Tax Implication of Outright Purchase:

• The cost of the Pajero for an outright purchase is GH¢80,000.
• However, under Ghana’s tax law, capital allowance for non-commercial vehicles is restricted to GH¢75,000.
• Therefore, the capital allowance on the Pajero for outright purchase would be based on GH¢75,000, not the full purchase cost of GH¢80,000.
• The company would claim capital allowance on GH¢75,000 over the period allowed under the tax law.

Tax Implication of Finance Lease:

• The finance lease arrangement involves a total cost of GH¢105,000, which includes GH¢30,000 of interest spread over three years.
• The principal repayment of GH¢75,000 (GH¢105,000 – GH¢30,000) would be treated as the capital cost, and the company would be eligible to claim capital allowance on the GH¢75,000, the same as in an outright purchase.
• In addition, the interest portion of GH¢30,000 would be deductible as an allowable expense over the three years.
• This would give the company an additional deduction of GH¢10,000 per year for three years (GH¢30,000/3).

Conclusion:

The finance lease option is more beneficial for the company. Under this option:

1. The company will claim capital allowance on GH¢75,000 (the same as outright purchase).
2. The company will also benefit from deducting the interest expense of GH¢30,000 over three years, which provides additional tax savings.
3. The lease payments are spread over time, which can also aid in managing the company’s cash flow.

Therefore, I would recommend the finance lease arrangement.