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Taxation and Fiscal Policy

Taxation and Fiscal Policy is an important Public Management Policy used by governments of all Nations, serving as the major source of government revenue to build Infrastructure facilities, Take care of the safety and security of the Country as well as Industrialise the economy for National Development and increase the standard of living of the citizens.

Apart from taxation, all governments across the globe borrow money to help them achieve their socio -economic objectives which is also geared towards the betterment of the life of the people.

But the big question is this; “How does all these affect individuals, businesses and the economy at large and how does the government carry them out?”

To answer this and many other questions, this books is certainly the Masterpiece to help you understand Public Finance. Major topics covered include:

  • Tax Administration
  • Income Tax Liabilities of Individuals, Corporate Bodies and Partnership Businesses
  • Value Added Tax and Customs Excise and Preventive Service (CEPS)
  • Public Debt and other Fiscal Policy Concepts
  • Gift Tax and Capital Gain Tax
  • Standard Tax Planning Measures and other concepts and theories.
  • Double Taxation
  • Among others
Advanced Audit and AssuranceAudit and AssuranceBusiness Management and Information SystemsCorporate FinanceCorporate ReportingManagement AccountingPublic Sector Accounting and FinanceStrategic ManagementTaxation and Fiscal Policy

PREMIUM ICAG MAY 2018 MOCK EXAMINATION

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Thank you for visiting our website today. Our team of Expert Professional Educators has put together the following  mock examination questions with suggested solutions for the May 2018 examination.

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FR – 2018 QUESTIONS

FR – 2018 SOLUTION

MA – 2018 MOCK

MA – MOCK 2018 SOLUTION

PSAF – 2018 MOCK QUESTION

PSAF – 2018 MOCK ANSWERS

CSEG – MOCK QUESTIONS – 2018

CSEG – MOCK ANSWERS – 2018

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FM – MOCK SOLUTION

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Advanced Audit and AssuranceAudit and AssuranceBusiness Management and Information SystemsCorporate FinanceCorporate ReportingFinancial ManagementFinancial ReportingManagement AccountingPublic Sector Accounting and FinanceStrategic ManagementTaxation and Fiscal Policy

JOIN OUR REVISION SESSION

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Join our revision session for ICAG May 2018 Examination.

Thank you for visiting our website today. Our team of Expert Professional Educators has put together the following documents, analysis and revision time table for the May 2018 examination.

Our revision session comes in three segment; Revision classes, Mock examination and Mock discussion.

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MODULE 1 – Conceptual Framework

MAY 2018 REVISION TIME TABLE

HIRE PURCHASE ACCOUNTS

FINANCIAL STATEMENTS IN THE PUBLIC SECTOR

BUDGETING AND BUDGETARY CONTROL

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PSAF – Solution

PSAF – Questions

PEH-Level-two-MAY-2018

PEH – Level one (MAY 2018)

MODULE 7 – Public fund

MODULE 4 – Envirnmental Analysis

MODULE 3 – Regulatory Framework

POSSIBLE EXAMINABLE AREAS – Public Sector

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

INFORMATIVE GUIDE REGULATORY FRAMEWORK OF PUBLIC SECTOR ACCOUNTING

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INTRODUCTION

The regulatory framework refers to the regulations and Acts as well as directives and circulars about managing public resources or fund.

It has become almost like a maxim or a cardinal principle in every state that before any institution in the state can obtain government recognition or funding, if necessary it must be shrouded in governmental legality, quasi-legality or some government regulations. As such, almost every institution of the government is covered by laws and regulations.

While Laws are enabling acts, regulations on the other hand emanate from the Law and guide the day to day activities of the institution.

