AUGUST 2022 PROFESSIONAL EXAMINATION

PRINCIPLES OF TAXATION (PAPER 2.6)

CHIEF EXAMINER’S REPORT, QUESTIONS & MARKING SCHEME

EXAMINER’S GENERAL COMMENTS

The performance of candidates for the August 2022 diet fell below expectation
compared to the previous sittings. Approximately 16% of the candidates who wrote
the paper passed. The least pass rate since the inception of the new syllabus in
November 2019. The trend which was experiencing some steady improvement from
the last two sittings (approximately 37% and 39% pass rate in April 2022 and
November 2021 respectively) suddenly witnessed a sharp drop again. Tuition
providers and students who might have been conversant with the trend by now
should have been aware that the August 2022 paper would not be different. Again,
the questions were spread across the syllabus. The paper tested the basic principles
enshrined in the relevant tax laws and regulations. It has been repeatedly echoed that
the principles of taxation paper describe the Ghanaian system of taxation; outlines the
basic principles of taxation of individuals and corporations (entities) in addition to
outlining key aspects of realisation of assets, VAT and describes how taxes are
administered by the Ghana Revenue Authority.

Candidates should desist from specialising in certain topics and exert their energies
in learning across the broad spectrum of the syllabus since this will propel them to
pass the examination with ease.
Another general observation made was the fact that candidates were not really
prepared for theoretical questions which constituted about 59% of the total mark
compared to the computational questions which were assigned the remaining 41%.
The theoretical questions were straightforward but surprisingly candidates failed to
take advantage of them. Candidates normally perform abysmally in VAT questions
no matter how simple they are. They however did well in the computational questions
relating to branch profit tax and capital gain tax payable but incidentally, they formed
only 11% in all. Candidates however lost out heavily on the computation of Interest
on Underestimated Tax and Chargeable Income of Partners which took 24%. Tuition
providers and/or students should exert their energies in sharping the skills of
candidates for both theoretical and computation related scenarios.

STANDARD OF THE PAPER

The standard of the questions was very good for a level two paper of the examination
structure. With the exception of the “Benchmark Value Discount” policy in Custom
Administration (which took only 5 marks) which candidates may not be abreast with,
all the questions did reflect the Principles of Taxation syllabus of which the candidates
were expected to have a fair knowledge to pass. The questions were generally clear.
As stated earlier, the questions fairly covered the entire syllabus and the expectations
were that any average student who did prepare for the exams should have passed
with ease. The marks were fairly allocated to the questions.

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PERFORMANCE OF CANDIDATES
Generally, the performance of the candidates was not satisfactory. The expectations of
the Examiner from the candidates were not met compared to the previous diet.
Looking at the nature of the questions and spread of the marks, candidates should
have performed better. The requirements were generally clear as to what the
candidates were to do. Inadequate preparation and unwillingness of candidates to
learn across the syllabus continue to be a challenge.

The reasons for the unsatisfactory performance could be as follows:

Most of the candidates underrated the subject forgetting that taxation is a creature of
legislation. Questions based on the tax acts and regulations can therefore not be scored
with conjecture. They may not have gone for tuition and are studying on their own.
They therefore have not understood the principles of taxation very well.

Candidates’ failure to balance theory with computation is also a cause for concern.
Candidates who passed did well in the theory since that took 51% of the total mark.
Most candidates could not handle the questions on the computation of interest for
underestimation of Tax, the VAT and the Partnership questions which took 10%, 15%
and 14% respectively. What is more troubling is that candidates failed to identity why
there is a direct connection between expenditure and the business for the expenditure
to be an allowable deduction and what constitute domestic and excluded expenditure
as enshrined in the Income Tax Act of 2015, Act 896 as amended. In all, this also took
20%.

NOTABLE STRENGTHS & WEAKNESSES OF CANDIDATES

It is evident that few candidates had excellent understanding of the syllabus and the
subject. This was demonstrated in the answering of the questions. However, the
coverage of the syllabus for the majority is still low. This was evident with some
candidates scoring high marks in certain questions and abysmally low marks in other
questions especially those that bother on the principles.

It is also clear that not too many candidates received very good tuition on the subject
and therefore lost valuable marks that could have been grasped with ease. Both
lecturers and candidates should pay attention to the law and the basic principles of
taxation.
Only few candidates who really proved that they prepared well and understood the
requirements of the questions scored more than half for each question. They thus
earned marks above 60%.

