taxable supplies
C is the total amount of all supplies
It should be noted that where the fraction obtainable from the formula above is less than 5%,
the taxable person may not be permitted to take credit for any input tax for period. On the
other hand, if the fraction is greater than 95%, the taxable person may be allowed to take
credit for all the input tax for the period.
ACTIVITY 11.15
KO Ltd is a manufacturer. It provides you with details of the following in the quarter to 31
March 2014:
GHS
Sales to Ghana customers
Liable at standard rate 200,000
Liable at zero rate 80,000
Exports 100,000
Sales of surplus plant and machinery 26,000
Purchases of goods:
Standard rated 120,000
Zero rated 40,000
Wages 52,000
Expenses:
Leasing costs of a motor car- wholly used in the business 2,100
Entertaining oversees customers 500
Bank charges 200
Other expenses – all relating to business 3,900
Capital equipment purchased
Car for salesman 6,000
Lorry 19,000
Office furniture 3,000
Purchases are from VAT-registered supplies. All the above amounts exclude VAT. What is
the VAT due or recoverable by KO LTD.
ACTIVITY 11.16:
The information below relates to the records of Nana King Enterprise, a VAT registered
trader, for the month of June 2014. You are required to calculate the amount of VAT due to
the Ghana Revenue Authority or due to be refunded to the Nana King Enterprise. The
applicable VAT rate is 17.5%.
Items Purchased Value (GHs)

Leather (imported) 300,000
Paper 300,000
K.O. APPIAH 147

Glue 2,000
Cardboard Sheet 300,000
Cotton Bales 200,000
Dye 50,000
Items Sold
Seminar Folders 500,000
Children books 200,000
Bags 100,000
Complimentary Cards 5,000
Diaries 400,000
Wax Prints (Exports to Togo) 200,000
Notes:
i) Sales include the following supplies to the Presidency:
Diaries GHs50,000
Bags GHs20,000
ii) Purchases include GHs1,000 glue and GHs100,000 cardboard sheets

purchased from petty traders not registered with the VAT Service.

Purchases Value VAT Rate (%) Amount of VAT (GHS)
Leather (imported) 300,000 17.5 52,500
Paper 300,000 17.5 52,500
Glue 1,000 17.5 175
Cardboard Sheet 200,000 17.5 35,000
Cotton Bales 200,000 17.5 35,000
Dye 50,000 17.5 8,750
Total Input VAT 183,925
Sales Value VAT Rate (%) Amount of VAT (GHS)

Seminar 500,000 17.5 87,500
Children‘s books 200,000 Exempt 0
Bags 80,000 17.5 14,000
Complimentary Cards 5,000 17.5 875
Diaries 350,000 17.5 61,250
Wax Print (Export) 200,000 0 0
Total 1,335,000 163,625
Value of Taxable Supplies = Value of Total Supplies – Value of Exempt Supplies

= GHS1,335,000 – GHS200,000
= GHS1,135,000
Deductible Input VAT = ⁄
= GHs156,370
K.O. APPIAH 148

VAT Refundable to Nana King Ent.
GHs

Less Total Output VAT 163,625
Net VAT Payable 7254
ACTIVITY 11.17
Using the data and the solution in ACTIVITY 11.16 above assume the B/C is less than 5%, Formatted: Font: (Default) Times New
Roman, 12 pt
what is the VAT due or recoverable?
Formatted: Normal
ACTIVITY 11.18: Formatted: Font: Font color: Auto

Again, using the data and the solution in ACTIVITY 11.16 above assume the B/C is greater Formatted: Font: (Default) Times New
Roman, Font color: Auto
than 95%, what is the VAT due or recoverable?
Roman, 12 pt
11.4.2 VALUE OF SUPPLY Formatted: Normal
This is the amount on which VAT is chargeable. If the consideration is money, this is the
amount which, with VAT, is charged to the customer. If the customer is a connected person
and is not registered for VAT, Ghana Revenue AuthorityCustoms can require market value to Formatted: Font: Font color: Auto
be used.
If not in money, this is the value of what is actually received. Formatted: Font: Font color: Auto
Supplies can be taxable, zero-rated or exempt. There are other supplies which are taxable but Formatted: Font: Font color: Auto
are considered to be relief supplies.

11.4.2.1 Zero-rated Roman, Bold, Italic, Font color: Accent 1
Output tax shall be at zero on the supply of the goods and services specified in Act 546 and Formatted: Font: (Default) Times New
Roman, 12 pt
its amendments. The zero-rated supplies include:
1. All Exports Formatted: Font: Font color: Auto

2. Goods shipped as stores on vessels and aircrafts leaving the territories of Ghana. Formatted: Font: Font color: Auto
3. Locally produced textbooks and exercise books Formatted: Font: Font color: Auto
4. Locally manufactured agricultural machinery, implements and tools Formatted: Font: Font color: Auto

11.4.2.2 Exempt Supplies Roman, Bold, Italic, Font color: Accent 1
Exempt supplies are prescribed in Schedule 1 of the VAT Act. The Act exempts the Formatted: Font: (Default) Times New
Roman, 12 pt
following goods and services:
K.O. APPIAH 149

1. Animals, livestock and poultry Formatted: Font: Font color: Auto
This covers all live animals. The Act in 2002 provided further clarification on description of Formatted: Font: Font color: Auto
live animals by describing live animals as cattle, sheep, goat, swine and poultry but excluding
horses, asses, mules, hinnies and similar exotic animals.
2. Animals, livestock and poultry imported for breeding purposes Formatted: Font: Font color: Auto
Live asses, mules and hinnies; live bovine animals; live swine, live sheep and goats, live Formatted: Font: Font color: Auto
poultry
3. Animals product in its raw state produced in Ghana Formatted: Font: Font color: Auto
Edible meat and offal of the animals listed in (1) above, provided any processing is restricted Formatted: Font: Font color: Auto
to salting, smoking or similar process, but excluding pate, fatty livers of geese and ducks and
similar products.
4. Agricultural and aquatic food products in its raw state produced in Ghana Formatted: Font: Font color: Auto
Fish, crustaceans, and molluscs (but excluding ornamental fish); vegetables and fruits, nuts, Formatted: Font: Font color: Auto
coffee, cocoa, shea butter, maize, sorghum, millet, tubers, guinea corn and rice
5. Seeds, bulbs rootings and other forms of propagation Formatted: Font: Font color: Auto
Of edible fruits, nuts and vegetables Formatted: Font: Font color: Auto
6. Agricultural inputs Formatted: Font: Font color: Auto

Chemicals including all forms of fertilizers, acaricides, fungicides, nematicides, growth Formatted: Font: Font color: Auto
regulations pesticides, veterinary drugs and vaccines, feed and feed ingredient.
7. Fishing equipment Formatted: Font: Font color: Auto

Boats, net floats, twines, hooks and other fishing gear Formatted: Font: Font color: Auto
8. Water Formatted: Font: Font color: Auto

Supply of waters excluding bottled and distilled water Formatted: Font: Font color: Auto
9. Electricity Formatted: Font: Font color: Auto

Domestic use of electricity up to a minimum consumption level prescribed in regulations by Formatted: Font: Font color: Auto
the Minister
10. Printed matter – books and newspapers Formatted: Font: Font color: Auto
Fully printed or produced by any duplicating process, including atlases, books, charts, maps, Formatted: Font: Font color: Auto
music, but excluding newspapers (imported), plans and drawings, scientific and technical
works, periodicals, magazines, trade catalogues, price lists, greeting cards, almanacs,
calendars and stationery
11. Education Formatted: Font: Font color: Auto

The supply of educational services at any level by an educational establishment approved by Formatted: Font: Font color: Auto
the Minister for Education. Laboratory equipment for educational purposes and library
equipment.
12. Medical supplies and service – pharmaceuticals Formatted: Font: Font color: Auto
K.O. APPIAH 150

Essential drug list and medical supplies determined by the Minister of Health and approved Formatted: Font: Font color: Auto
by Parliament.
13. Transportation Formatted: Font: Font color: Auto

Includes transportation by bus and similar vehicles, train, boat and air Formatted: Font: Font color: Auto
14. Machinery Formatted: Font: Font color: Auto

Machinery, apparatus, appliances and part thereof, designed for use in- Formatted: Font: Font color: Auto
a. Agriculture, veterinary, fishing and horticulture Formatted: Font: Font color: Auto
b. Industry, Formatted: Font: Font color: Auto
c. Mining as specified in the mining list and dredging; and Formatted: Font: Font color: Auto
d. Railway and tramway
15. Crude oil and hydrocarbon products Formatted: Font: Font color: Auto
Petrol, diesel, liquefied petroleum gas, kerosene and residual fuel oil Formatted: Font: Font color: Auto
16. Land, buildings and construction Formatted: Font: Font color: Auto
a. Land and buildings; the granting assignment or surrender of an interest in land or Formatted: Font: Font color: Auto
building; the right to occupy land or buildings;
b. Civil engineering work; Formatted: Font: Font color: Auto
c. Services supplied in the course of construction, demolition, alteration, maintenance, to Formatted: Font: Font color: Auto
buildings or other works under (a) or (b) above, including professional services such
as architectural or surveying;
17. Financial services Formatted: Font: Font color: Auto

Provision of insurance; issue, transfer, receipt of, dealing with money (including foreign Formatted: Font: Font color: Auto
exchange) or any note or order of payment of money; provision of credit; operation of any
bank (or similar institution) account; but excluding professional advise such as accountancy,
investment, and legal.
18. Goods for the disabled Formatted: Font: Font color: Auto
Articles designed exclusively for us by the disabled. Formatted: Font: Font color: Auto
19. Transfer of going concern Formatted: Font: Font color: Auto

The supply of goods as part of the transfer of a business as a going concern by one taxable Formatted: Font: Font color: Auto
person to another taxable person.
20. Postal services Formatted: Font: Font color: Auto