The legal regulatory that regulates public sector financial operations in Ghana include:

  • The 1992 constitution
  • The Financial Administration Act (2003) Act 654
  • The Financial Administration Regulation (2004) L.I. 1802
  • The Internal Revenue Act
  • The Customs Excise and Preventive Act
  • The Bank of Ghana Act
  • The District Assembly Common Fund Act
  • Procurement Agency Act (2003) Act 663
  • Audit Service Act (2000) Act 584
  • Internal Audit Agency Act (2003) Act 658
  • Local Government Act
  • Any other regulation that the parliament may enact from time to time.

Role of Regulatory Authorities

  1. THE EXECUTIVE (Office Of The President /Cabinet)

Decisions on government policies with regards to financial outlay are taken by the office of the President together with the Cabinet representing the executive arm of government.

In the course of making decisions with financial implications, the executive arm of government must exercise careful control about appropriations. This is because; the decisions must be approved by parliament.

2. PARLIAMENTARY CONTROL (Legislative Arm Of Government)

According to the rules in the 1992 constitution of Ghana, no revenue shall be levied or expenditure incurred except as authorised by parliament.

Parliamentary financial control is exercised in three different phases namely; appropriation, audit and review by public accounts committee.

Appropriation

Before parliament approves the utilisation of public funds it follows certain basic rules of financial controls, namely;

  • Appropriate budget authority
  • Appropriate budget period
  • Appropriate budget classification
  • Appropriate budget reallocations approved by the MoFEP (Minister of Finance and Economic Planning)
  • Value for money
  • Payment are for purposes for which they are intended
  • Documents supporting expenditure are valid and appropriate
  • Relevant rules and regulations pertaining to the expenditure will be adhered to
  • Expenditure will be subject to internal and external audit scrutiny.

Audit Control

To ensure that the rules on appropriation of public funds are followed, parliament has the power to approve the appointment of the Auditor General to examine both the accounts of the executive arm of government and all spending units (Metropolitan, Municipal and District Assemblies – MMDAs & Ministries Departments and Agencies – MDAs) and also to assist it to ascertain that rules governing procedures on expenditure and principles of public sector accounting have been applied. The Auditor General is also obliged to report to parliament any non-adherence to the law and also draw the attention of parliament to instances of wasteful expenditures, losses, malfeasance, etc.

Review by the Public Accounts Committee

The public accounts committee does a thorough study of the audited accounts of the government which is submitted to its office. It examines breaches of the law or waste, and summons MDAs and MMDAs to account for their stewardship.

Public Accounts Committee

For completeness, Article 187 (6) of the Constitution enjoins Parliament first to debate the report of the Auditor-General, and second, to appoint where necessary, in the public interest, a committee to deal with any matters arising from its study of the report. Parliament therefore requires the Auditor-General to perform its oversight function over the executive use of public resources. This committee in parliament examines the Auditor-General’s report together with the Public Accounts in detail and sort “grill” departmental heads on financial authorization, compliance and avoidance of gross extravagance.

However, invariably, the committee does not seem to have power to surcharge or dismiss but it can question and reprimand and direct the implementation of recommendations by the Auditor-General; as such “tough skinned” public officials are not perturbed by their activities.

Reasons for Parliamentary failure to control expenditure

(i) Political stands of Parliamentarians supporting their parties

(ii) Lack of resources to operate efficiently

(iii) Lack of training or technical skills to deal with the issue

(iv) Self benefits from the non-control

(v) Late submission of the Auditor-General’s report to Parliament

(vi) Ministers doubling as Parliamentarians

(vii) Lack of legal framework to deal with issues

3. The Controller and Accountant General’s Department (CAGD)

Statutory Duties

Section 3 (Financial Administration Act, 2003) Act 654

1. Responsible to the minister of finance for the custody, safety and integrity of the consolidated fund and other public funds under his care;

2. Responsible for compilation and management of the consolidated fund and other public funds;

3. He is the chief accounting officer of the government responsible for keeping, rendering and publishing statements of public accounts as required by law;

4. He is the chief advisor to the minister of finance and the government on accountancy matters;

5. He approves departmental accounting instructions and promotes the development of efficient accounting systems within departments;