Once again, it seems some candidates did not pay attention to the topics such as Fiscal
Policy, Three-Tier Pension Scheme, Partnership, Tax Administration, and Value-
Added Taxation. If candidates had given more attention to these recurring topics, the
pass rate would have been more than 40% since the questions were pretty
straightforward.

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QUESTION ONE

a) The Finance Minister of Ghana during the 2022 budget presentation in Parliament
announced the withdrawal of the “Benchmark Value Discount” Policy on some imports.
The President of the Professional Local Rice Growers Association (PLRGA) is elated about
the announcement and has invited you as a student studying taxation to explain the concept
of the Benchmark Value Discount policy to him.

Required:
Explain what the “Benchmark Value Discount” policy in Custom Administration is and
how its withdrawal will be of much benefit to the President of the PLRGA. (5 marks)

b) Deficit financing is the budgetary situation where government expenditure is higher than
government revenue. It is a practice adopted for financing the excess expenditure with
external funding. Most governments both in the developed and developing world are having
deficit budgets and these deficits are often financed through borrowing.

Required:
State FIVE (5) conditions that would make it necessary for a government to support its
budget through deficit financing. (5 marks)

c) The estimated chargeable income for Vito Ltd for the 2019 year of assessment was
GH¢50,000,000 but its actual chargeable income declared at the end of the year was
GH¢80,000,000. The company prepares account to 31 December each year. The company
submitted it returns on 30 April, 2020. The BOG prevailing discount rate is 25%.

Required:
Calculate the interest for underestimation of tax. (10 marks)

(Total: 20 marks)

QUESTION TWO

a) You are a student of taxation at Ebeyeyie Tax Education Institute. You have been contacted
for tax advice by Ekumfi Fruit Processing Ghana Ltd. The company produces various kinds
of fruit juices for both local and foreign markets. The Finance Director recently learned
that the company can apply for VAT refund from the Ghana Revenue Authority (GRA)
and has approached you for advice.

Required:
Advise the company on SIX (6) conditions that must be satisfied before the GRA may
refund the excess VAT Input Tax to the company under the Value Added Tax Act, 2013
(Act 870), as amended. (9 marks)

b) Where a taxable person does not have a tax invoice that provides evidence of the input tax
paid, the Commissioner-General may allow a deductible input tax in the tax period in which
the deduction arises to a taxable person under certain conditions.

Required:
State THREE (3) conditions that must be satisfied before a taxable person without a tax
invoice may be allowed an input tax deduction? (6 marks)

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c) What are the contribution rates and how are they distributed between the Employer and
Employee, under the 3-Tier Scheme? (5 marks)

(Total: 20 marks)

QUESTION THREE

a) Yamutu was employed by Yazo Company Ltd on 1 June, 2016 and on an annual basic
salary of GH¢400,000 by 40,000 to 560,000. She was paid a bonus of GH¢240,000 in 2019.

Required:
Determine the tax on bonus and total tax liability of Yamutu in 2019. (6 marks)

b) Elorm and Eyram entered into partnership on 1 January, 2018 to produce hair products.
i) They agreed to share profit and losses equally after charging:
 Annual Salaries:
Elorm GH¢10,000,000
Eyram GH¢14,000,000
 Interest on capital of 5% p.a was deducted from the profit.
 Depreciation deducted from the profits for the various years of assessment are:
2018 2019 2020
GH¢80,000 GH¢60,000 GH¢180,000
ii) Capital contributed by the partners are as follows:
Elorm GH¢100,000,000
Eyram GH¢80,000,000
iii) To enable the partnership introduce a new product, they invited Elinam to join the
partnership on January 1, 2019. Elinam was to receive a salary of GH¢6,000,000 annually
in addition to an equal share of profit. He will not be entitled to interest on his capital of
GH¢ 60,000, 000.
iv) Elorm was elected as a Member of Parliament for Boli Constituency and resigned as a
partner at the close of day of 30 June, 2020. The remaining partners continued to share
profits equally.
v) Operational profit/loss of the partnership are as follows:
GH¢
Year ended December 31, 2018 500,000,000
Year ended December 31, 2019 (180,000,000)
Year ended December 31, 2020 1,000,000,000
vi) Capital allowance of GH¢60,000 has been granted by Ghana Revenue Authority for each
year of assessment.
vii) Elorm received rent income of GH¢10,000,000 (net) per annum during the period he was
in the partnership. None of the other partners had any income outside the partnership
income and none has any capital gains.

Required:
Compute the Chargeable income of Elorm, Eyram and Elinam for 2018, 2019, and 2020
year of assessment. (14 marks)

(Total: 20 marks)

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QUESTION FOUR

a) For an expenditure to be an allowable deduction, there must be a direct connection between

the expenditure and the business.

