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- 5 Marks
Question
c) Below are the various contracts awarded to KPP Books and Stationery Limited by the Ghana Water Company for the 2018 year of assessment:
1st contract: supply of stationery costing GH¢1,000 in January 2018.
2nd contract: supply of Station Diaries costing GH¢900 in March 2018.
3rd contract: supply of additional stationery costing GH¢900 on August 16, 2018.
Required:
What amount of withholding tax is due to the Ghana Revenue Authority in the year 2018 from Ghana Water Company? (5 marks)
Answer
i) The 1st contract sum of GH¢1,000 does not meet the threshold amount of GH¢2,000, so there will be no tax withheld on the amount.
(1 mark)
ii) The 2nd contract sum of GH¢900 also does not meet the threshold of GH¢2,000. Furthermore, the aggregate value of the 1st and 2nd contracts (GH¢1,000 + GH¢900 = GH¢1,900) also does not meet the threshold of GH¢2,000, so no withholding tax will be charged on payment of the 2nd contract.
(1.5 marks)
iii) The 3rd contract sum of GH¢900 does not meet the threshold of GH¢2,000. However, the aggregate value of the 1st, 2nd, and 3rd contracts (GH¢1,000 + GH¢900 + GH¢900 = GH¢2,800) exceeds the threshold of GH¢2,000, so the cumulative amount of GH¢2,800 will be subject to withholding tax at the applicable rate of 3%.
Tax withheld is 3% x GH¢2,800 = GH¢84.
(1.5 marks)
Note: A student would also be correct if he or she states that, at the start of the year, the company anticipates that purchases from the vendor will exceed the threshold of GH¢2,000. In this case, the first, second, and third purchases will all be taxed at 3%, and the same tax liability will result.
(1 mark)
- Tags: Contracts, Tax deductions, Threshold, Withholding Tax
- Level: Level 2
- Topic: Withholding Tax Administration
- Series: NOV 2019
- Uploader: Cheoli