Question Tag: Ghanaian Tax System

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  • 5 Marks

PT – May 2020 – L2 – Q1a – Income Tax Liabilities

Explains the structural classification of the Ghanaian tax system.

Taxation system can be classified in many ways. It could be based on the method used in the computation of the tax or based on the incidence/responsibility for the payment of the tax.

Required:
Explain the structural or classification of the Ghanaian tax system.
(5 marks)

Structural and classification of taxes in Ghana:
Based on the method used for the calculation of the tax

  • Proportional Tax: Tax levied at a fixed rate on the amount of income earned. E.g., a household earning GH¢10,000 and another earning GH¢10 million will both pay 10% of their income as tax.
  • Progressive Tax: Tax rate increases with the amount of income. E.g., a household earning GH¢10,000 may pay 5%, while one earning GH¢10 million may pay 35%.
  • Regressive Tax: Tax rate decreases as income increases. Typically seen in excise taxes.Based on who has the responsibility to pay the tax
  • Direct Tax: The impact and incidence of tax fall on the same person, such as personal income tax, company tax, etc.
  • Indirect Tax: The impact and incidence of tax fall on different people, such as VAT, excise tax, etc.

(5 marks evenly spread using ticks)

  • 20 Marks

PT – Nov 2020 – L2 – Q3 – Income Tax Liabilities

Compute the assessable income for partners, explain the taxation rules for different workers, and define resident individual for tax purposes.

Shika, Bekwai, and Sena, who are in partnership, have agreed to share profits and losses in the ratio of 2:2:3, respectively. During the year ended 31 December 2018, their books showed an adjusted profit of GH¢210,000 after accounting for the following:

Shika Bekwai Sena
Salaries 70,000 80,000 150,000
Interest on Capital 12,000 16,000 12,000
Partners’ Drawings 6,000 4,000 10,000

You are given the following additional information:
i) Shika is married with two children who are in school and maintained two dependent relatives, who are more than 60 years, on which she spends GH¢10,000 annually.
ii) Shika also has a life assurance policy on herself attracting capital sum of GH¢1,600,000 but pays annual premium of GH¢1,800.
iii) Bekwai took a mortgage for his building and has been paying GH¢4,000 per month as mortgage interest.
iv) Bekwai is undertaking a two-week training program to update his knowledge on how to manage accounting software used in partnership businesses. He has spent GH¢1,500 on the training.
v) Bekwai received a television as a gift valued at GH¢3,000 for being the best worker in 2018 in Ghana.
vi) Sena is 62 years old and unmarried but has three dependent children while Bekwai is also unmarried but has one child who is schooling in Ghana.

Required:
a) Compute the assessable income for each partner for the year 2018. (10 marks)
b) The partnership business has some casual workers, temporary workers, and part-time workers. What are the taxation rules and tax liabilities of such workers? (6 marks)
c) Shika is an ‘international woman’ who travels often. There was confusion in 2018 as to whether she should be taxed as a resident or non-resident. What constitutes a resident individual for taxation purposes in Ghana? (4 marks)

a) Computation of Partners’ Assessable Income for 2018

Shika (GH¢) Bekwai (GH¢) Sena (GH¢)
Salaries 70,000 80,000 150,000
Interest on Capital 12,000 16,000 12,000
Share of Profit 62,857 62,857 94,286
Gross Income 144,857 158,857 256,286
Gifts (Television) – 3,000 –
Mortgage Interest – (48,000) –
Marriage Responsibility Relief (200) – (200)
Child Education Relief (400) (200) –
Dependent Relatives Relief (200) – –
Self-Education Relief – (400) –
Old Age Relief – – (200)
Chargeable Income 144,057 113,257 255,886

Workings:

  • Adjusted Profit = GH¢210,000
  • Add Partners’ Drawings:
    • Shika: GH¢6,000
    • Bekwai: GH¢4,000
    • Sena: GH¢10,000
  • Total Profit for distribution = GH¢220,000
  • Profit Sharing Ratio (2:2:3):
    • Shika = 2/7 × 220,000 = GH¢62,857
    • Bekwai = 2/7 × 220,000 = GH¢62,857
    • Sena = 3/7 × 220,000 = GH¢94,286

b) Taxation Rules and Liabilities of Casual, Temporary, and Part-Time Workers

  • Casual Workers:
    Payments to casual workers are taxed at a flat rate of 5%, and this is treated as final tax. Casual workers are those employed for a short term, not exceeding six months, with wages paid on a daily basis.
    (2 marks)
  • Temporary Workers:
    Temporary workers are employed for a continuous period of not less than one month and their remuneration is taxed according to the graduated individual rates.
    (2 marks)
  • Part-Time Workers:
    For resident part-time workers, tax is withheld at a rate of 10%. For non-resident part-time workers, the rate is 20%. The tax withheld is treated as a final tax in both cases.
    (2 marks)

c) Definition of Resident Individual for Tax Purposes

An individual is considered resident in Ghana for tax purposes if:

  1. They are present in Ghana for an aggregate period of at least 183 days in a 12-month period.
  2. They are a citizen of Ghana, and do not have a permanent home outside of Ghana, residing in Ghana throughout the year.
  3. They are an employee or official of the Government of Ghana posted abroad during the year.
  4. They are a citizen who is temporarily absent from Ghana for not more than 365 continuous days, provided they have a permanent home in Ghana.
    (4 marks)
  • 6 Marks

PT – Nov 2020 – L2 – Q2a – Value-Added Tax (VAT), Customs, and Excise Duties

Define taxable activity under VAT and list examples of taxable activities.

i) What is Taxable Activity under Value Added Tax? (1 mark)

ii) Identify FIVE (5) examples of taxable activities. (5 marks)

i) A taxable activity means an activity which is carried on by a person (a) in Ghana, or (b) partly in Ghana, whether or not for a monetary profit, that involves or is intended to involve, in whole or in part, the supply of goods or services to another person for consideration. (1 mark)

ii) Examples of taxable activities include:

  • An activity of a local authority or unincorporated association or body that involves, in whole or in part, the supply of goods or services to another person for consideration.
  • The processing of data or supply of information or similar service.
  • The supply of staff.
  • The acceptance of a wager or stake in any form of betting or gaming, including gaming machines.
  • The making of gifts or loans of goods.
  • The leasing or letting of goods on hire.
  • The appropriation of goods or services for personal use or consumption by the taxable person or by any other person.
  • The sale, transfer, assignment, or licensing of patents, copyrights, trademarks, computer software, and other proprietary information.
  • The export of non-traditional products.

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