Required:
Discuss this statement in line with the provisions of the Income Tax Act, 2015 (Act 896).
(10 marks)

b) According to Act 896, the Commissioner-General shall not allow a deduction in respect of
domestic expenditure and excluded expenditure incurred by a person.

Required:
Explain what constitutes domestic expenditure and excluded expenditure in line with the
provisions in the Income Tax Act, 2015 (Act 896). (10 marks)

(Total: 20 marks)

QUESTION FIVE

a) Chahuncha Ghana Branch declares a profit before tax of GH¢6,000,000 in 2020 year of
assessment after charging depreciation of GH¢680,000 and a loss of GH¢1,500,000 which
was incurred in 2012.The capital allowance for the year amounted to GH¢750,000 yet to
be adjusted. The corporate tax rate is 25%.

Required:
Compute the Branch Profit Tax for the 2020 year of assessment. (6 marks)

b) Explain TWO (2) circumstances under which withholding taxes are exempt. (4 marks)

c) Fortune acquired shares in Obolo company Ltd, a manufacturing company situated in

Nsawam and the following are the transactions in Obolo company:
i) He acquired 100,000 ordinary shares for GH¢115,600 on 14 March, 2020. He also acquired
another 220,000 shares on 26 November, 2020 at a price of GH¢1.2 per share.
ii) On 24 December, 2020, he sold 235,000 shares for GH¢305,500 which attracted a sales
commission of 1.5% of the sales value to the brokerage firm.

Required:
Compute the capital gain tax. (5 marks)

d) An individual who is required to furnish the Commissioner-General (CG) with a return in

relation to a gift, has to do so to enable the CG subject it to appropriate tax.

Required:
Explain the treatment of a gift not received under employment or business. (5 marks)

(Total: 20 marks)

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SUGGESTED SOLUTION

QUESTION ONE

a) The “Benchmark Value Discount” Policy was introduced in April 2019 by

government to make the Ghanaian ports competitive, reduce smuggling and
increase government’s revenue from the port. Under this policy, certain
commodities are benchmarked to the prevailing world prices as a risk
management tool, to reflect the true market dynamics of these commodities. It also
takes into consideration factors such as protection of health, the environment, and
security as well as protection of local industries. The policy provided a discount of
50 percent on the delivery or benchmark values of imports with the exceptions of
vehicles. The delivery values for vehicles were reduced by 30%.
The government however suspended moves to remove the discount policy to
allow for extensive stakeholder engagement on the viability of the policy and its
impact on both government revenue and the domestic manufacturing industry.
Following consultation between government and relevant stakeholders,
government has now announced a revision of the policy resulting in a reduction
in the discount offered on the delivery values of imports. The discount offered for
vehicles will now be 10% (from 30%) and 30% for all other goods (from 50%).

A withdrawal of the Benchmark Discount on imported rice will mean that

importers of rice will have to pay higher amount of duty on their imports
compared to what they are paying under the benchmark discount regime. This will
make imported rice comparatively more expensive to the local rice all things being
equal. This means, assume all things are equal, consumers who are price sensitive
will switch demand from imported rice to local rice and therefore local rice
producers can have access to the local market to sell more and make income for
themselves.

Thus, the withdrawal of the policy will be of much benefit to the president of the
Professional Local Rice Growers Association (PLRGA) for the following reasons:

i) It will make local production become competitive with related importation.

ii) It will increase demand for local production
iii) Increase the local production for the rice growers and generate employment
(Explanation of policy = 2 marks)
(Benefits of withdrawal = 3 marks)

