- 4 Marks
Question
A company engages in exports of non-traditional products and makes local sales of its products. It has as recently, as of 2018, recorded huge losses on the exports but makes gains on the local sales and intends to offset the loss against the profit from the local sales as both represent its business activities.
Required: Evaluate the above statement critically in light of the tax provisions and its effect, if any, on revenue.
(4 marks)
Answer
- Under Section 17 of Act 896, businesses are required to determine business income and investment losses separately.
- Export of non-traditional products is taxed at the rate of 8%, whereas the local sales are taxed at 25%.
- Losses from a business taxed at a lower rate (exports) should be carried forward and deducted from income generated from the same export activities, rather than offsetting it against profits from local sales, which are taxed at a higher rate.
- The effect of offsetting such losses would be a reduction in tax revenue, as higher-rate profits would be reduced by losses taxed at a lower rate. This is not allowed under the Act
.
- Tags: Business income, Export, Local sales, Losses, Non-Traditional Products, Revenue
- Level: Level 3
- Topic: Business income - Corporate income tax
- Series: MAY 2019
- Uploader: Cheoli