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- 8 Marks
Question
A Nigerian investor (Niger Ltd) in Ghana has the following information relating to its business:
| Year | Revaluation Reserves (GH¢) | Share Capital (GH¢) | Retained Earnings (GH¢) |
|---|---|---|---|
| 2021 | 250,000 | 1,000,000 | 1,200,000 |
| 2020 | 100,000 | 600,000 | 1,350,000 |
Required:
With relevant computations, comment on the tax implication of the transfer from Retained Earnings to Share Capital. (8 marks)
Answer
The transfer of GH¢150,000 from the Retained Earnings account to the Share Capital account is treated as a “deemed dividend”. This triggers the following tax implications:
- Deemed Dividend Tax: A tax rate of 8% is applied to the transfer amount.
Calculation: GH¢150,000 x 8% = GH¢12,000 - Stamp Duty: A stamp duty of 0.5% is applicable on the transfer.
Calculation: GH¢150,000 x 0.5% = GH¢750
Total tax payable: GH¢12,000 (Deemed Dividend Tax) + GH¢750 (Stamp Duty) = GH¢12,750
- Tags: Corporate Tax, Deemed Dividend, Retained Earnings, Share Capital, Stamp Duty
- Level: Level 2
- Topic: Corporate Tax Liabilities
- Series: DEC 2023
- Uploader: Kwame Aikins