Supply of postage stamps. Formatted: Font: Font color: Auto
Additional amendments Formatted: Font: Font color: Auto

Act 2002 and Act 2004 have amended to extend the list of exempted items. Formatted: Font: Font color: Auto
21. Salts Formatted: Font: Font color: Auto

It encompasses denatured salt, compressed salt used in animal feeding and salt for human Formatted: Font: Font color: Auto
consumption including table salt.
22. Mosquito nets Formatted: Font: Font color: Auto
K.O. APPIAH 151

This item is described as mosquito nets of man-made textile whether or not impregnated with Formatted: Font: Font color: Auto
chemicals.
23. Musical instrument Formatted: Font: Font color: Auto

Refers to all musical instrument as listed under chapter 92 of the Harmonised Commodities Formatted: Font: Font color: Auto
Classification Code.
11.4.3 RELIEF SUPPLIES Formatted: Font: (Default) Times New Rom
These are taxable supplies in all aspect of the supplies, however, there is relief from the VAT
on such supplies. Relief supplies are captured in Schedule 3 of the Act 1998 to be all taxable Formatted: Font: Font color: Auto
supplies to:
1. President of the Republic of Ghana. Formatted: Font: Font color: Auto
2. For the official use of any Commonwealth of Foreign Embassy, Mission or Consulate Formatted: Font: Font color: Auto
(relief applies only to VAT on imported goods).
3. For the use of a permanent member of the Diplomatic Service of any Commonwealth Formatted: Font: Font color: Auto
or Foreign Country, exempted by Parliament from the payment of custom duties
(relief applies only to VAT on imported goods).
4. For the use of an international agency or technical assistance scheme where the terms Formatted: Font: Font color: Auto
of the agreement made with the government include exemption from domestic taxes.
5. Emergency relies items approved by Parliament. Formatted: Font: Font color: Auto
NOTE: items in (2) and (3) above are relief supplies when a similar privilege is accorded Formatted: Font: Font color: Auto
by such Commonwealth of Foreign Country to the Ghana representative in that country.
When in doubt treat a supply as taxable. Formatted: Font: Font color: Auto
11.5 THE PLACE OF THE SUPPLY Formatted: Font: (Default) Times New
In general, for VAT to be chargeable, the supply must take place in Ghana. This area is
complex and there are different rules for goods and services. Roman, 12 pt
a. Goods
Goods situated in Ghana are generally deemed to have been supplied in Ghana unless they
are removed from Ghana in the course of the supply.
b. Services Formatted: Font: Font color: Auto

In general, a supply of services takes place where the supplier belongs. Normally, this is the Formatted: Font: Font color: Auto
state in which the supplier has a business or fixed establishment.
11.6 THE TIME OF THE SUPPLY Formatted: Font: (Default) Times New
Time of Supply
According to the Act 1998, a supply of goods and services occurs – Roman, 12 pt
a. Where goods or services are applied to own use, on the date on which the goods or Formatted: Font: Font color: Auto
services are first applied to own use;
b. Where the goods or services are supplied by way of gift, on the date on which
ownership in the goods passes or the performance of the services is completed;
c. In any other case the earliest of the date on which – Formatted: Font: Font color: Auto
i) The goods are removed from the taxable person‘s premises, or from other Formatted: Font: Font color: Auto
premises where the goods are under the taxable person‘s control; or
ii) The goods are made available to the person to whom they are supplied; or Formatted: Font: Font color: Auto
K.O. APPIAH 152

iii) The services are supplied or rendered; or Formatted: Font: Font color: Auto
iv) Receipt of payment is made; or Formatted: Font: Font color: Auto
v) A tax invoice is issued Formatted: Font: Font color: Auto
If payment is received or a tax invoice is issued for a part of the supply, this section shall Formatted: Font: Font color: Auto
apply only to the part of the supply represented by the payment or the tax invoice. Also where
supplies are made on a continuous basis or by metered supplies, the time of supply shall be
the determination of the supply or the first meter reading following the introduction of the tax
and subsequently at the time of each determination or meter reading.
Additionally, the supply of goods under a hire purchase agreement or finance lease occurs on Formatted: Font: Font color: Auto
the date the goods are made available under the agreement or lease. Where –
a. Goods are supplied under a rental agreement; or Formatted: Font: Font color: Auto
b. Goods or services under an agreement or law provides for periodic payments, Formatted: Font: Font color: Auto
The goods or services shall be treated as successively supplied for successive parts of the Formatted: Font: Font color: Auto
period of the agreement or as determined by that law, and each successive supply occurs on
the earlier of the date on which payment is due or received.
11.6.1 Place of Supply Formatted: Font: (Default) Times New Rom
The tax point is the point at which VAT becomes chargeable; for goods and services, the
basic tax point is:
1. For goods Formatted: Font: Font color: Auto
This is when they are removed by or made available to the customer Formatted: Font: Font color: Auto
2. For services Formatted: Font: Font color: Auto

This is when they are performed Formatted: Font: Font color: Auto
The basic tax point above can be overridden by an actual tax point Formatted: Font: Font color: Auto
a. If a VAT invoice is issued or payment received before either of the above dates, the Formatted: Font: Font color: Auto
earliest date is the tax point.
b. If an invoice is issued within 14days after the above date the invoice date becomes the Formatted: Font: Font color: Auto
tax point, unless payment has already been received in which case the payment date
remains the tax point.
11.6.2 Special issues Formatted: Font: (Default) Times New Rom
a. If goods are taken on sale or return, the tax point is the earlier of when the customer Formatted: Font: Font color: Auto
accepts them or 12months after the date of despatch.
b. The tax point for goods taken for non-business use is the date of taking Formatted: Font: Font color: Auto
11.7 SPECIAL ISSUES Formatted: Font: (Default) Times New

1. Discounts Roman, 12 pt
Trade – VAT is due on the discounted amount. Formatted: Font: Font color: Auto
Cash – VAT is due on the discounted amount whether or not discount is taken.
K.O. APPIAH 153

ACTIVITY 11.4 Formatted: Font: Font color: Auto
A Ltd supplies goods to B Ltd at a price of GHS5,000 +VAT. The goods are subjected to a Formatted: Font: Font color: Auto
trade discount of 2% and a cash discount of 5% if paid within 7 days. Whether or not the
discount is taken, the VAT due is?
SOLUTION TO ACTIVITY 11.4 Formatted: Font: Font color: Auto

Total Discount = 7%×5,000 = GHS350 Formatted: Font: Font color: Auto
Discounted price = GHS4,650 Formatted: Font: Font color: Auto
VAT/NHIL due = 17.5%×4,650 = GHS813.75 Formatted: Font: Font color: Auto
Split into VAT of GHS697.50 and NHIL of GHS116.25 Formatted: Font: Font color: Auto
2. Gifts Formatted: Font: Font color: Auto

If a gift is made of business assets, VAT is due on the value of similar goods both in age and Formatted: Font: Font color: Auto
condition – broadly the cost of replacing the goods gifted.
No VAT is due on most trade samples, free meals etc. to employees, and business gifts which Formatted: Font: Font color: Auto
cost GHs£50 or less and are not part of a series of gifts to the same person. If goods are sold
to employees, at a discounted price, VAT is due on that discounted price. There is no VAT on
gifts of services.
ACTIVITY 11.5Example 2 Formatted: Font: Font color: Auto

B has been an employee of Alpha plc for many years. On his retirement the company gave Formatted: Font: Font color: Auto
him his antique desk. It was 120 years old and to replace it by an identical one would cost
GHS1,000. Is this transaction chargeable to VAT?
3. Private use Formatted: Font: Font color: Auto

If the goods or services are purchased specifically for private use, no VAT can be recovered. Formatted: Font: Font color: Auto
If there is both business and private use, there is a choice:
a. Appropriation input tax, or Formatted: Font: Font color: Auto
b. Recover all input tax but account for output tax quarterly on the non-business use. Formatted: Font: Font color: Auto
If goods are taken from the business for private use, VAT is chargeable on the cost to the Formatted: Font: Font color: Auto
business when they were bought.
4. Loss and theft of goods Formatted: Font: Font color: Auto

If the goods are lost, then no VAT will normally be due unless they have been supplied, when Formatted: Font: Font color: Auto
VAT will be payable in the normal way. If goods are stolen before sale, no VAT is payable as
there has been no supply. If the cash received after making the sale is stolen, then VAT will
be due in the normal way.
5. Self-supplies Formatted: Font: Font color: Auto

This is where goods produced by a taxable trader in the normal course of business are used Formatted: Font: Font color: Auto
for business purposes. The rules normally only apply to stationery and cars. In general they
are treated as a sale by the business to the business and VAT will be chargeable. In most
cases the effect will be neutral unless the VAT recovery is blocked e.g. on the supply of a car
held as trading stock by a motor dealer for use as a capital asset of the business.

