Topic: Withholding Tax Administration

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  • 10 Marks

PT – April 2022 – L2 – Q5a – Withholding Tax Administration

Explain four exemptions from withholding tax according to the Income Tax Act, 2015 (Act 896).

Although the scope of withholding tax covers employment, business, and investment income, not every income is subject to withholding tax in accordance with the Income Tax Act, 2015 (Act 896) as amended.

Required:
Explain FOUR (4) of these withholding tax exemptions.
(10 marks)

The following payments are exempted from withholding tax:

  • Premium paid to a resident insurance company.
  • Payment for the sale of goods which constitute trading stock of both the vendor and the purchaser.
  • Interest or dividend paid or credited to a holder or member on the investment in an approved unit trust scheme or mutual fund.
  • Interest paid to a resident financial institution.
  • Payments made to persons specifically exempted from tax.
  • Income or activity exempted from tax.
  • Payments that have been granted exemption from withholding tax by the Commissioner-General.
  • Dividend paid by a resident company to another resident company that controls directly or indirectly at least 25% of the voting power in the company paying the dividend. This does not include redeemable shares.
  • Cumulative contract sums of the supply of goods, services, and works not exceeding GH¢ 2,000.

(Any 4 points @ 2.5 marks each = 10 marks)

  • 5 Marks

PT – Nov 2023 – L2 – Q5b – Value-Added Tax (VAT), Customs, and Excise Duties

Calculate the withholding tax payable for a contract including various levies and VAT.

The cost of iron rods supplied by Akinto Steel Works Ltd to Oputu Construction Ltd is worth GH¢300,000 (inclusive of National Health Insurance Levy, Ghana Education Trust Fund Levy, COVID-19 Health Recovery Levy, and Value Added Tax).

Required:
Determine the Withholding Tax payable in respect of the contract for supplies. (5 marks)

b) Determination of Withholding Tax payable in respect of the contract for supplies
Determine the VAT charged. = (300,000 *15/115) = 39,130.43
Determine the VAT exclusive amount(300,000-39,130.43) = 260,869.57

Note: Candidates who computed withholding VAT instead of 3% withholding for goods were also marked correct.
(5 marks)

  • 5 Marks

PT – Nov 2019 – L2 – Q2c – Withholding Tax Administration

Calculates withholding tax due from various contracts awarded to KPP Books & Stationery Ltd. by Ghana Water Company.

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)

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)

  • 2 Marks

PT – May 2020 – L2 – Q2c – Value-Added Tax (VAT),

Explains the purpose of implementing Withholding VAT in Ghana.

The introduction of Withholding Value Added Tax was widely celebrated by tax administrators and tax practitioners as it is believed the benefits to be raked by the Ghana Revenue Authority would be enormous.

Required:
What purpose does Withholding Value Added Tax seek to achieve?
(2 marks)

Withholding VAT is not a new tax but a compliance measure aimed at ensuring that all VAT due to the government is paid. It involves the declaration of VAT by both the supplier and the withholding agent. The primary purpose is to curb the abuse by non-filers of VAT who charge VAT without accounting for it to the authorities.
(2 marks)

  • 4 Marks

PT – March 2023 – L2 – Q5b – Withholding Tax Administration

State the payments which are exempt from withholding tax.

A resident person shall withhold tax on payments of any dividends, interests, rent, royalties, natural resources, and payments with a source in the country.

Required:

State FOUR (4) payments to which withholding tax does not apply.
(4 marks)

The following payments are exempt from withholding tax:

  1. Payments by Individuals (Non-Business Related):
    Payments made by individuals unless made in the course of conducting a business are exempt from withholding tax.
  2. Interest Paid to Resident Financial Institutions:
    Interest payments made to resident financial institutions are not subject to withholding tax.
  3. Exempt Amounts:
    Payments that are considered as exempt amounts under the Income Tax Act are not subject to withholding tax.
  4. Contract Sum Not Exceeding GH¢2,000:
    Payments for the supply of goods, works, or services where the contract sum does not exceed GH¢2,000 for the year are exempt from withholding tax.

(Any 4 points @ 1 mark each = 4 marks)

  • 10 Marks

PT – July 2023 – L2 – Q5a – Withholding Tax Administration

Calculate taxes and determine whether each is final based on various transactions provided.