b) Conditions necessary for budget deficit financing

 During a Period of Depression: Deficit financing assume greater importance
when there is the need to recover after a major depression or to reduce the severity
of the business cycle. This happens when there is the realization that private sector
activities as well as traditional monetary policies prove inadequate in restoring
economic stability. When economic activities are declining, or stagnant deficit
financing may replace deficiency in aggregate demand by injecting funds and
providing the necessary stimulant for reducing under-utilization of resources and
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 increase the deployment of labour and capital through additional spending to
finance the budget deficit.
 During Wars: Governments try to raise additional resources to finance tribal
conflicts during tribal wars. This may however have negative effects on inflation
etc.
 During a Process of Economic Development: Usually in developing countries
deficit financing is applied to cater for the meagre voluntary investment in order
to progress rapid development to do away with the vicious circle of poverty (low
savings, low investment, low income, etc).
 Ineffective Financial Management: Since budgetary projects in developing
countries are not reliable, management also tend to be ineffective, and this leads to
demand for loans, grants and aid to finance ineffective programmes.
 Weak Expenditure Control and Monitoring: The annual accounts are usually in
arrears in such a way that year by year comparison is difficult. Besides the
unpredictable economic and social environment, government may incur
expenditure outside the budget which necessitates the inflow of budget
expenditure in excess of expected revenue.
 Low Revenue Mobilization: The revenue or tax net does not encapsulate all
taxable enterprise and individuals. Revenue from taxes therefore tends to be less
than what is needed for payments of goods and services and other government
current financial obligations.
 Political Pressure: Politicians make electioneering promises which have not been
budgeted for. When political pressure becomes unbearable, there are attempts to
implement policies (not budgeted for) in order to earn political integrity. These
create extra burden needing extra funds to finance outside the budget.
 Infrastructural Development
 To keep government workers productive by paying them
 Enhance economic livelihood, through Livelihood Empowerment Against Poverty
(LEAP)
 Provide social goals
The theory of social goods is of prime importance to the economies of public sector.
Some economists divide social goods under two heads: Social and economic
overheads. Social overheads like hospitals, schools and colleges and technical
institutions and economic overheads like roads and railways, irrigation and power
projects etc., are all essential for economic development. It is the responsibility of
public expenditure to build up sound social and economic overheads as money for
these things does not usually come from private sources.
 Increase Production
Public expenditure contributes to production through a large number of public
enterprises both in industries and agriculture. Government incurs a lot of
expenditure in the agricultural sector, e.g., on irrigation and power, seed forms,
fertilizer factories, warehouses, feeder roads etc., and in the industrial sector by
setting up public enterprises like steel plants, heavy electrical, heavy engineering,
machine-making factories, etc. All these enterprises are calculated to promote
production and thereby economic development.
 Promote Price Stability

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 Increase in public expenditure relieves the economy from the quagmire of
depression and conversely public expenditure can be scaled down when there is a
fear of inflationary rise in prices. Thus, public expenditure helps in stabilizing price
especially where the economy is in a depressed state.
 Create employment
Public expenditure is the most potent weapon to fight unemployment. The level of
employment depends upon aggregate demand. The government can influence
effective either by making more public expenditure or by resorting to such fiscal
methods as may raise the level of private expenditure. Thus, as the government
spends to resuscitate the economy from a depressed state it tends to create
employment opportunities resulting from the multiplier effect of government
expenditure.
 Promote Balanced Growth
There is a tendency to use economic resources for the further development of
already developed regions. However, for overall growth, special attention needs
to be paid for the development of backward areas and underdeveloped regions.
This requires huge amounts for which reliance must be placed on public
expenditure.

 Reduce Inequality of Income

Another objective of public expenditure is to reduce the inequality of income.
Expenditure on old age pensions, unemployment relief, free education, free
midday meals etc., benefits the poorer classes of the community at the expense of
the rich. The above objectives reveal that public expenditure properly made of
utmost important for social welfare and economic prosperity.
 Exploitation and Development of Mineral Resources
Minerals provide a base for further economic development. The government has
to undertake schemes of exploitation and development of essential minerals, e.g.
coal and oil. Thus, public expenditure must play its role here too.
(Any 5 points @ 1 mark each = 5 marks)

c) Percentage Difference: 30,000,000 *100

80,000,000
=37.5%
Margin of error is 37.5% more than the 10% allowed so interest is to be imposed.

GH¢

90% of actual CI (80,000,000) = 72,000,000

Tax on 72,000,000 @ 25% = 18,000,000

Less Tax Paid on 50,000,000 @25 = 0
Difference ` 18,000,000

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Quarterly payment = 18,000,000/4
= 4,500,000

Quarterly amount to compute Interest on = 18,000,000/4

= 4,500,000

Annual Percentage rate = r = 1.25 x 25% = 0.3125

1st Quarter: 1st April 2017-April 30th 2018

4,500,000 (1+.3125/12)^13
= GH¢6,285,755.45
Interest = 6,285,755.45 -4,500,000 = GH¢1,785,755.45

2nd Quarter: 1st July 2017-April 30th 2018

4,500,000(1+.3125/12)^10
= GH¢5,819,189.34
Interest = 5,819,189.34 - 4,500,000 = GH¢1,319,189.34

3rd Quarter: 1st Oct 2017-April 30th 2018

4,500,000(1+.3125/12)^7
= GH¢5,387,254.54
Interest = 5,387,254.54 -4,500,000 = GH¢887,254.54