11.8 DEREGISTRATION Roman, Font color: Accent 1
Roman, 12 pt
K.O. APPIAH 154

No further output tax must be charged on supplies, and there is no further recovery of VAT Formatted: Font: Font color: Auto
on inputs.
Deregistration may be: Formatted: Font: Font color: Auto
1. Compulsory Formatted: Font: Font color: Auto

a. When the trader is no longer making taxable supplies, or Formatted: Font: Font color: Auto
b. There is a change in the legal status of the business, or Formatted: Font: Font color: Auto
c. The business ceases Formatted: Font: Font color: Auto
2. Voluntary Formatted: Font: Font color: Auto

Where the trader can satisfy Ghana Revenue AuthorityCustoms that the tax exclusive value Formatted: Font: Font color: Auto
of supplies to be made in the next 12months will not exceed GHs120,00053,000. Sales of
capital assets are ignored but not taxable supplies of land.
On deregistration, the trader is deemed to have made a supply to himself, just before Formatted: Font: Font color: Auto
deregistration, of all business assets on which VAT has been reclaimed. The value to be used
is normally the amount needed to replace the assets in their existing condition. The trader is
then deemed to have reacquired them just before deregistration so that the VAT charge
cannot be recovered.
The effect is: asset sold before deregistration (VAT charged on final return) and bought back Formatted: Font: Font color: Auto
after deregistration (VAT not recoverable).
If the VAT due on retained assets does not exceed £1,000, it is not collected by Customs. Comment [KA1]: Check the GRA position
Roman, 12 pt, Font color: Auto
11.9 TRANSFER OF A BUSINESS AS A GOING CONCERN Formatted: Font: (Default) Times New
If a business is transferred as a going concern, the transfer is not a taxable supply and no
VAT is charged. Roman, 12 pt
The conditions for this treatment are: Formatted: Font: Font color: Auto
a. The transferor and transferee must be VAT registered and the business concerned Formatted: Font: Font color: Auto
must be carried on as a going concern.
b. The assets transferred must be used in the same kind of business as that of the Formatted: Font: Font color: Auto
transferor.
c. There must be no significant break in business activities Formatted: Font: Font color: Auto
But: Formatted: Font: Font color: Auto
 If a business is not transferred as a going concern, VAT is due if the assets transferred Formatted: Font: Font color: Auto
are standard rated.
 If the transferee takes over the VAT number of the transferor it also takes over any Formatted: Font: Font color: Auto
outstanding VAT compliance regulations and VAT liabilities of the previous owner.
However no penalty would be chargeable on the transferee because of the transferor‘s
wrongful acts.
Sometimes a business might incur VAT after the date of deregistration which may be Formatted: Font: Font color: Auto
reclaimable after the date of deregistration. This VAT can be recovered in two circumstances:
a. On services received after deregistration which relate to taxable supplies that the Formatted: Font: Font color: Auto
business received before deregistration i.e. lawyer‘s fees etc.
b. On goods and services received before deregistration but where the business failed to Formatted: Font: Font color: Auto
recover tax on the final VAT return.
K.O. APPIAH 155

11.10 SPECIAL ACCOUNTING ARRANGEMENTS Formatted: Font: (Default) Times New
A. SMALL BUSINESSES IN THE UK Roman, 12 pt
Normally VAT returns are issued and must be returned quarterly however two major schemes Formatted: Font: Font color: Auto
are in force to assist small business:
 Annual accounting
 Cash accounting
Annual accounting Formatted: Font: Font color: Auto

This is available where the trader: Formatted: Font: Font color: Auto
a. Is registered for at least 12months at the time of applying to join the scheme unless Formatted: Font: Font color: Auto
taxable turnover does not exceed £100,000 when it is possible to join the scheme
immediately
b. Expects the tax exclusive turnover of standard and zero-rated supplies not to exceed Formatted: Font: Font color: Auto
£600,000 in the next 12months.
The effect of joining the scheme is: Only one VAT return needs to be submitted for a Formatted: Font: Font color: Auto
12month period.
Normally 90% of the estimated annual VAT liability based on the previous year‘s net liability Formatted: Font: Font color: Auto
is paid by 9 equal monthly payments in months 4-12. The final payment and the VAT return
is due 2 months after the end of the 12months period. If taxable supplies do not exceed
£100,000, then instead of the above, three quarterly interim payments of 20% of the previous
year‘s VAT will be due at the end of months 4, 7 and 10. If the net VAT due for the
preceding period did not exceed £2,000 no quarterly payments need to be made.
A trader must leave the scheme where his or her turnover for the last annual accounting Formatted: Font: Font color: Auto
period exceeded £750,000 and must notify CCE with a view to leaving the scheme where it
anticipates that its turnover will exceed these limits in the current accounting period. It will
be expelled for breaking the conditions of the scheme.
11.10.1 Cash accounting Formatted: Font: (Default) Times New Rom
This is available where the trader has:

a. Submitted VAT returns and paid over all the tax due to Customs Formatted: Font: Font color: Auto
b. An annual expected tax exclusive turnover not exceeding £600,000 Formatted: Font: Font color: Auto
c. Not been convicted of a VAT offence within the preceding 12months. Formatted: Font: Font color: Auto
The effect is: VAT is only payable when a debt is paid and VAT is only recoverable when a Formatted: Font: Font color: Auto
creditor is paid.
It is useful because: Formatted: Font: Font color: Auto

 It gives automatic bad debt relief Formatted: Font: Font color: Auto
 It avoids the cash flow problems of extended credit periods; therefore it is good for a Formatted: Font: Font color: Auto
trader that pays its liabilities on time but whose customers do not.
Remember: Formatted: Font: Font color: Auto

a. A trader must leave the scheme if his or her annual turnover has exceeded £750,000 at Formatted: Font: Font color: Auto
the end of a VAT period.
b. There can be accounting problems on leaving and joining the scheme. Formatted: Font: Font color: Auto
K.O. APPIAH 156

11.11 VALUE ADDED TAX FLAT RATE SCHEME FOR SMALL BUSINESS IN Formatted: Font: (Default) Times New
GHANA
Roman, 12 pt
The Value Added Tax Flat Rate Scheme is a special method of collecting and accounting for Formatted: Font: Font color: Auto
VAT and NHIL. It is primarily designed for traders operating in the retail sector especially
the informal sector of the Ghanaian economy. This sector of the Ghanaian economy is
characterised by high levels of illiteracy among retailers of taxable goods, poor record
keeping, the business is organised around one person and managed by the family, and finally
there is difficulty in calculating the VAT payable under the Invoice-Credit method which
have lead to low of VAT compliance for the retailer.
11.11.1 Reasons for the 3% flat rate Formatted: Font: (Default) Times New Rom
The flat rate of 3% was chosen due to the following reasons:

1. The effective tax rate of the retail sector averages around 3%. Formatted: Font: Font color: Auto
2. The tax payable at a flat rate of 3% is equivalent in value to the effective tax payable Formatted: Font: Font color: Auto
by retailer on the current invoice-credit scheme at a rate of 15% which employs the
input-output mechanism.
3. Given that the VFRS does not allow recovery of input tax from output tax, the flat Formatted: Font: Font color: Auto
rate of 3% on the selling price is not likely to cause any loss in the total revenue when
compared with transactions under the invoice-credit scheme which requires the
application of 12.5% VAT (15% from 2014) and 2.5% NHIL on sales and
simultaneous recovery of input tax.
4. The rate of 3% lends itself easily to splitting between VAT (2.5%) and NHIL (0.5%). Formatted: Font: Font color: Auto
11.11.2 Features of the Value Added Tax Flat Rate Scheme Formatted: Font: (Default) Times New Rom
1. A retailer of goods and services registered for the VFRS is required by the law to Formatted: Font: Font color: Auto
issue the VAT/NHIL Flat Rate Scheme invoice for all sales. However, retailers of
goods authorised by the Commissioner of Domestic Taxes to operate the Special
Retail Scheme could use electronic means to record and issue till receipts for their
sales. The till receipt will show the rate and amount to be charged for VAT/NHIL.
Failure to issue the above invoice would amount to committing an offence under the
VAT law which is punishable by a fine not exceeding GHS1,000 or imprisonment for
a term not exceeding five years or both.
2. The VFRS trader is required to keep at least the minimum records required to be kept Formatted: Font: Font color: Auto
by VAT registered businesses. The type of records to be kept will depend on the
nature and size of the business, but will include books of accounts such as sales
books, purchases books, cash books and cheque payment books. These records must
be kept in such a way that the trader‘s VAT/NHIL position can be clearly and easily
be established. These records should be properly written up and readily made
available for inspection by authorised VAT officers if required and must be retained
and made available on request by authorised VAT officers for a period of six years
unless the commissioner advises otherwise.
K.O. APPIAH 157

3. The VFRS trader is required to submit monthly returns of VAT/NHIL to the VAT Formatted: Font: Font color: Auto
Service. Each return must be submitted not later than the last working day of the
month immediately following the month to which the return relates. All invoice-credit
scheme retailers who change over to the VFRS but have outstanding VAT/NHIL
returns to file shall be required to file all such outstanding returns for the periods
preceding the month in which their status changes to VFRS operators.
4. The trader is required to pay the tax due to the VAT Service not later than the last Formatted: Font: Font color: Auto
working day of the month immediately following the accounting period to which a
return relates.
5. Outstanding credit balances on the ledgers of the VAT Service which are mainly as a Formatted: Font: Font color: Auto
result of input taxes on unsold stocks of goods of retailers migrating from the invoice-
credit scheme to the VFRS shall be reversed since VFRS operators shall not take
credit for input taxes.
6. All retailers whose status will change from invoice-credit scheme operators to VFRS Formatted: Font: Font color: Auto
operators and who have in stock quantities of unused or partly used VAT/NHIL
invoice booklets shall be required to submit all such invoice booklets to their local
VAT offices for replacement with new VFRS invoice booklets at no cost to them. It
must however be noted that used invoices shall be accounted for appropriately.
11.11.3 Advantages of the VFRS Formatted: Font: (Default) Times New Rom
1. The scheme is simpler to operate;

