Question Tag: Tax Relief

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  • 6 Marks

TF – May 2018 – L3 – Q3b – Tax planning

Briefly explain tax holiday, tax exemptions, tax reliefs, and tax rebates.

Tax planning is the analysis of a financial situation or plan from a tax perspective. The purpose of tax planning is to ensure tax efficiency, with the elements of the financial plan working together in the most tax-efficient manner possible.

Required:
Briefly explain the following terms with respect to tax planning:
i) Tax holiday
ii) Tax exemptions
iii) Tax relief
iv) Tax rebates/refund
(6 marks)

i) Tax Holiday:
A tax holiday is a temporary reduction or elimination of a tax. Tax holidays may be granted by the government at national, regional, or local levels to attract foreign direct investment or stimulate growth in selected industries.
(1.5 marks)

ii) Tax Exemptions:
Tax exemption refers to a statutory exception that removes particular revenue items or classes of people from taxation. It may offer complete relief from tax, tax at a reduced rate, or tax on only a portion of the items subject to tax.
(1.5 marks)

iii) Tax Relief:
A tax relief is a deductible allowance approved by law to reduce taxable income and lessen the tax burden. Personal circumstances are always considered when allowing tax reliefs.
(1.5 marks)

iv) Tax Rebate/Refund:
A tax rebate is a partial refund of taxes already paid, or it may be an amount deducted from the taxes owed. It often involves the government sending back a portion of the taxes already paid by the taxpayer.
(1.5 marks)

  • 6 Marks

AT – April 2022 – L3 – Q1a – Business income – Corporate income tax

Explain the mechanism of carrying over business losses for tax purposes.

All persons can carry over their losses, so far as it can be proven that it is a loss by the person making the claim. This was mooted at a seminar organised for a business community in some parts of Accra, the capital city of Ghana.

Required:
Explain the mechanism of carryover of losses.

Losses incurred by persons can be carried over for 3 years and for 5 years. The losses incurred in a particular year are deducted from the profit made before taxes are charged and paid or collected. Persons that can carry over their losses for 5 years include:

  • Manufacturing
  • Agro-processing
  • ICT software development
  • Tourism registered with Ghana Tourism Authority
  • Farming
  • Energy and power
  • Petroleum operations
  • Mining and mineral operations

All other businesses may carry over their losses for 3 years. Losses to be carried forward include capital allowances. Persons making business loss may deduct it from investment loss, but investment loss cannot be deducted from business loss. Under a change in underlying ownership, loss incurred under section 17 shall not be carried forward. Venture Capital Financing Company that incurs loss on the disposal of investment shall carry it over for 5 years. The losses must be determined in accordance with tax principles and certified by Tax Auditors of the Ghana Revenue Authority.

  • 8 Marks

AT – Nov 2020 – L3 – Q3b – International taxation

Tax computation for Andrew Soweah as an individual, granting relief under the Ghana/UK Double Taxation Agreement using the credit method.

Andrew Soweah recently relocated to Ghana to commence his business after retirement from TaskForce (UK) Ltd, a security company he served for over 20 years. The nature of the business was to provide private security to diplomats and the very affluent.

Before coming to Ghana, he rented out his apartment in the UK for a yearly rent of £18,000. He also maintained a healthy balance in his account with Diamond Bank in London.

His income for 2019 year of assessment is summarized as follows:

  • Business Income (net of all taxes): GH¢126,000.
  • Dividend received from Faithful Ltd, a resident company at gross amount was GH¢18,000.
  • Rent of £16,200 was paid into his account with Diamond Bank. Withholding tax amounting to £1,800 had been deducted.
  • Diamond Bank credited his account with net of £8,100 bank interest. UK tax rate on interest is 10%.

Additional Information:

  • Exchange rate is GH¢7.5 for £1.
  • Andrew Soweah does not contribute to social security in Ghana.

Required: Compute his tax liability as an individual for the relevant year of assessment while granting him relief for double taxation under the Ghana/UK Double Taxation Agreement using the credit method.


  • 8 Marks

AT – Mar 2024 – L3 – Q1b – International taxation

Discussing the challenges posed by double taxation agreements and the methods of granting double taxation relief.

There is growing attention on the question of tax treaties signed by developing countries. The costs of tax treaties to developing countries have been highlighted in recent years by NGOs such as ActionAid and SOMO (Lewis, 2013). During 2014, an influential IMF paper warned that developing countries “would be well-advised to sign treaties only with considerable caution” (IMF, Spillovers on International Corporate Taxation, 2014) and the OECD, as part of its Base Erosion and Profit Shifting (BEPS) project, proposes to add text to the commentary of its model treaty to help countries decide “whether a treaty should be concluded with a State but also whether a State should seek to modify or replace an existing treaty or even, as a last resort, terminate a treaty” (OECD, Preventing the Granting of Treaty Benefits in Inappropriate Circumstances, 2014).

Required:

i) Examine the challenges double taxation agreements pose to Ghana.
(4 marks)

ii) Explain the methods of granting double taxation reliefs.
(4 marks)

i) Challenges of Double Taxation Agreements to Ghana include:

  1. No credible evidence that tax treaties significantly boost Foreign Direct Investment (FDI) activity.
  2. Treaty negotiations are complex and may not fully meet the political and economic interests of both countries.
  3. Double taxation agreements (DTAs) can erode the tax base by shifting taxing rights away from Ghana.
  4. DTAs can be exploited by foreign and local companies to minimize or avoid tax entirely, often by profit-shifting practices.
    (4 marks)

ii) Methods of granting double taxation reliefs include:

  1. Exemption method: The income is taxed in the source country and not taxed again in the second country.
  2. Deduction method: Residual income is taxed in the second country after being taxed in the original country.
  3. Credit method: Taxes paid in the source country are credited against taxes due in the second country, ensuring no double taxation occurs.
  • 3 Marks

AT – Nov 2019 – L3 – Q2a – International taxation

Outline the conditions required to satisfy before foreign tax credit relief is granted.

Any resident person other than a partnership may be allowed a foreign tax credit relief on any income that is earned outside Ghana subject to the fulfillment of certain conditions, which are critical in the granting of the relief.

Required:

What are the conditions to satisfy before the foreign tax credit relief is granted?

The foreign tax credit relief is granted subject to the following conditions:

  1. Income Assessment: The income corresponding to the tax must have been assessed.
  2. Tax Credit Certificate: Submission of a tax credit certificate from the tax department of the foreign country signifying the nature of income and the quantum of taxes paid by the taxpayer.
  3. Official Receipt: Providing an official receipt or a functional equivalent of a tax credit certificate from the tax department of the foreign country.

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