4th Quarter: 1st Jan 2018-April 30th 2018

4,500,000(1+.3125/12)^4
= GH¢4,987,380.51
Interest = 4,987,380.51 - 4,500,000 = GH¢487,380.51

Total Interest= 1,785,755.45 + 1,319189.34 + 887,254.54 + 487,380.51 =

GH¢4,479,579.84

(Marks are evenly spread using 20 ticks= 10 marks)

Alternatively, where student assumed the Estimated Tax Payable was paid

90% Actual Tax Liability (0.9 x 80,000,000 x 0.25): 18,000,000

Less: Tax Paid (50,000,000 x 0,25) 12,500,000
Difference: 5,500,000

Quarterly amount to compute Interest on = 5,500,000/4

= 1,375,000

Annual Percentage rate = r = 1.25 x 25% = 0.3125

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 Interest
90% of actual CI (80,000,000) = 72,000,000
Tax on 72,000,000 @ 25% = 18,000,000
Less Tax on 50,000,000 @25 = 12,500,000
Difference ` 5,500,000

Quarterly payment = 5,500,000/4

= 1,375,000

1st Quarter: 1st April 2017-April 30th 2018

1,375,000(1+.3125/12)^13
= GH¢1,920,647.48
Interest = 1,920,647.48 -1,375,000 = GH¢545,647.48

2nd Quarter: 1st July 2017-April 30th 2018

1,375,000(1+.3125/12)^10
= GH¢1,778,085.62
Interest = 1,778,085.62 -1,375,000 = GH¢403,085.62

3rd Quarter: 1st Oct 2017-April 30th 2018

1,375,000(1+.3125/12)^7
= GH¢1,646,105.55
Interest = 1,646,105.55 -1,375,000 = GH¢271,105.55

4th Quarter: 1st Jan 2018-April 30th 2018

1,375,000(1+.3125/12)^4
= GH¢1,523,921.83
Interest = 1,523,921.83 -1, 375,000 = GH¢148,921.83

Total Interest = 545,647.48 + 403,085.62 + 271,105.55 + 148,921.83 =

GH¢1,368,760.48

(Marks are evenly spread using 20 ticks= 10 marks)

EXAMINER’S COMMENTS
Question one assessed candidates on the meaning of “Benchmark Value Discount”
policy in Customs Administration and how its withdrawal will benefit the Local Rice
Growers. Though it is a current topical customs issue, it looked strange to most
candidates. Fortunately, only 5 marks was awarded to it. The condition necessary for
a government to support its budget through deficit financing which also took 5 marks
was generally well dealt with. However, the calculation of the Interest for
underestimation of tax was poorly done. It was allocated 10 marks. It looks as if tuition

Page 10 of 21
providers and/or candidates did not prepare for it. Though the marks allocated for
question one was fairly distributed in line with the weight in the syllabus for the
efforts needed to answer these questions, the unpreparedness of candidates for these
types of questions was the cause of the poor performance. In future, the question
should be clear on the portion of the annual estimated tax payable which was paid.

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QUESTION TWO

a) Conditions for VAT Refund.

 The VAT paid should qualify as a deductible input VAT.

 Provide all necessary records to support the refund application.
 The business must have submitted returns for all months for which it has been in
operations.
 The company qualifies for refund of VAT where the excess VAT is attributable to
exports.
 The company’s exports exceed 25% of the total supplies within the tax period.
 The total export proceeds of the company have been repatriated to the company’s
authorized bank account in Ghana.
 The company may make the application for the refund where the excess VAT has
been outstanding for a continuous period of three months or more.
 The Commissioner-General may order an audit of the claim for the refund to
satisfy himself that the amount is legitimate.
 The company had duly completed a Refund Claim Form and submitted same to
the Ghana Revenue Authority with all supporting documents.
 Where the Commissioner-General is satisfied that a refund is due the company, he
is required to refund the money to the company within 30 days after receipt of the
application.
 Where the Commissioner-General fails to make the refund within the 30 days, he
will be required to refund the excess credit with an interest.
(Any 6 points @ 1.5 marks each = 9 marks)

b) Conditions that a taxable person without a tax invoice must satisfy before being
allowed an input tax deduction;
 Taxable person took all reasonable steps to acquire a tax invoice;
 Failure to acquire a tax invoice was not the fault of the taxable person; and
 Amount of deductible input tax claimed by the taxable person is correct or
verifiable.
(3 points @ 2 mark each = 6 marks)

c)
Tier 1 and 2 – Mandatory pension schemes

Worker – Contributes 5.5% of workers’ basic salary

Employer – Contributes 13% workers’ basic salary
Total – 18.5% of workers’ basic salary
 Out of the 18.5%, employer remits 13.5% to SSNIT within 14 days following the
end of the month to the mandatory First-Tier Basic Social Security Scheme.
 Again, out of the 13.5% paid to SSNIT, 2.5% is sent to the NHIA for the member’s
health insurance.