2. It comes with minimal record keeping requirements, Formatted: Font: Font color: Auto
3. It eliminates the difficulty of apportioning input tax into deductible and non- Formatted: Font: Font color: Auto
deductible input taxes; Formatted: Font: Font color: Auto
4. It has the potential to expand the tax net Formatted: Font: Font color: Auto
5. It is expected to create a level playing field for all retailers. Formatted: Font: Font color: Auto
IMPORTANT NOTE: Formatted: Font: Font color: Auto
Section 1 of the Value Added Tax (Amendment Act, 2010; Act 810) has amended section 3
Formatted: Normal, No bullets or numberin
of the Value Added Tax Act, 1998 (Act 546). With effect from 1st January, 2011, all
Formatted: Outline numbered + Level: 2 +
businesses with annual business turnover between GHS10,000 and GHS90,000 are obliged to Numbering Style: 1, 2, 3, … + Start at: 12 +
operate VFRS charging the tax at a flat rate of 3%. All businesses whose turnover exceed Alignment: Left + Aligned at: 0" + Indent a
GHS90,000 and operate the VFRS are obliged to convert to the invoice credit or standard 0.38"
VAT system and charge and account for VAT at 17.5% with effect from 1 st January, 2014. Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
11.12 IMPLEMENTATION OF THE VALUE ADDED TAX ACT, 2013 (ACT 870)A
Roman, 12 pt, Bold
1. This new VAT ACT 2013 (ACT 870) has replaced the VAT, 546, The
Commissioner-General of the Ghana Revenue Authority wishes to bring to the Level: 2 + Numbering Style: 1, 2, 3, … + Sta
attention of all taxpayers, stakeholders and the general public the following at: 1 + Alignment: Left + Aligned at: 0.13"
Tab after: 0.38" + Indent at: 0.38"
changes to the Value Added Tax (VAT) regime due to the enactment of the Value
Added Tax Act 2013 (Act 870) which received Presidential assent on Formatted: List Paragraph, Indent: Left: 1
No bullets or numbering
30thDecember, 2013 and notification in the Gazette on 31st December, 2013.
Roman, 12 pt, Bold
2. All persons registered for VAT and are currently operating the standard rate Formatted: List Paragraph, Numbered +
scheme are required to charge and account for VAT and NHIL simultaneously at Level: 2 + Numbering Style: 1, 2, 3, … + Sta
Tab after: 0.38" + Indent at: 0.38"
K.O. APPIAH 158

rates of 15% and 2 ½ % respectively of the taxable value of their supplies. This in Formatted: Font: (Default) Times New
effect amounts to a total charge of 17 ½ % of the taxable value of the supply. Roman, 12 pt, Bold
Formatted: Left, Indent: Left: 0.5", Space
3. VAT/NHIL INVOICES: The Commissioner-General‘s VAT/NHIL invoices must After: 8 pt, Line spacing: Multiple 1.08 li, N
bullets or numbering, Adjust space between
be issued for all taxable supplies with the rate for VAT manually adjusted to Latin and Asian text, Adjust space between
indicate 15% instead of 12⅟₂%. The rate of the NHIL remains 2⅟₂%. Such Asian text and numbers, Tab stops: Not at 1
registered persons must use the Commissioner-General‘s VAT/NHIL invoices Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
adjusted as indicated in any instance where they are unable to use their computer-
Formatted: Justified, Space After: 0 pt, Lin
generated invoices or electronic cash register receipts. spacing: single
Formatted: Font: 12 pt, Bold
4. VAT/NHIL RETURNS: For the avoidance of doubt a tax return shall be
submitted to the Commissioner General not later than the last working day of Roman, 12 pt, Bold
the month immediately following the month to which the return relates, whether Formatted: Font: 12 pt, Bold
or not tax is payable for the period. Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
5. PRE-REGISTRATION VAT: They were purchased within the 3 year period to Formatted: Font: (Default) Times New
registration. On services, if they were supplied within 6months of registration. The Roman, 12 pt, Bold
goods or services must have been used for business purposes and invoices must be Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
available to support the claims for VAT recovery.
Formatted
6. CREDIT FOR DEDUCTIBLE INPUT TAX: By the provision of the VAT Act Formatted
2013, (Act 870), allowable period for deducting input tax has been reduced from Formatted
three (3) years to six (6) months. Accordingly all registered person who are in Formatted
possession of valid VAT/NHIL invoices for input tax claims which are more than Formatted
six (6) months (i.e. before 31st July, 2013) are to claim them on the December 2013 Formatted
returns. This must be submitted not later than the last working day of January, Formatted: English (U.S.)
2014(i.e. 31st January, 2014) Formatted
Formatted
7. SCOPE AND COVERAGE OF THE VALUE ADDED TAX: The Value Added
Formatted
Tax 2013, (Act 870) extends the coverage of the tax to some business activities
Formatted
which were hitherto outside the tax net. These include the following business
Formatted
activities;
Formatted
a) The sale of immovable property by an estate developer. The rate is 5% flat Formatted
―estate developer‖ means a commercial establishment engaged in the business of Formatted

the construction and sale of immovable property) Formatted
Formatted
b) The supply of financial services that are rendered for a fee, commission or a Formatted
similar charge. Financial services‖ means provision of insurance; issue, transfer, Formatted
receipt of, or dealing with money whether in domestic or foreign currency or any
Formatted
note or order of payment of money; provision of credit; or operation of a bank
Formatted
account or an account of a similar institution. Life insurance and reinsurance
Formatted
services are however exempt from the tax whether or not such services are
rendered for a fee, commission or a similar charge. Formatted
Formatted
c) A supply of domestic transportation of passengers by air; and the supply of Formatted

haulage as well as the rental or hiring of passenger and other vehicles. The Formatted
business activities of auctioneers and promoters of public entertainmente). Formatted
Formatted
K.O. APPIAH 159

d) The business of gymnasium and spa. Formatted: Space After: 0 pt, Line spacing
single
e) The manufacture or supply of pharmaceuticals listed under Chapter 30 of the Roman, 12 pt, Bold
Harmonized Systems Commodities Classification Code, 2012 other than supplies
Formatted: Left, Indent: Left: 0.5", Space
at the retail stage. After: 8 pt, Line spacing: Multiple 1.08 li, N
bullets or numbering, Adjust space between
Latin and Asian text, Adjust space between
 All businesses engaged in these activities but have not registered for VAT/NHIL Asian text and numbers
are obliged to contact their GRA local offices for registration for VAT/NHIL in Formatted: Normal, Left, Indent: Left: 0.5
Line spacing: 1.5 lines, No bullets or
accordance with the provisions of the VAT Act. numbering
8. THRESHOLD: The current threshold for registration of VAT is GHs120, 000 for Roman, 12 pt, Bold
a 12month period or GHs30, 000 for a period of 3months. However, the following Formatted: Font: (Default) Times New
are not bound by the threshold and are required to apply for registration upon Roman, 12 pt, Bold
operation: Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
a) Promoters of public entertainment Formatted: Font: (Default) Times New
b) An auctioneer Roman, 12 pt, Bold
c) A national, regional, local or other authority or body. Formatted: List Paragraph, Numbered +
9. TAXPAYERS REGISTERED UNDER THE VAT FLAT RATE SCHEME: All Tab after: 0.38" + Indent at: 0.38"
persons registered for VAT/NHIL and are authorized to operate under the VAT Formatted: Font: (Default) Times New
Flat Rate Scheme (VFRS) are required to continue to charge and account for the Roman, 12 pt, Bold
tax at the rate of 3% of the taxable value of their supplies until otherwise advised Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
by the Commissioner-General in writing. Such registered persons are to issue the
VFRS VAT/NHIL invoices. Exempt supplies include postal services, Formatted: Numbered + Level: 1 +
transportation, machinery, electricity, water and transfer of going concern. Alignment: Left + Aligned at: 0.25" + Inden
at: 0.5"
10. CHANGES IN 2015: A Special Petroleum Tax (VAT) of 17.5% A reversal of Formatted: Normal, Left, Numbered + Leve
1 + Numbering Style: a, b, c, … + Start at: 1
excise tax on petroleum from Ad Valorem to Specific. Businesses and individuals + Alignment: Left + Aligned at: 0.25" +
whose turnover for a 12month period falls below GHs120,000 are to pay a Indent at: 0.5"
presumptive tax of 6% of their turnover. (No input or output VAT is computed). Formatted: Normal, Left, Indent: Left: 0.5
No bullets or numbering
Formatted: Space After: 0 pt, Line spacing
single
11.11.4 BASIC QUESTIONS ON VAT
Example 1 Roman, 12 pt, Bold
A Ltd supplies goods to B Ltd at a price of GHS5,000 +VAT. A discount of 2% is available Formatted: Font: (Default) Times New
if paid within 30 days and one of 5% for payment within 7 days. Whether or not the discount Roman, 12 pt, Bold
is taken, the VAT due is? Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
Solution Formatted: Indent: Left: 0.5", Space After
Total Discount = 7%×5,000 = GHS350 0 pt, Line spacing: single, No bullets or
numbering
Discounted price = GHS4,650
VAT/NHIL due = 17.5%×4,650 = GHS813.75 Roman, 12 pt, Bold
Split into VAT of GHS697.50 and NHIL of GHS116.25 Formatted: Font: (Default) Times New
Roman, 12 pt, Bold
Example 2 Formatted
B has been an employee of Alpha plc for many years. On his retirement the company gave Formatted: Font: (Default) Times New
him his antique desk. It was 120 years old and to replace it by an identical one would cost Roman, 12 pt, Font color: Accent 1
GHS1,000. Is this transaction chargeable to VAT? Formatted: Font: (Default) Times New Rom
K.O. APPIAH 160

Example 3
X Ltd makes standard-rated supplies of GHS100,000 exclusive of VAT. It has standard-rated
inputs of GHS40,000 exclusive of VAT. If X Ltd‘s supplies were zero-rated, the VAT due
would be?
Again using X Ltd above, if its supplies were all exempt, the position would be?
Solution
Since X Ltd makes zero-rated supplies, its output VAT is nil. However, the firm can claim its
input VAT.
Input VAT = 15%×GHS40,000 = GHS6,000
The input VAT of GHS6,000 can be reclaimed by X Ltd within a period of 6months.
Example 4
L Ltd started trading on 1 Jan 2012. The monthly sales to date were:
GHS
Jan 2012 1,100
Feb 2012 1,300
March 2012 1,500
April 2012 1,700
May 2012 1,900
June 2012 2,100
July 2012 2,300
Aug 2012 2,500
Sept 2012 2,700
Oct 2012 4,900
Nov 2012 5,100
Dec 2012 8,300
Jan 2013 8,400
Feb 2013 5,500
March 2013 10,600
April 2013 12,700
Solution
L Ltd
3months period
GHS
Jan 2012 1,100
Feb 2012 1,300
March 2012 1,500
Total 3,900
L Ltd must register in April, 2012 as its turnover over the first 3month period meets the
minimum threshold
Example 5
Y Ltd started to trade as a designer consultancy on 1 July 2013. The turnover was:
K.O. APPIAH 161