6. He is responsible for receipt, secure custody of public moneys payable into the consolidated fund.

7. He authorizes the opening of bank accounts of MDAs and MMDAs

8. In consultation with the auditor general, he specifies for departments, the accounting basis, policies and classification system to ensure proper system of accounting;

Regulatory Control Duties

The regulatory control duties of the controller and accountant general in public financial management are as follow:

  • Relating each spending department’s requirements to the economic resources estimated to be available and to the total claims on them;
  • Keeping public expenditure within total resources for the year;
  • Advising departments on economic and financial policy, via treasury circulars;
  • Controlling government expenditures through co-ordination and monitoring operations of MDAs and MMDAs;
  • Considering matters covered by the reports of the public accounts committee of parliament and co-operating to improve financial control;
  • Initiating programmes to improve financial management, including the provision and guidance improvements, in public sector accounting.

4. The Auditor General

Statutory Duties:

1. Section 11, Audit Service Act, 2000 (Act 548)

The public accounts of Ghana and of all public offices, including the courts, the central and local government administrations, of the universities and public institutions of like nature, of a public corporation or other body or organization established by an act of parliament shall be audited and reported on by the auditor general.

2. Section 13- Examination of Accounts

The auditor-general shall examine in such manner as he thinks necessary the public and other government accounts and shall ascertain whether in his opinion:

a. The accounts have been properly kept;

b. All public monies have been fully accounted for and rules and procedures applicable are sufficient to secure an effective check on the assessment, collection and proper allocation of the revenue;

c. Monies have been expended for the purpose for which they were appropriated and the expenditures have been made as authorized;

d. Essential records are maintained and the rules and procedures applied are sufficient to safeguard and control public property; and

e. Programmes and activities have been taken with due regard to economy, efficiency and effectiveness in relation to the resources utilized and results achieved.

Other Duties

Section 12 – audit of foreign exchange transactions

Section 14 – audit of statutory corporations;

Section 15 – examination of annual statement of public accounts prepared by controller and accountant general;

Section 16 – submission of special audit report to parliament;

Section 17 – disallowance of surcharge.

5. THE MINISTER OF FINANCE AND ECONOMIC PLANNING

Roles of the Minister of Finance and Economic Planning (MoFEP)

  • Develops and implements macro-economic and fiscal policy framework for the country;
  • Supervises and monitors the finances of the country;
  • Co-ordinates international and inter – governmental financial and fiscal relation;
  • Advises the government on the total resources to be allocated to individual programmes and activities within the sector;
  • Develop preliminary ceilings by allocating total resources between sectors on the basis of government priorities. These ceiling are approved by Cabinet.
  • Conducts budgets hearings, reviews and finalises budget statement;
  • Presents to parliament, the fiscal policy of the government and a statement of the current and projected state of the economy (budget), not less than once a year.

6. The financial duties of a head of department are:

(1) Management and operate the department’s accounting systems, so as to ensure the accountability of all officers transacting business and facilitate the efficient discharge of such business

(2) To ensure that the department’s accounting system has been approved by the Controller and Accountant-General in consultation with the Auditor-General.

(3) Secure the efficient and effective use of appropriations under departmental control within the ambit of government policy and in compliance with any enactment or of instructions issued under the authority of any enactment

(4) Secure the due and proper collection of government revenue collectable by department within the terms of any enactment or of instructions issued or approved by the Controller and Accountant-General

(5) Request, commit, order, receive and make payments for goods and services within the funds appropriated to the department and in accordance with this regulations and any other enactment

(6) Receive and order the disbursement of any trust moneys for which the head of department has been appointed as administering authority by or under any enactment or agreement

(7) Manage and reconcile the bank accounts authorised for the department by the Controller and Accountant-General

(8) Preserve in good order and secure the economical use of all equipment and stores used by the department

