- 16 Marks
Question
Mrs. Olivia Quartey is a resident in Ghana and works as the Finance Director of Ghana Trustees Limited. She earned a gross salary of GH¢30,000.00 for the 2014 year of assessment. She contributed 5.5% of her salary to the social security fund. In 2014, the gross royalties that accrued to her was £4,000 from the United Kingdom from which tax of £800 had been deducted with the remainder of £3,200 being remitted to her in Ghana.
Granted that Ghana has a double taxation agreement with the United Kingdom, you are required to calculate the tax credit relief (if any) available to Mrs. Olivia Quartey for the year 2014.
[Exchange rate: GH¢4.50 = £1.] (16 marks)
Tax Rate Table
| Income (GH¢) | Rate (%) |
|---|---|
| First 1,584.00 | Free |
| Next 792.00 | 5 |
| Next 1,104.00 | 10 |
| Next 28,200.00 | 17.5 |
| Exceeding 31,680.00 | 25 |
Answer
- Effective Rate of Tax of the UK Income:
Tax Charged ×100=800×4.504,000×4.50×100=20%\text{Tax Charged } \times 100 = \frac{800 \times 4.50}{4,000 \times 4.50} \times 100 = 20\%
- Exchange Rate:
800 × 4.50 = 3,600
4,000 × 4.50 = 18,000
Effective Rate = 20%
- Computation of Ghana Tax Liability:
- Salary in Ghana: GH¢30,000
- Gross Income from UK: GH¢18,000
- Total Income: GH¢48,000
- Less SSF Contribution (5.5% of GH¢30,000): GH¢1,650
- Chargeable Income: GH¢46,350
Income Tax Computation:
- First GH¢1,584: Free
- Next GH¢792 @ 5%: GH¢39.60
- Next GH¢1,104 @ 10%: GH¢110.40
- Next GH¢28,200 @ 17.5%: GH¢4,935.00
- Remaining GH¢14,670 @ 25%: GH¢3,667.50
Total Ghana Tax Payable: GH¢8,752.50
- Average Tax Rate of Ghana:
Tax PayableChargeable Income×100=8,752.5046,350×100=18.88%\frac{\text{Tax Payable}}{\text{Chargeable Income}} \times 100 = \frac{8,752.50}{46,350} \times 100 = 18.88\%
Comparison of UK and Ghana effective rates shows Ghana’s rate is lower.
Thus, the UK income will be taxed at Ghana’s average rate:
- Tax on Total Income: GH¢8,752.50
- Less Foreign Tax Credit (18.88% of GH¢18,000): GH¢3,398.40
- Final Tax Liability: GH¢5,354.10
- Tags: Double Taxation, Exchange Rate, Ghana, Tax Credit, UK
- Level: Level 3
- Topic: International taxation
- Series: MAY 2016
- Uploader: Dotse