GHS
month to 31 July 2013 15,000
31 Aug 2013 16,000
31 Sept 2013 25,000
Example 6
Q Ltd makes golf balls which it supplies to standard-rated wholesalers. Its annual turnover is
GHS30,000 and standard-rated costs amount to GHS16,000 exclusive of VAT. What is the
effect of voluntary registration?
Example 7
Y Ltd registered for VAT from 1 Oct 2014. It has traded since 1 Jan 2014. At the date of
registration it had trading stock costing GHs10,000 and plant costing GHs4,000. It paid rent
of GHs120 per month on the first of each month. All these amounts include VAT at 17.5%.
Y Ltd will be able to recover VAT on?
Example 8
Y Ltd is a manufacturer. It provides you with details of the following in the quarter to 31
March 2014:
GHS
Sales to Ghana customers
Liable at standard rate 200,000
Liable at zero rate 80,000
Exports 100,000
Sales of surplus plant and machinery 26,000
Purchases of goods:
Standard rated 120,000
Zero rated 40,000
Wages 52,000
Expenses:
Leasing costs of a motor car- wholly used in the business 2,100
Entertaining oversees customers 500
Bank charges 200
Other expenses – all relating to business 3,900
Capital equipment purchased
Car for salesman 6,000
Lorry 19,000
Office furniture 3,000
Purchases are from VAT-registered supplies. All the above amounts exclude VAT.
K.O. APPIAH 162

Solution
EXAMPLE
The information below relates to the records of Nana King Ent, a VAT registered trader, for
the month of June 2014. You are required to calculate the amount of VAT due to the VAT
Service or due to be refunded to the trader. The applicable VAT rate is 17.5%.
Items Purchased Value (GHS)

Leather (imported) 300,000
Paper 300,000
Glue 2,000
Cardboard Sheet 300,000
Cotton Bales 200,000
Dye 50,000
Items Sold
Seminar Folders 500,000
Children books 200,000
Bags 100,000
Complimentary Cards 5,000
Diaries 400,000
Wax Prints (Exports to Togo) 200,000
Notes:
i) Sales include the following supplies to the Presidency:
Diaries GHS50,000
Bags GHS20,000
ii) Purchases include GHS1,000 glue and GHS100,000 cardboard sheets

purchased from petty traders not registered with the VAT Service.
Solution
Purchases Value VAT Rate (%) Amount of VAT (GHS)
Leather (imported) 300,000 15 45,000
Paper 300,000 15 45,000
Glue 1,000 15 150
Cardboard Sheet 200,000 15 30,000
Cotton Bales 200,000 15 30,000
Dye 50,000 15 7,500
Sales Value VAT Rate (%) Amount of VAT (GHS)

Seminar 500,000 15 75,000
Children‘s books 200,000 Exempt 0
Bags 80,000 15 12,000
Complimentary Cards 5,000 15 750
Diaries 350,000 15 52,500
Wax Print (Export) 200,000 0 0
K.O. APPIAH 163

Total 1,335,000 140,250
Value of Taxable Supplies = Value of Total Supplies – Value of Exempt Supplies

= GHS1,335,000 – GHS200,000
= GHS1,135,000
Deductible Input VAT = ⁄
= GHS134,032
VAT Refundable to Nana King Ent.

GHS

Less Total Output VAT 140,250
Net VAT Payable 6,218
11.12 TRIAL QUESTIONS Formatted: Font: (Default) Times New

QUESTION ONE Roman, 12 pt
Gargantuan Supplies Ent deals in special perfume rice at Kejetia in Kumasi. In December
20151, the following transactions were recorded:
GHS
Sale (exclusive of VAT &NHIL) made up as ff:
Imported special perfume rice 75,000
Locally produced special perfume rice 45,000
Purchases are made as ff:

Imported special perfume rice (CIF value) 55,000
Locally produced special perfume rice 28,500
Additional information:
a. The shipping agent (VAT registered) was paid GHS276 for clearing the rice.
b. Empty bags were procured for locally produced special perfume rice at a cost of
GHS1,800.
c. The base value for VAT on electricity and telephone bills summed up to GHS800.
d. Water bills for August 20140 to November 20151 amounted to GHS180.
e. GCNet charges as stated on the import documents amounted to GHS420.
f. The truck driver paid hotel bills amounting to GHS150 exclusive of VAT during trips
to Tema to convey the imported rice.
g. Import duty was at the rate of 20%
h. The CIF value of imported rice in stock on 1st March 20151 was GHS1,800.
i. Trucking fuel costs amounted to GHS500.
Required:
a. Compute the net amount of VAT &NHIL payable to the GRA for the month of
December 20151.
b. Determine the total amount of non-deductible input tax.
K.O. APPIAH 164

c. Determine the total input tax.
QUESTION TWO
The introduction of Value Added Tax in Ghana has broadened the tax net that used to be very
narrow in the informal sector of the Ghanaian economy. Discuss the performance of VAT
over the last tenfive years.
VAT
QUESTION THREEExample 1
Greg Ltd operates an electric supplies business. The services that it provides are all standard
rated. During the quarter ended 30th June, 20153, it issued invoices for a total of GHS37,000
including VAT. What is the output tax?
Greg Ltd gives customers two months to pay. By 31st August 20153, it is still owed
GHS12,000 in respect of an invoice issued on 10th April 20153. In September 20153, Greg
Ltd writes off the whole of the debt as the customer is in receivership. What is the VAT
position?
On 1st May 20164, Greg receives a payment of GHS3,000 from the receiver in full and final
settlement of the GHS12,000 owed. What is the position?
QUESTION FOURExample 2
Oscar resigned from his job on 31st December 20152 and set up a company on that date; it
acquired a shop on 1st January 20163. It opened for business on 20th March 20163. On that
date the company signed a contract for sales of GHS60,000 a month, when will Oscar Ltd
need to register for VAT?
QUESTION FIVEExample 3
Bill and Ben Ltd commenced business on 1 st February 20153. The company‘s actual and
estimated supplies are as under:
Month Fees
20153
February 2,750
March 6,000
April 13,700
May 8,500
June 13,100
July 10,000
August 9,900
September 16,200
October 8,200
November 13,300
December 15,400
20164
January Nil
February 17,700
K.O. APPIAH 165

March 29,400
Required:
Advice the company of the date on which it should register for VAT.
QUESTION SIXExample 4
Herbert Ltd has been trading for many years. Its turnover for the year ended 31 st October
20152 was GHS1,800 a month. All the goods that it sells are standard rated, but it has never
been registered as its turnover has always been below the limit. Its accounts for the year
ended 31st October 20163 have just been drafted and show that the turnover has increased to
GHS6,000 a month. Herbert Ltd notifies CCE on 30th November 20163.
Required:
Assuming that it holds a stock of standard rated good costing GHS900 – VAT inclusive – at
the date of registration and has been purchasing stock at the rate of GHS1,200 (VAT
inclusive) per month:
a. Identify when Herbert Ltd should have notified CCE;
b. Compute the VAT liability and any penalty due.
K.O. APPIAH 166

PARTNERSHIPS
Boris, Steffi and Ivan are partners in leisurewear business which commenced on 1st
November 2010. Up to 30th June 2012, the partners shared profits in the ratio of 3:3:1, after
charging a salary of GHS2,000 to Ivan. After that date, the partners shared profits in the ratio
4:3:2, after charging a salary of GHS10,000 to Ivan. Recent partnership profits/losses after
making all necessary tax adjustments are as follows:
Year to 31st October 2011 GHS31,000
Year to 31st October 2012 GHS(30,000)
You should assume that the partners‘ individual assessable shares of profits in 2013/14 will
be GHS30,000, GHS35,000 and GHS40,000 respectively. You should also assume that
2012/13 tax rates and allowances apply for all relevant years of assessment.
Ivan, who is single, has no income apart from his share of partnership profits, and had none in
earlier years. He is anxious to know how to make best use of his share of the loss incurred in
the year to 31st October 2012. He understands that he has a choice between a claim against
total income or, alternatively, against future trading profits.
d. Compute the partnership profits assessable in respect of each of the partners for
2010/11 and 2011/12 and the overlap profits for each partner;
e. Compute the loss relief available to each of the partners;
f. Advise Ivan whether he should claim loss relief taking income tax into account.
Example 2
Arthur ceased to trade on 30th June 2013 when he transferred his business to a limited
company which was wholly owned by him. His results since starting to trade on 1 st October
2008 have been:
GHS
Period to 30th June 2009 20,000 profit
Year to 30th June 2010 23,000 profit
2011 28,000 profit
2012 26,000 profit
2013 80,000 loss
He transferred all his business assets to the company, other than cash of GHS20,000 which he
retained personally. The assets transferred were:
Goodwill 600,000
Leasehold property purchased on 1st October for GHS77,250 150,000
K.O. APPIAH 167