(9) Transact any other financial business for which the head of department is made responsible, by or under any enactment in accordance with the requirement of the enactment or instructions issued or approved by the Minister

(10) Compile and maintain assets register of the department as determined by the Controller and Accountant-General

(11) Appear before the Public Accounts Committee to give any explanations required by the committee in respect of annual departmental accounts

(12) Answer questions raised by the auditor-General in respect of financial transactions and accounts of the department

(13) Prepare, sign and submit within three months after the year end, to the Minister, auditor-General and Accountant-General, annual departmental accounts in the form prescribed by the controller and Accountant-General in consultation with the auditor-General.

FACTORS TO BE CONSIDERED BY GOVERNMENT TO EXERCISE THE SOVEREIGN AUTHORITY OF THE STATE

The sovereign authority of the state is the power of the government to tax, borrow and create money to meet the aspirations of the Ghanaian public and raise their standard of living.

The following are the factors that the government should consider in exercising this authority are as follows:

The four factors are:

1. Objectives of the state (vision of government)

2. Fiscal policy (taxation etc.)

3. Monetary policy (inflation, money supply etc.)

4. The estimates (costing of activities)

1. The objectives of the state: This varies from period to period and depends on which government is in power. The broad national objectives are captured in the Directive Principles of state policy in the nation’s constitution a decade ago; the objective was vision 2020, a brand policy to move Ghana to the middle income status. This objective was to move the timeframe to 2015 with the launch of Growth and Poverty Reduction Strategy. At present there is a new policy direction with four thematic areas:

– Investment in human capital.

– Expansion of infrastructure.

– Job creation.

– Transparent and accountable governance.

2. Government fiscal policy is the term used for the government’s policy of taxation, payments and financing deficit gaps. The government raises through taxation to carry out its program. It is the amount through taxation is insufficient, for the budgeted program then other means of raising funds are used to meet the deficit. This is normally achieved by borrowing on the local market by means of treasury bills or borrowing externally from multi-donor institutions like IMF and World Bank or look for grants or donations.

3. The supply of money in the economy determines economic activity and the prevailing price level. Attention is therefore focused on bank of Ghana and its attempt to regulate the money supply of the country. Economists believe that if the supply increases beyond the normal increase in economic activity (about 4 -5 %p.a.) inflationary spending ensues.

Similarly, if the growth in the money supply is below the level of economic activity recessionary tendencies increases.

4. The annual estimates are prepared in quantitative terms using the government chart of accounts and MTEF principles of planning and programming.

From the annual estimates government is able to know.

  • Projected revenue and expenditure for the year.
  • The allocation of funds for various functions and program including administration, service and investments.
  • Whether it will have surplus or deficit in its current accounts and to plan whether to borrow or invest funds.
  • And to decide on the appropriate level and structure of public debts.

Further reads: IFAC, academia.edu, this blog

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

QUICK GUIDE TO SOURCES OF GOVERNMENT REVENUE [LATEST]

gov. revenue

Introduction

Sources of Government revenue is a key topic to be discussed to enable us understand where and how government finance all developmental projects as well as the administrative managing of the economy or country. It is the task of government to provide essential services to the community – the maintenance of law and order, building of roads and ports, schools and hospitals and countless other activities necessary to the modern nation. But in order to provide these services, the government must be able to finance them by ensuring that there is a sufficient flow of money into its hands to enable it to pay for the work it must undertake.

Over the past decades, the financial system of central government has become increasingly complex. This is because, not only has the amount of money flowing in and out of the public treasury every year increased tremendously, but it flows in from many more different sources, and it is disbursed for very greater variety of activities.

Revenue constitutes the ordinary income of government, being composed of taxation (the major source of revenue) and earnings (charges raised by government departments for services rendered to the public, rents received for the lease of government lands or building, interest on investments by the government and so on). This is the inflow of money into the central treasury to finance expenditure.