The following information is available to you as a tax consultant:

Description Amount (GH¢)
Dividend paid to resident person 100,000
Dividend paid to non-resident person 200,000
Payment of goods to resident person 300,000
Payment of goods to non-resident person 400,000
Rent – residential property 150,000
Rent – commercial property 300,000
Natural Resource Payment 1,000,000
Management and Technical Service fees to non-resident 400,000
Interest paid to resident financial institution 20,000,000
Royalty paid to non-resident person 400,000

Required: Compute taxes from the above information and indicate whether the tax is final or not final.

Description Amount (GH¢) Tax Rate (%) Tax to be Withheld (GH¢) Remarks
Dividend paid to resident person 100,000 8 8,000 Final Tax
Dividend paid to non-resident person 200,000 8 16,000 Final Tax
Payment of goods to resident person 300,000 3 9,000 Not a Final Tax
Payment of goods to non-resident person 400,000 20 80,000 Final Tax
Rent – residential property 150,000 8 12,000 Final Tax
Rent – commercial property 300,000 15 45,000 Final Tax
Natural Resource Payment 1,000,000 15 150,000 Not a Final Tax
Management and Technical Service fees to non-resident 400,000 20 80,000 Final Tax
Interest paid to resident financial institution 20,000,000 0 0 Exempt
Royalty paid to non-resident person 400,000 15 60,000 Final Tax
  • 10 Marks

PT – May 2021 – L2 – Q5a – Withholding Tax Administration

Explain the withholding tax rates and treatment for rental income for residential and non-residential premises.

A resident person who makes a payment to another resident person in respect of the rental of residential or non-residential premises is required to withhold tax in accordance with the Income Tax Act, 2015 (Act 896) as amended.

Required:
i) State the taxation principle applicable to rental income and the relevant rates. (5 marks)
ii) Given i) above, how will you treat this transaction, where a resident person makes a payment to another resident person conducting a business of sale or renting of residential or non-residential premises?

i) Taxation Principle for Rental Income and Relevant Rates

  • Rental income received by a resident person from another resident person is subject to withholding tax.
  • The applicable withholding tax rate for residential premises is 8%, while for non-residential (commercial) premises, the rate is 15%.
  • This withholding tax on rental income is treated as a final tax for the recipient, meaning no further tax is charged on the rental income received.
    (5 marks)

ii) Treatment of the Transaction for a Business of Sale or Renting of Premises

  • When a resident person conducts a business involving the sale or renting of residential or non-residential premises, the payment is treated as a supply of services rather than an investment return.
  • In this case, the withholding tax rate is 7.5% on the payment made to the business, and this withholding tax is not final.
  • The withheld tax serves as an advance tax, and the recipient (the business) will still be required to account for corporate tax based on their total income.
  • 5 Marks

PT – Dec 2023 – L2 – Q5b – Withholding Tax Administration

Explanation of the tax credit certificate and its significance in tax administration.

Explain tax credit certificate and its importance in/to tax administration. (5 marks)

A tax credit certificate is a document issued by the Commissioner-General to a withholding agent upon the payment of tax withheld, and it serves as proof of the amount of tax withheld on behalf of the payee.

Importance of the tax credit certificate in tax administration:

  1. It provides proof of the tax withheld, allowing the payee to claim the amount as a credit against their total tax liability.
  2. It ensures transparency and accountability in withholding tax practices.
  3. It helps the payee avoid double taxation by providing evidence that taxes have already been deducted at the source.
  4. It serves as a record for the tax authorities to track and verify withholding tax payments.
  5. It aids taxpayers in filing accurate tax returns by using the tax credit certificates to calculate their final tax payable or refunds due.
  • 4 Marks

PT – Aug 2022 – L2 – Q5b – Withholding Tax Administration

Explain two circumstances where withholding taxes are exempt.

Explain TWO (2) circumstances under which withholding taxes are exempt.

  1. Contract Sum Below Threshold: If the contract sum for the supply of goods, works, or services does not exceed GH¢2,000 in the year, no withholding tax applies.
  2. Interest Received by Individuals: Interest received by an individual from a resident financial institution is exempt from withholding tax​

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