Stocks and debtors 90,000
The consideration for the transfer was 400,000 ordinary shares of GHS1 each fully paid.
Because the new company has just won a major contract and expects very substantial profits,
Arthur expects to receive an annual salary of GHS160,000 per annum.
e. Show the assessments on cessation of business;
f. Show the CGT position on incorporation;
g. Advise Arthur on the most appropriate relief for the loss of the last period of account;
h. Assuming that the company has adequate cash resources, advise Arthur of potential
tax planning that could be effected if he had GHS40,000 available capital losses.
VAT
Example 1
Greg Ltd operates an electric supplies business. The services that it provides are all standard
rated. During the quarter ended 30th June, 2013, it issued invoices for a total of GHS37,000
including VAT. What is the output tax?
Greg Ltd gives customers two months to pay. By 31st August 2013, it is still owed
GHS12,000 in respect of an invoice issued on 10 th April 2013. In September 2013, Greg Ltd
writes off the whole of the debt as the customer is in receivership. What is the VAT position?
On 1st May 2014, Greg receives a payment of GHS3,000 from the receiver in full and final
settlement of the GHS12,000 owed. What is the position?
Example 2
Oscar resigned from his job on 31st December 2012 and set up a company on that date; it
acquired a shop on 1st January 2013. It opened for business on 20th March 2013. On that date
the company signed a contract for sales of GHS60,000 a month, when will Oscar Ltd need to
register for VAT?
Example 3
Bill and Ben Ltd commenced business on 1 st February 2013. The company‘s actual and
estimated supplies are as under:
Month Fees
2013
February 2,750
March 6,000
April 13,700
May 8,500
June 13,100
July 10,000
August 9,900
September 16,200
October 8,200
November 13,300
December 15,400
2014
K.O. APPIAH 168

January Nil
February 17,700
March 29,400
Required:
Advice the company of the date on which it should register for VAT.
Example 4
Herbert Ltd has been trading for many years. Its turnover for the year ended 31 st October
2012 was GHS1,800 a month. All the goods that it sells are standard rated, but it has never
been registered as its turnover has always been below the limit. Its accounts for the year
ended 31st October 2013 have just been drafted and show that the turnover has increased to
GHS6,000 a month. Herbert Ltd notifies CCE on 30th November 2013.
Required:
Assuming that it holds a stock of standard rated good costing GHS900 – VAT inclusive – at
the date of registration and has been purchasing stock at the rate of GHS1,200 (VAT
inclusive) per month:
c. Identify when Herbert Ltd should have notified CCE;
d. Compute the VAT liability and any penalty due.
Tutorial Questions
Question 3
Kawado Company Limited, manufacturers of cotton wool for exports only, commenced
business on 1st February, 2009 and submitted its first set of accounts for the period ended 30 th
September, 2010. Below are the details:
GH₵ GH₵
Gross profit b/f 450,000
Add Dividend received 3,100
Profit on sale of fixed assets 48,500 51,600 Formatted: Font: (Default) Times New
Roman, 12 pt
501,600
Less Expenses:
Salaries and wages 146,000
Directors‘ remuneration 52,000
Electricity and Water 31,500
Printing and stationary 8,200
Adverts and publicity 23,700
Telephone and postage 800
Repairs and maintenance (plant and equipment) 60,000
Repairs and maintenance (office equipment) 6,500
Insurance 13,800
Registration and license 16,200
Business promotion and entertainment 16,000
Legal fees 8,000
Penalties and fines 4,200 494,900
Net profit 6,700 Formatted: Font: (Default) Times New
Roman, 12 pt
Notes to the accounts

1. Adverts and publicity(23,700) Formatted: Numbered + Level: 1 +
Radio and television 7,200 Alignment: Left + Aligned at: 0.25" + Inden
at: 0.5"
K.O. APPIAH 169

Daily Graphic 2,300
Permanent signboard at entrance of factory 14,200
1. Repairs and maintenance( plant and equipment 60,000) Formatted: Numbered + Level: 1 +
Installation of machine 21,500 Alignment: Left + Aligned at: 0.25" + Inden
General Maintenance 18,000 at: 0.5"
New standing Generator 20,500
2. Business promotion and entertainment (16,000) Formatted: Numbered + Level: 1 +
Entertainment (opening of factory) 13,500 Alignment: Left + Aligned at: 0.25" + Inden
Sample products to invited guests 2,500 at: 0.5"
3. Legal Fees(8,000) Formatted: Numbered + Level: 1 +
Formation of company 6,400 Numbering Style: 1, 2, 3, … + Start at: 1 +
Alignment: Left + Aligned at: 0.25" + Inden
Litigation on plot of land 1,600 at: 0.5"
The company business assets are made up as follows:

Type of asset Date of acquisition Cost (GHS)
Factory building January, 2009 230,000
Plant and machinery March, 2009 171,000
Generators June, 2010 20,500
Office Building May, 2009 106,000
Delivery Van September, 2009 40,000
Toyota pick-Up April, 2010 36,000
Compute the chargeable income and tax liability for all relevant years
Solution
Kawado Company Limited
Computation of adjusted profit for the 20 months ending in the year of assessment 2010
GH₵ GH₵
Net profit 6,700
Less: dividend received 3,100
Profit on sale of assets 48,500
Add: Depreciation 108,000
Adverts & Publicity (Sign board) 14,200
Installation of machines 21,500
New standing generator 20,500
Entertainment 13,500
Formation of company 6,400
Insurance 13,800
Penalties & fines 4,200 202,100 Formatted: Font: (Default) Times New
Roman, 12 pt
Adjusted Net profit 157,200

Computation of chargeable Income for the year of assessment 2009
GH₵
Net profit (8/20* 157,200) 62,880
Less Capital allowance taken 62,880 Formatted: Font: (Default) Times New
0 Roman, 12 pt
Roman, 12 pt
K.O. APPIAH 170

Computation of chargeable Income for the year of assessment 2010
2010 Assessment year GH₵

Net profit (12/20*157,200) 94,320
Less 2009 Capital Allowance (69,494-62,880) 6,584
Roman, 12 pt
Less 2010-Capital Allowance (Taken) 87,736
0 Formatted: Font: (Default) Times New
Roman, 12 pt
Capital Allowance Computation

01/02/09 30/09/09 (8months) Formatted: Font: (Default) Times New
Roman, 12 pt
Class 2 Class 5 total
Cost 232,500 350,200
Capital Allowance 46,245 23,219 69,464
WDV (01/10/09- 30/09/10) 186,255 326,981 Formatted: Font: (Default) Times New
Roman, 12 pt
Additions 56,500 0
242,755 326,981 Formatted: Font: (Default) Times New
Roman, 12 pt
Capital Allowance 72,827 35,020 107,847
WDV 169,928 291,961 Formatted: Font: (Default) Times New
Roman, 12 pt
Question 4
Glittering Stones Limited, a mining company at Obuasi, commenced business in July 2006,
making accounts to 31st December each year.
The profit and loss account for the 18 months period ended 31st December, 2007 was given as
follows:
GH₵ GH₵
Gross profit b/f 190,000
Dividends 2,000
Other Income (Transport) 11,000
Total Income 203,000
Salaries and wages 45,000

Directors Fees 5,400
Utilities 28,000
Repairs and Maintenance 19,900
Fuel and Lubricants 23,000
Registration and Licenses 400
Audit Fees 600
Rent 9,000
Legal Expenses 1,600
Bank charges 1,200
Donations 1,500
Depreciation 3,200
Net Profit 54,500
K.O. APPIAH 171

203,000 203,000 Formatted: Font: (Default) Times New
Roman, 12 pt
Notes to the accounts:

1. Repairs and Maintenance (GH₵ 19,000) Formatted: Numbered + Level: 1 +
Managing Directors residence 2,400 Alignment: Left + Aligned at: 0.25" + Inden
Construction of Canteen (Staff) 2,700 at: 0.5"
Additional Security gates 3,800
General Repairs 11,000
2. Legal fees (GH₵ 1,600) Formatted: Numbered + Level: 1 +

Formation expenses 1,000 Alignment: Left + Aligned at: 0.25" + Inden
Extension of Concession 600 at: 0.5"
3. Donations (GH₵ 1,500) Formatted: Numbered + Level: 1 +

Drinks (Stool elders) 500 Alignment: Left + Aligned at: 0.25" + Inden
Electricity project 600 at: 0.5"
Scholarship Scheme 400
4. Sundry Expenses (GH₵ 9,700) Formatted: Numbered + Level: 1 +

Local rates to Local Council 600 Alignment: Left + Aligned at: 0.25" + Inden
Subsidy, Canteen Running 4,100 at: 0.5"
Formation of Pension fund for staff (Initial Deposit) 5,000
5. Other Income (GH₵ 11,000) Formatted: Numbered + Level: 1 +

Subsidized transport fares for staff 11,000 Alignment: Left + Aligned at: 0.25" + Inden
at: 0.5"
The company acquired mining equipment costing GH₵ 80,000 in May 2006 and Plant and
equipment valued at GH₵ 60,000 in September, 2006.
Required:
Compute the chargeable income and tax liability for all relevant years
Solution
Glittering Stones Limited
Computation of adjusted business profit for the 18 months ending in the year of
assessment 2007
GH₵ GH₵
Net profit 54,500
Less dividend 2,000
52,500
Add Back:
Depreciation 3,200
Canteen 2,700
Security Gate 3,800
Formation 1,000
K.O. APPIAH 172

Concession 600
Donation 500
Formation of pension fund 5,000 16,800
69,300

Computation of chargeable income for the year of assessment 2006
GHS
Net profit (6/18*69,300) 23,100
Less Capital Allowance 14,770
8,330