Revenue is an increase in net worth resulting from a transaction. There are four main sources of revenue:

  • Taxes and other compulsory transfer imposed by government units
  • Property income derived from the ownership of assets
  • Sale of goods and services
  • Voluntary transfers received from other units (Grants)

Categorisation of Revenue

  1. Tax Revenue: This forms the dominant share of revenue for many government units and is composed of compulsory transfers to the government sector. Certain compulsory transfers such as fines, penalties, and most social security contributions are excluded from tax revenue. It is further re-categorised into Direct Tax and Indirect Tax.

Tax Revenue sources include the following:

a. Direct Tax:

Direct Taxes are taxes amount earned by individuals and companies, such as income tax, corporate tax and export duty. It also includes Capital Gains Tax and Gift tax.

b. Indirect Tax:

This is a tax which is not paid directly by the person who suffers or bears the burden. This type of tax is put on goods and services that are bought and consumed by individuals. They include taxes on general goods and services, excises, customs and other imports, taxes on Export and levies.

2. Non- tax revenue: All other forms of revenue apart from taxes are referred to as Non-tax revenue. Example may include grants, loans, royalties, sale of goods and services, etc.

  1. Grants are non-compulsory transfers received by government or government units from international organizations and other developed countries like United Kingdom, America, China, France, among others.
  2. Property income, sales of goods and services, fines, penalties and other revenues.

BREAKDOWN OF REVENUE SOURCES

Below are the necessary contributions as captured in the final accounts of the Consolidated Fund:

Taxes on International Transactions 17%
Value Added Tax 28%
Taxes on Personal Income 28%
Taxes on Domestic goods 13%
HIPIC 5%
Grants 5%
Non-tax Revenue 2%
Divestiture 0.0%

 

Sources of MDAs and MMDAs Revenue

In Ghana, MDAs and MMDAs sources of funds may be grouped into:

Government of Ghana Transfer:

These are transfers from the Consolidated Fund and other government units and include:

  • Central Government – Government of Ghana paid Salaries
  • Ceded Revenue
  • School Feeding Program/HIV/AIDS, etc.
  • DACF Direct transfers – capital development projects

Internally Generated Fund or Revenue:

Generation, management and utilization of IGFs are anchored on several pieces of legislation notably:

  • Articles 174 & 179 of the 1992 Republic Constitution of Ghana
  • MDA (Retention) of Funds Act, Act 753 of 2007;
  • Fees and Charges Miscellaneous Provisions Act, Act 793;
  • Fees and Charges (Amendment) Instrument of 2011; L.I 1986;
  • Part III of the Financial Administration Act, Act 654 of 2003; and
  • Part II of the Financial Administration Regulation of 2004.

IGFs

  1. Taxes on property
  2. Taxes on goods and services
  3. Property income
  4. Sales of goods and services
  5. Fines, penalties and forfeits.

Ways to improve Internally Generated Funds (IGFs) of Local Government

  1. Recruitment of quality and competent revenue staff
  2. Outsourcing of revenue allocation to competent commission collectors
  3. Setting of revenue targets for revenue collectors
  4. Proper supervision of revenue staff to prevent revenue leakages of records
  5. Rotation of revenue staff to prevent collusion
  6. Accurate data collection to ascertain improved revenue forecast
  7. Education, sensitization and demonstration to general public that revenue collected will be used judiciously for the benefit of the community.
  8. Periodic valuation and revaluation of taxable properties to ensure proper property rate collection.
  9. Motivation of revenue staff including periodic awards to induce productivity.
  10. Improving the monitoring of revenue collection

Causes of failure to meet revenue targets – sources of government revenue

1. Corruption on the part of the staff of the revenue collecting Agencies.

2. Improper records keeping by the Tax Payers

3. Lack of motivation

4. Revenue collection agencies not integrated

5. Difficulty in locating Tax Payers in the informal sector

6. Lack of logistics for tax collection

7. Lack of training or revenue collecting officers.

Sources of Government Domestic Borrowing

i. Issue of securities: – these are government borrowings through the issue of Treasury bills, Notes and Bonds on the domestic market.