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 The residual 5% is sent to the mandatory Second Tier Occupational Scheme which
will be privately managed by Trustees approved and licensed by the Board of
NPRA.

Tier 3 - This is a voluntary pension scheme also regulated by the NPRA

 The amount to be contributed by the employee and/or the employer is not fixed.
 However, to qualify as a relief the total amount contributed by the employee
and/or employer should not exceed 16.5% of the employee’s basic salary.

(At least 1 point under each tier = 3 marks and remaining 2 points under any
Tier)
(5 marks)

(Total: 20 marks)

EXAMINER’S COMMENT
Question two examined candidates on Value Added Tax for a total mark of 15 which
is in line with the weight in the syllabus. Candidates were to state six conditions that
must be satisfied before the Ghana Revenue Authority (GRA) may refund the excess
VAT input tax under the VAT Act 2013 (Act 870), as amended. Candidates were also
to state three conditions that must be satisfied before a taxable person without a tax
invoice may be allowed an input tax deduction. Surprisingly, even though these are
the basic principles to learn about VAT, it was the worst attempted question.
Consistently, for the past seven sittings, candidates’ performance has not been
encouraging. Tuition providers and students are advised to pay particular attention
to this aspect of the syllabus since it continues to contribute to the poor performance
of candidates. Candidates were also required to identify the contribution rates and
how they are distributed between the Employer and Employee, under the 3-Tier
Scheme. This was simple and has been a regular area. Again, more than half of the
candidates did not take advantage to score all the 5 marks.

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QUESTION THREE

a) Yamutu
Determination of Basic salary for 2019
1st June, 2016 - 31st May, 2017 400,000
1st June, 2017- 31st May, 2018 440,000
1st June, 2018- 31st May, 2019 480,000
1st June, 2019- 31st May, 2020 520,000

(5/12 *480,000) + (7/12*520,000)

200,000+303,333.33
=503,333.33

Computation of tax on Bonus

15% * 503,333.33
= 75,500

Bonus payment = 240,000

15% threshold = 75,000 * 5% = 3,750
165,000

Determination of total tax liability for 2019 Y/A

Basic salary 503,333.33
15% Excess Bonus 165,000.00
668,333.33

GH¢ % Tax
First 1,200 0 0
Next 420 5 21
Next 1,104 10 110.40
Next 23,196 17.5 4,059.30
Exceeding 642,413.33 25 160,603.33
164,794.03

Tax on Bonus
15% threshold = 75,000 * 5% = 3,750.00
Total Tax liability 168,544.03

(Marks are evenly spread = 6 marks)

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b) ELORM, EYRAM AND ELINAM
COMPUTATION OF CHARGEABLE INCOME
Year of Assessment 2018 2019 2020
Basis Period 1/1/18 – 31/12/18 1/1/19 – 31/12/19 1/1/20 – 31/12/20
GH¢ GH¢ GH¢
Operational Profit/(Loss) 500,000,000 (180,000,000) 1,000,000,000
Add: Depreciation 80,000 60,000 180,000
Interest on Capital 9,000,000 9,000,000 6,500,000
Salaries 24,000,000 30,000,000 25,000,000
Less: Capital Allowance (60,000) (60,000) (60,000)
Adjusted Profit 533,020,000 (141,000,000) 1,031,620,000

2018 (1/1/2018 -31/12/2018)

Elorm Eyram
GH¢ GH¢
Share of Profit 266,510,000 266,510,000
Interest on capital 5,000,000 4,000,000
Salaries 10,000,000 14,000,000
Chargeable Income 281,510,000 284,510,000

2019 (1/1/2019 -31/12/2019)

Elorm Eyram Eyram
GH¢ GH¢ GH¢
Share of Loss (47,000,000) (47,000,000) (47,000,000)
Interest on capital 5,000,000 4,000,000 -
Salaries 10,000,000 14,000,000 6,000,000
Chargeable Income (32,000,000) (29,000,000) (41,000,000)