Computation of chargeable income for the year of assessment 2007
GHS
Net profit (12/18*69,300) 46,200
19,854
Capital Allowance
01/07/06 31/12/06 Class 3 Formatted: Font: (Default) Times New
Roman, 12 pt
Cost 146,500
Capital Allowance (184/365*146,500*20%) 14,770
2007 WDV 131,730
Capital Allowance 26,346 Formatted: Font: (Default) Times New
Roman, 12 pt
WDV 105,384
Question 5
Zack Twum is a self employed who has paid all his taxes raised on him by the GRA without
submitting any accounts. Zack applied for a tax clearance certificate in the month of April
2013 but the District head of GRA insisted that before the certificate will be issued he should
submit his account for 2012 assessment year for proper assessment.
To this request he obliged and had the following details from his Auditors for the year ended
31st December, 2012.
GHS GHS
Gross profit 1,229,040
Expenses
Depreciation 38,080
Light and Heat 12,200
Motor expenses 37,740
Rent and rates 31,200
Repairs and renewals 45,280
Donations 49,000
Bad debts 256,000
Other Allowable expenses 300,220 793,640
Net Profit 325,400
K.O. APPIAH 173

The following additional information was obtained from Zack Twum in response to queries
raised on him by the inspector handling his file.
1. Zack and his wife live in flat that is situated above his shop. Of the expenditure Formatted: Numbered + Level: 1 +
included in the profit and loss for light and heat, rent and rates 40% related to the flat. Alignment: Left + Aligned at: 0.25" + Inden
2. During the year ended 31 December 2012 Zack drove a total of 120,000 km of which at: 0.5", Tab stops: Not at 0.5"
90,000 km were for private journeys
3. The figure of GHS 45,280 for repairs and renewals includes GHS 17,600 being cost
of new fittings for the shop during the year under review and GHS 8,400 for
decorating the private flat during the same period
4. Bad debts are as follows: GHS
Increase in general provision for bad debts 120,000
Specific provision 96,000
Loan to Zack Twum‘s wife written off 40,000
5. Donations: Formatted: Numbered + Level: 1 +
Donation to national charity 23,000 Alignment: Left + Aligned at: 0.25" + Inden
Donation to old student association 9,000 at: 0.5", Tab stops: Not at 0.5"
Donation to farmers‘ day celebration 17,000
49,000
6. During the year under review, Zack Twum took goods out of his shop for his personal Formatted: Numbered + Level: 1 +
use without paying for them. The cost of these goods was GHS 16,560 and they had a Alignment: Left + Aligned at: 0.25" + Inden
selling price of GHS 19,500 at: 0.5", Tab stops: Not at 0.5"
7. Zack Twum received dividend of GHS 5,400 (net) from his investment with Ghana
Commercial Bank. The amount was included in arriving at the gross profit.
8. The following assets were purchased during the year. (prior to this the business had
no fixed assets)
GHS
Computers 120,000
Motor Vehicle 112,000
Fixtures and Fittings 105,200
The computers and fittings qualify as depreciable assets for capital allowance
purposes. The motor vehicle is used by Mr Zack Twum for both office and private
purposes.
Required:
1. Calculate the chargeable income of Mr Zack Twum for the assessment year ending 31 Formatted: Numbered + Level: 1 +
December 2012 Alignment: Left + Aligned at: 0.25" + Inden
2. Assuming he has no other sources of income compute his tax liability for 2012 at: 0.5", Tab stops: Not at 0.5"
assessment.
Solution
1. Formatted: Numbered + Level: 1 +
Mr Zack Twum Alignment: Left + Aligned at: 0.25" + Inden
Computation of chargeable Income for the year of assessment 2012 at: 0.5", Tab stops: Not at 0.5"
GHS GHS
Net Profit 325,400
Add back:
Depreciation 38,080
K.O. APPIAH 174

Light and Heat 4,880
Rent and rates 12,480
Motor expenses 28,305
Fittings 17,600
Private Flat 8,400
General Provision 120,000
Zack Twum‘s wife 40,000
Old Students association 9,000
Profit on goods withdrawn (19,500-16,560) 2,940 281,685
Roman, 12 pt
607,085
Less: Dividend 5,400
Capital allowance 80,960 86,360
Chargeable Income 520,725

Class 1 Class 2 Class 4 Total
Rates 40% 30% 20%
Cost 120,000 28,000 122,800
WDV 72,000 19,600 98,240 Formatted: Font: (Default) Times New
Roman, 12 pt
2. Formatted: Numbered + Level: 1 +

Mr Zack Twum Alignment: Left + Aligned at: 0.25" + Inden
Computation of tax liability for the year of assessment 2012 at: 0.5", Tab stops: Not at 0.5"
GHS GHS
Chargeable Income 520,725
First 1,584 @ 0% 0
Roman, 12 pt
Next 792 @ 5% 39.6
Roman, 12 pt
Next 1,104@ 10% 110.4
517245 Formatted: Font: (Default) Times New
Roman, 12 pt
Next 28,200@17.5% 4935
Next 489,045@25% 122,261.25 Formatted: Font: (Default) Times New
Roman, 12 pt
Total tax liability 127,346.25
Roman, 12 pt
Question 6
K.O. APPIAH 175

Asuo Ltd is a manufacturer of a taxable product. The company started operations on 1 st
September, 2011. The fixed asset schedule of the company as shown below:
Cost Date of Acquisition Cost Date of Acquisition
GHS GHS
Buildings 50,000 1/1/2010
Furniture and Fittings 15,000 18/2/2010 12,000 1/04/2012
Motor vehicles 24,000 25/6/2011 45,000 14/08/2012
Computers 18,000 20/9/2011 30,000 17/09/2012
Plant and machinery 78,000 15/12/2011
Office equipment 20,000 17/11/2011 80,000 15/11/2012
Intangibles 40,000 16/12/2011
Required:
Compute the capital allowance for the relevant assessment years if the company prepares its
accounts to 31st March annually.
Solution
Asuo Ltd
Basis period (1/09/2011 – 31/3/2012)
Pool Rate (%) Cost Basis of Capital WDV c/d
GHS Apportionment Allowance (GHS) GHS
1 40 18,000 212/365 4,182 13,818
2 30 102,000 212/365 17,773 84,227
4 20 35,000 212/365 4,066 30,934
5 10 50,000 212/365 2,904 47,096
6 20 40,000 212/365 4,647 35,353
Asuo Ltd
Basis period (1/04/2012 – 31/3/2013)
Pool Rate (%) WDV b/d Additions Total Capital WDV c/d
GHS GHS GHS Allowance (GHS) GHS
1 40 13,818 30,000 43,818 17,527 26,291
2 30 84,227 45,000 129,227 38,768 90,459
4 20 30,934 20,000 50,934 10,187 40,747
5 10 47,096 47,096 5,000 42,096
6 20 35,353 35,353 8,000 27,353
Example 7
The written down value of a class 2 pool of assets for 2012 basis period was GHS25, 000. On
1st June, 2012 one of the motor cars in the pool was sold for GHS30, 000. A manufacturing
plant costing GHS40, 000 was bought for cash to replace the old one on 15 th December 2012.
Manufacturing machinery with a written down value of GHS20, 000 was sold for GHS30,
500 on 10th October, 2013.
K.O. APPIAH 176

The written down value of a class 4 pool of assets for 2013 year of assessment was GHS45,
000. On 18th September 2013 all the assets in the pool was sold for GHS38, 500.
Show the necessary treatments.
Solution
2012 Basis Period Class 2
Written down value b/d 25,000
Addition 40,000
Disposal (30,000)
Carrying amount 35,000
Capital Allowance @ 30% (10,500)
Written down value c/d 24,500
2013 Basis Period

Disposal (30,500)
Written down value c/d Nil
Surplus added to business income 6,000
2013 Basis Period Class 4

Disposal (38,500)
Additional capital allowance (6,500)
Written down value c/d Nil
Example 8
Odeshie Ltd., a mining company commenced business on 1st January 2008. The company
acquired the following assets for use in the business.
ASSETS DATE OF ACQUISITION COST (GHS)
Exploration cost 1/08/2007 650,000
Plant and machinery 1/01/2008 480,000
Fixtures and fittings 25/4/2009 515,000
Plant &Machinery 4/01/2011 750,000
Buildings 10/1/2011 600,000
Production rights 1/05/2013 900,000
Required:
Compute the capital allowances for the relevant years
Solution
Ojoe Ltd
Basis Period – 1/01/2008 to 31/12/2008
Plant & Exploration Total
Machinery Costs
K.O. APPIAH 177

GHS GHS GHS
Cost 480,000 650,000 1,130,000
Capital Allowance (384,000) (520,000) (904,000)
WDV c/d 96,000 130,000 226,000
Ojoe Ltd
Basis Period – 1/01/2009 to 31/12/2009

Plant & Exploration Fixtures & Total
Machinery Costs Fittings
GHS GHS GHS GHS
WDV b/d 96,000 130,000 226,000
Add back 5% 24,000 32,500 56,500
Additions 515,000 515,000
Carrying amount 120,000 162,500 515,000 797,500
Capital allowance 50/80 (60,000) (81,250) (412,000) (553,250)
WDV c/d 60,000 81,250 103,000 244,250
Ojoe Ltd
Basis Period – 1/01/2010 to 31/12/2010
Plant & Exploration Fixtures & Total
Machinery Costs Fittings
GHS GHS GHS GHS
WDV b/d 60,000 81,250 103,000 244,250
Add 5% of cost base 25,750 25,750
Carrying amount 60,000 81,250 128,750 270,000
Capital allowance @50% 30,000 40,625 64,375 135,000
WDV c/d 30,000 40,625 64,375 135,000
Basis Period – 1/01/2011 to 31/12/2011

Existing Pool Plant & Mach Buildings Total
GHS GHS GHS GHS
WDV b/d 135,000 135,000
Additions 750,000 600,000 1,350,000
Carrying amount 135,000 750,000 600,000 1,485,000
Capital allowance 50/80 67,500 600,000 480,000 1,147,500
WDV c/d 67,500 150,000 120,000 337,500
Basis Period – 1/01/2012 to 31/12/2012

WDV b/d 67,500 150,000 120,000 337,500
Add back 5% of cost base 37,500 30,000 67,500
K.O. APPIAH 178