ii. Commercial Banks & Financial Institutions: – these are long term loans borrowed from the domestic banking sector and non-banking sector like SSNIT.

iii. Domestic Supplier Credit: – these include the issue of letters of credit to local contractors to enable the contractors’ access credit facilities from banks. The contractors honour their obligations when the government pays them.

iv. Advances from Bank of Ghana: – these are monies advanced to the government by the Bank from their reserves. The advances are refunded when the government has sufficient revenue.

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

CAPITAL GAIN TAX

capital-gains-tax-1

CAPITAL GAIN TAX

 Capital gain tax refers to the profit realized on the sale of a non-inventory asset that was greater than the amount realized on the sale. The most common capital gains are realized from the sale of stocks, bonds, precious metals and property.

The Gift Tax and Capital Gains Tax laws formerly existed separately from the income Tax Decree, 1975 (S.M.C.D.5) but have now been incorporated in the Internal Revenue Act, 2000 (Act 592) with effect from the year 2001.

This arrangement is to make Act 592 handy and also to avoid tedious cross references and waste of time. During the exercise, it was felt that certain tax provisions were common in their application to all the three tax legislation namely, income tax, gift tax and capital gains tax. These are the provisions relating generally to Returns and Assessments. It was also felt that to repeat these provisions in details under each tax type will make Act 592 quite bulky to handle pharmacieinde.fr.

It was therefore decided to provide a linkage in the form of one provision or section that will enable the commissioner to make the provisions relating to returns and assessments in the assessment of income tax also applicable to tax on gifts and capital gains.

Returns: Every person subject to tax under Act 592 has to make a return unless specifically exempted. The provisions under Returns in Act 592 for income tax purposes are exhaustive and can therefore be applied to both gift tax and capital gains tax with necessary modifications.

Assessments: The commissioner is empowered to make provisional, additional and final assessments. He is also empowered to specify certain persons in the Gazette or print media to make self – assessments. These provisions are also very exhaustive and can be made to apply to persons chargeable to tax relating to gifts and capital gains with necessary modifications.

General: This linkage to returns and assessments for income tax purposes also provides a consequential linkage to dispute resolution, collection of tax and compliance for gift tax and capital gains tax.

 

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

TAX ASSESSMENT SYSTEMS

How-to-Challenge-Tax-Assessments-300×240

TAX ASSESSMENT SYSTEMS

 Tax assessment systems refers to the mechanisms used in the determination of the chargeable income tax by an individual or a company or an institution.

Currently, the two systems in operation are:

  1. Provisional Assessments and
  2. Self Assessments

Provisional Assessments:

 This type of assessment is raised by the Commissioner – General as soon as may be after the commencement of each basis period of a person who pays tax by instalments. It is computed according to the best judgment of the Commissioner – General.

 

The provisional assessment would provide the following details:

 

  1. The estimated chargeable income;
  2. The estimated tax to be paid;
  3. The amount and timing of tax installments to be paid and
  4. The time, place and manner of objecting to the assessment

Taxpayer is to pay 30% deposit of the provisional assessment on objection.

 

Self Assessment:

 As the name suggests, the taxpayer makes his own estimate of chargeable income and tax payable thereon for a year of assessment. This is only done under the authority of the Commissioner – General in a notice published in the Gazette or in the print media. This assessment is done on or before the commencement of the basis period. The taxpayer has the right to revise his own estimates giving reasons for such a revision. The self – assessment or the revised self – assessment shall be deemed to be as assessment by the commissioner.

Comparisons:

 In the main, both are provisional assessments except that the Commissioner – General prepares one while the taxpayer prepares his own self – assessment. In the case of the provisional assessment raised by the Commissioner – General, the taxpayer may object within 9 months in writing stating the grounds of his objection and also provide an estimate of his chargeable income.