2020
(1/1/2020 -30/6/2020) Elorm Eyram Eyram
GH¢ GH¢ GH¢
Share of Profit 171,936,666.67 166,686,666.67 166,686,666.67
(1,031,620,000/ 2)
Interest on capital 2,500,000.00 2,000,000.00
Salaries 5,000,000.00 7,000,000.00 3,000,000.00

(1/7/2020 -31/12/2020)
Share of Profit 257,905,000.00 257,905,000.00
Interest on capital 2,000,000.00
Salaries 7,000,000.00 3,000,000.00

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 Chargeable Income 179,436,666.67 442,591,666.67 427,591,666.67

(Marks are evenly spread using ticks = 14 marks)

Alternatively, where student did not add the appropriated incomes in

determining the Adjusted Profit

ELORM, EYRAM AND ELINAM

COMPUTATION OF CHARGEABLE INCOME
Year of Assessment 2018 2019 2020
Basis Period 1/1/18 – 31/12/18 1/1/19 – 1/1/20 – 31/12/20
31/12/19
GH¢ GH¢ GH¢
Operational Profit 500,000,000 180,000,000 1,000,000,000
Add: Depreciation 80,000 60,000 180,000
Less: Capital (60,000) (60,000) (60,000)
Allowance
Adjusted Profit 500,020,000 180,000,000 1,000,120,000

2018 (1/1/2018 -31/12/2018)

Elorm Eyram
GH¢ GH¢
Share of Profit 250,010,000 250,010,000
Interest on capital 5,000,000 4,000,000
Salaries 10,000,000 14,000,000
Chargeable Income 265,010,000 268,010,000

2019 (1/1/2019 -31/12/2019)

Elorm Eyram Eyram
GH¢ GH¢ GH¢
Share of Profit (60,000,000) (60,000,000) (60,000,000)
Interest on capital 5,000,000 4,000,000 -
Salaries 10,000,000 14,000,000 6,000,000
Chargeable Income (45,000,000) (42,000,000) (54,000,000)

2020
(1/1/2020 -30/6/2020) Elorm Eyram Eyram
GH¢ GH¢ GH¢
Share of Profit 166,686,666.67 166,686,666.67 166,686,666.67
(1,000,120,000/ 2)
Interest on capital 2,500,000.00 2,000,000.00

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 Salaries 5,000,000.00 7,000,000.00 3,000,000.00

(1/7/2020 -31/12/2020)
Share of Profit 250,030,000.00 250,030,000.00
Interest on capital 2,000,000.00
Salaries 7,000,000.00 3,000,000.00
Chargeable Income 174,186,666.67 434,716,666.67 422,716,666.67

(Marks are evenly spread using ticks = 14 marks)

(Total: 20 marks)

EXAMINER’S COMMENT
Question three tested candidates on how to determine the annual salary of an
employee given a salary scale and the treatment of annual bonus in determining the
chargeable income for 6 marks. Candidates demonstrated their understanding of
treatment of the annual bonus. However, there is a knowledge gap in the
determination of the salary using the salary scale which tuition providers and/or
candidates need to close. The computational question on the determination of the
partner’s chargeable income for the three years of assessment was straightforward but
it was handled below expectation. Taxation of Partnerships questions is not new, but
candidates failed to take advantage of it.

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QUESTION FOUR
a)
Unless otherwise required, the Commissioner-General shall not allow an
expenditure as a deductible expense unless there is a direct connection between
the expenditure and the business. (Section 9 of the Income Tax Act of 2015, Act
896 as amended)
Thus Expenses (deductions) are deemed to have a direct and intimate connection
with the business to the extent that:
 That expense is wholly, exclusively and necessarily incurred by the person in the
production of the income from the business during the year.
 Wholly relates to the quantum of the amount being charged. The amount should
be for the purpose of the business. The amount should be related wholly to the
income.
 Exclusively relates to the purpose for which the expense was incurred. The
expenses must be relevant to the operation of the business. They must have a
bearing in the operation of the business.
 Necessarily connotes some form of compulsion on the taxpayer. The expense must
be inevitable. In other words, the business cannot go on without incurring the
expense.
• The deductions or expenses are not of capital nature. “Expense that is of a capital
nature” includes an expense that secures a benefit that lasts for more than twelve
months.
(10 marks for a good explanation)

b) What constitutes domestic and excluded expenditure in line with the provisions in
Section 130 of the Income Tax Act, 2015 (Act 896) are:

1) Domestic Expenditure
Where an individual incurs expenditure in respect of that individual, the
expenditure is domestic expenditure to the extent that it is incurred:
 In maintaining the individual, including the provision of shelter, meals,
refreshment, entertainment or other leisure activities;
 By the individual in commuting from home;
 In acquiring clothing for the individual, other than clothing that is not suitable for
wearing outside of work; or
 In educating the individual, other than education that is directly relevant to a
business conducted by the individual and that does not lead to a degree or
diploma.
(4 points @ 1 mark each = 4 marks)
2) Excluded Expenditure
Excluded expenditure” means
 Tax payable under the Act;
 Bribes and expenditure incurred in corrupt practices;
 Interest, penalties and fines paid or payable to a government or a political
subdivision of a government of any country for breach of any legislation;

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 Expenditure to the extent incurred by a person in deriving exempt amounts or final
withholding payments;
 Retirement contributions, unless they are included in calculating the income of an
employee; and
 Dividends of a company.
(6 points @ 1 mark each = 6 marks)

(Total: 20 marks)

EXAMINER’S COMMENT
Question four was on business income requesting candidates to use the Income Tax
Act 2015, Act 896 to discuss the statement that, for an expenditure to be an allowable
deduction, there must be a direct connection between the expenditure and the
business for 10 marks and using the same act to state what constitutes domestic and
excluded expenditure for another 10 marks. Incidentally, it was just a near average
performance.

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QUESTION FIVE

a) CHAHUNCHA GHANA BRANCH

COMPUTATION OF BRANCH PROFIT TAX FOR 2020 Y/A
GH¢
Net Profit 6,000,000
Add: Depreciation 680,000
Loss from 2010 1,500,000
8,180,000
Less: Agreed capital allowance (750,000)

Adjusted Net Profit 7,430,000

Tax @ 25% (1,857,500)
Net profit after tax 5,572,500

Branch Profit Tax @ 8% (5,572,500 x 8%) = GH¢445,800

(Marks are evenly spread using ticks = 6 marks)

b) Circumstances under which withholding taxes are exempt are:

 Contract sum for the supplies of goods, works and services not exceeding
GH¢2,000 for the year.
 Payment for the sale of goods that constitute trading stock for both the vendor and
the purchaser.
 Where the Commissioner-General exempts a person accordingly.
 Interest paid to a resident financial institution.
 Interest received by an individual from a resident financial institution.
 Premiums paid to a registered resident insurance company.
 Where a resident company acquires 25% or more voting power of another resident
company. (This excludes Upstream Petroleum and Mining Companies).

(4 marks for any two points)

c) Workings 1 (Computation of cost before disposal and Number of unsold shares)

Date Details Shares Price (GH¢) Amount

(GH¢)
14/03/2020 Purchase of shares 100,000 1.156 115,600
26/11/2020 Purchase of shares 220,000 1.2 264,000
320,000 379,600
24/12/2020 Sale of shares (235,000)
Number of shares remaining 85,000

Workings 2
Cost of Asset = A * C
(A+B)

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 A= Sum Realized = 305,500
B = Value of shares remaining = 85,000*1.3 = 110,500
C= Cost before disposal of shares = 379,600

Therefore, Cost = 305,500 x 379,600

(305,500 + 110,500)
= GH¢ 278,768.75

FORTUNE
COMPUTATION OF CAPITAL GAIN TAX PAYABLE – DECEMBER 2020

GH¢ GH¢
Sum Realized 305,500.00
Cost of Assets Realised (W2) 278,768.75
Commission (1.5% * 305,500) 4,582.50 283,351.25
Gains from Realization of Asset 22,148.75

Tax Charged @ 15% 3,322.31

(Marks are evenly spread using ticks = 5 marks)

d) An individual can elect for the market value of such a gift received to be taxed
separately at a flat rate of 15%. That individual shall within thirty (30) days of
receipt furnish the Commissioner General (CG) with a return in writing.

A person who is ascertaining the profits and gains of that person or of another
person from an investment for a year of assessment or part of that year shall
include in the calculation an amount specified in respect of a gift received by a
person other than a gift received in respect of business or employment as
substituted by the Income Tax (Amendment) (No.2) Act 2016, Act 924.
(5 marks)

(Total: 20 marks)

EXAMINER’S COMMENT
Question five was in four parts: The a) part was on the computation of the branch
profit tax for 6 marks. It was not a familiar area for candidates. Candidates were able
to determine the chargeable income but did not know how the branch profit is
calculated. Surprisingly, most candidates could not identify any two circumstances
under which withholding tax is exempt for 4 marks. For the (c) and (d) parts, majority
of the candidates scored more than half of the mark on the computation of capital gain
tax and treatment of gift not received under employment or business. This was
because they have been regular topics in the principles of taxation examinations.

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