Carrying amount 67,500 187,500 150,000 405,000
Capital allowance @50% 33,750 93,750 75,000 202,500
Basis Period – 1/01/2013 to 31/12/2013

Existing Pool Prodn Right Total
GHS GHS GHS
WDV b/d 202,500 202,500
Additions 900,000 900,000
Carrying amount 202,500 900,000 1,102,500
WDV c/d 101,250 180,000 281,250
Basis Period – 1/01/2013 to 31/12/2013

WDV c/d 101,250 180,000 281,250
Add back 5% 45,000 45,000
Carrying amount 101,250 225,000 326,250
Example 9
Odahye Ltd has a manufacturing enterprise which commenced business on 1 st April 2007.
The fixed assets schedule of the company is shown below:
Cost Date Disposal Date
GHS000 GHS000
Leasehold buildings 920 24/02/2007
Furniture &Fittings 250 01/05/2007
2 Toyota Camry cars 800 06/09/2007 900 25/04/2009
Computers 450 21/07/2008
Plant &Machinery 1,000 01/09/2008
The plant and machinery was acquired under hire purchase terms with an initial deposit of
GHS400,000; the balance to be settled in two equal installments in 2009 and 2010.
Details of the last five year‘s results of operations are as follows:
Year of Assessment Business Profits Investment Income

GHS GHS
Period to 30/9/2007 (1,000,000) 745,000
Year to 30/09/2008 4,500,000 5,000,000
Year to 30/09/2009 7,000,000 6,000,000
Year to 30/09/2010 11,000,000 7,000,000
Period to 30/9/2010 Nil 1,500,000
Required:
1. Prepare the capital allowance schedule of Odahye Ltd for all the relevant years. Formatted: Numbered + Level: 1 +
2. Compute the chargeable income of Odahye Ltd for all the relevant years. Alignment: Left + Aligned at: 0.25" + Inden
at: 0.5", Tab stops: Not at 0.5"
K.O. APPIAH 179

Example 10
Oscar acquired the following items of plant in three accounting periods to 31 st March, 2014;
there was GHS40,000 brought forward in the plant pool at 1st April 2011.
Year to 31st March 2012

1/10/2011 Bought general plant for GHS20,000 and a second hand machine for
GHS10,000. This latter item was purchased from his father.
1/1/2012 Bought three cars; the first two cost GHS10,000 each – one was for the
use of Oscar and the other for a senior employee. The third car cost GHS16,000 and
was for the use of the sales manager. Each car had 40% private use.
1/2/2012 Bought two labeling machines for GHS8,000 each; both have an
expected useful life of 4years. One will be sold for GHS20 but the other is likely to be
sold for GHS10,000.

1//1/2013 Bought a lorry on hire purchase; the original cost was GHS30,000.
There was a deposit of GHS10,000 and 36 monthly installments of GHS900. Another
lorry with a cost of GHS40,000 was leased for 5years for GHS1,000 a month.
1/2/2013 Bought a stamping machine with an estimated life of 60years at a cost
of GHS20,000.

1/1/2014 Bought another stamping machine with an estimated life of 60years at
a cost of GHS120,000.
He sold the following assets in the year to 31/3/2014:
Two items of general plant – the first which cost GHS2,000 was sold for GHS1,200
and the second which cost GHS4,000 was sold for GHS6,800, Oscar sold his car for
GHS8,000 and the first labeling machine was sold for GHS50.
REQUIRED
Calculate the capital allowances for the various periods.
Question 11
Sugar Box Ltd is a limited liability company which deals in the manufacture of plastic waste
in Accra. It commenced business on 1st March 2001 and maintained accounts to 31st
December every year. Its trading profit/ (loss) as adjusted for taxation were:
Period to 31/12/01 (¢850,000,000)
Year ended 31/12/02 ¢1,350,000,000
Year ended 31/12/03 ¢2,560,000,000
The company acquired the following assets:

Date of
Acquisition Asset Cost (¢)
1/3/01 Computers 55,000,000
1/6/01 Motor vehicles
(Opel Astra) 75,000,000
(Toyota Avensis Salon) 340,000,000
K.O. APPIAH 180

18/7/01 Plant & Machinery 190,000,000
21/12/01 Furniture & Fittings 86,000,000
20/2/02 Additional computers for 65,500,000
the accounts office
11/5/02 Delivery van 170,000,000
14/4/03 Machinery 420,000,000
10/11/03 Motor vehicle
Mercedes Benz Salon 510,500,000
NOTE:
The Opel Astra purchased on 1/6/01 was sold for ¢30,000,000 on 16/09/03 and some of the
company‘s furniture were disposed off at ¢2,400,000 on 30/9/03.
You are required to determine the net tax payable for the assessment years 2001, 2002
and 2003.
Use the following rates of capital allowance.

Class 1 - 40%
Class 2 - 30%
Class 4 - 20%
Class 5 - 10%
Class 6 - 10%
Rate of tax for all the assessment years was 32.5%. 24 marks; ICA May, 2009
Suggested Solution
In answering this question, be careful to use the appropriate rate incident to the years of
assessments. For instance, before 2006, maximum amount of private saloon car subject to
capital allowance was 150million cedis or GHS15,000
COMPUTATION OF CAPITAL ALLOWANCES

CLASS 1 CLASS 2 CLASS 4 TOTAL
¢‘000 ¢‘000 ¢‘000 ¢‘000
Cost 55,000 415,000 86,000 556,000
Capital allowance (306/365) 18,444 104,375 14,420 137,239
WDV c/d 36,556 310,625 71,580 418,761

WDV b/d 36,556 310,625 71,580 418,761
Additions 65,500 170,000 235,500
Carrying amount 102,056 480,625 71,580 654,261
Capital allowance 40,822 144,188 14,316 199,326
WDV c/d 61,234 336,437 57,264 454,935

WDV b/d 61,234 336,437 57,264 454,935
Additions 570,000 570,000
K.O. APPIAH 181

Disposal (30,000) (2,400) (32,400)
Carrying amount 61,234 876,437 54,864 992,535
Capital allowance 24,494 262,931 10,973 298,398
WDV c/d 36,740 613,506 43,891 694,137

¢‘000 ¢‘000
Business Profit (850,000)
Chargeable income Nil
Capital allowance c/f 137,239
Business loss c/f 850,000

¢‘000 ¢‘000
Less business loss c/f 850,000
Adjusted profit 500,000
Less: Capital allowance 199,326
Capital allowance c/f 137,239 (336,565)
Chargeable income 163,435
Tax @ 32.5% 53,116

¢‘000 ¢‘000
Less capital allowance (298,398)
Tax @ 32.5% 735,021
K.O. APPIAH 182

RELEVANT ARTICLE FOR FUTHER READING Formatted: Font: Bold
VAT IN GHANA BY GEORGE O. ASSIBEY-MENSAH
K.O. APPIAH 183

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Roman, 12 pt, Bold, Font color: Accent 1,

Previously, K.O. lectured at the University of Ghana Business School on the

K.O is also a member of both the Association of Certified Chartered Accountants

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I wish to acknowledge a number of individuals whom I owe a debt of a significant

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Activity 1.2: REASONS FOR CESSATION OF POLL TAX

Solution activity 1.2:

Activity 1.3: HOW TO FINANCE DEFICIT BUDGET Formatted: Left

1.1.2 Central Revenue Department Formatted: Font: (Default) Times New

Other Taxes / Duties introduced include:

1.1.3 Internal Revenue Service Formatted: Font: (Default) Times New

Taxes Administered include:

ACTIVITY 1.5-DEFINITION OF INCOME TAX

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 CHARGEABLE INCOME  RATES

ACTIVITY 1.10: A TAX PAYER Formatted: Font: Not Bold

Solution Activity 1.11:

1.4 Kinds of Tax Formatted: Font: (Default) Times New

ACTIVITY 1.12 MERITS AND DEMERITS OF DIRECT TAX

1. Incidence and yield are easy to determine

1. The cost of administration is very high

1.4.2 Indirect Tax Formatted: Font: (Default) Times New

1. Payment and collection of the tax are easy and convenient

1. They are often regressive

1.4.3 Progressive Tax Formatted: Font: (Default) Times New

1.4.4 Regressive Tax Formatted: Font: (Default) Times New

1.4.5 Proportional Taxes Formatted: Font: (Default) Times New

1.5.1 Equity (Fairness) Formatted: Font: (Default) Times New

1.5.2 Certainty Formatted: Font: (Default) Times New

1.5.3 Convenience Formatted: Font: (Default) Times New

1.5.4 Economy Formatted: Font: (Default) Times New

1.5.5 Other Attributes Formatted: Font: (Default) Times New

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1.6.2 Incidence Formatted: Font: (Default) Times New

1.7 Issues involved in analyzing taxes

1.7.1 Tax Incidence Analysis Formatted: Font: (Default) Times New

Redistribution, in general, is important for government since the government is interested in

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1.7.2 The Budget Incidence Formatted: Font: (Default) Times New

1.7.3 Expenditure Incidence Formatted: Font: (Default) Times New

(i) Source of Government Revenue for Development

(ii) Equitable redistribution of Income

(b) Economic Significance

ii. Narrowing Budget Deficit

iii. Growth in Key Sectors of the Economy

iv. Protection of Local Industries (Super Taxes)

v. Restrain certain types of consumption, e.g. alcoholic beverages and tobacco.

vi. Promotion of Export

vii. Balance of Payment

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2.1 Resident persons Formatted: Font: (Default) Times New

b. A company is resident for tax purposes if that company:

c. A body of persons is a resident body of persons if that body of persons is:

Persons not meeting the above are considered to be non-resident persons.

2.2 Permanent Establishment Formatted: Font: (Default) Times New

International Labour Organisation defines Severance Pay to mean

2.4.1 Income Received in Ghana Formatted: Font: (Default) Times New

2.4.2 Chargeable Income Formatted: Font: (Default) Times New