In the case of a self- assessment the taxpayer cannot raise an objection against his own assessment but he is permitted to revise his estimates providing reasons for his revision. Again, in the case of self – assessment, where the estimate or revised estimate of chargeable income for a year of assessment is less than 90% of the taxpayer’s actual chargeable income assessed for the year, the taxpayer shall be liable to a penalty equal to 30% of the difference between the tax calculated in respect of that person’s estimate or revised estimate of chargeable income and the tax calculated in respect of 90% of that person’s actual chargeable income for the year.

This does not apply to provisional assessments raised by the Commissioner – General. Self – assessment demands proper record keeping enabling the taxpayer to prepare accurate estimates. Failure to prepare accurate estimates will results in penalties being imposed.

 

 

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

VALUE ADDED TAX

value-added-tax-nl

VALUE ADDED TAX

 Value added tax is a tax applied on the value added to goods and services at each stage in the production and distribution chain. It forms part of the final price the consumer pays for goods or services. In some countries it is called “Goods and Services Tax”

 Types of Supply in the VAT Act

 The types of supply stipulated in the Value Added Tax (VAT) Act, 1998 (Act 546) are:

  1. Taxable Supply
  2. Exempt Supply

Zero-rated Supply

  1. Relief Supply
  2. Mixed Supply
  • Taxable Supply

A taxably supply generally takes the form of the supply of goods and services made by a taxable person for a consideration in the course of or as a part of his/her business activities. The applicable rate is the standard rate of 12.5%

  • Exempt Supply

This refers to a supply of goods or services that is not subject to tax. VAT is thus not charged on the sale of exempt supplies but at the same time no credit may be allowed to the business making exempt sales for the VAT paid on purchases or expenses. This means that businesses which make only exempt supplies cannot register for VAT, since they are outside the scope of VAT.

  • Zero-Rated Supply

This refers to the supply of goods and services whose output tax shall be zero. That is the rate of VAT is 0%.

  • Relief Supply

This is a supply which is taxable supply for which the VAT Act has provided a relief from tax since it is a supply to specified individuals, organizations and business as mentioned in Schedule 3 of Act 546.

  • Mixed Supply

This is a supply of goods and services which are a combination of items some of which are taxable at the standard rate of 12.5% as well as items which are exempt. The supplier is expected to account for tax separately except where it is difficult to do so, especially where the items involved are of composite nature.

The basic rule is to allocate input tax to the class of supplies (taxable or exempt) on which it was incurred.

Where a taxable person has made both taxable and exempt supplies but cannot directly attribute the input tax to the taxable and exempt supplies, the formula below is applied in the determination of input tax deductible: A  B/C

Where:

A: is the total amount of input tax for the period

B: is the total amount of taxable supplies made by the taxable person during the period (excluding VAT)

C: is the total amount of all supplies (i.e. taxable and exempt) made by the taxable person during the period.

 

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

TAXATION LAWS

tax-law-crop

TAXATION LAWS

Taxation laws are the various rules that govern the effective and efficient operation of the tax system within a jurisdiction or a country.

Taxation was first introduced into Ghana by the colonel masters in the then Gold Coast as means of raising revenue to finance the ever increasing cost of administering the colonies. It has since then undergoes so many changes and modification to the current tax system in operation.

Tax jurisdiction is an area in which a particular set of tax laws applies. A tax jurisdiction may apply taxes on a source basis or global basis. Component authority in tax jurisdiction is responsible for administering taxes and ensuring that the taxes are collected.

Component tax authority could be more than one with each being responsible for different forms of taxes are collected Component tax country. In Ghana, GRA is responsible for taxes such as IRA, 2000

(Act 592), VAT Act, 1998 (Act 546), CEPS management law etc.

In Ghana the source jurisdiction is applied which implies that income is taxable in Ghana as long as its source is Ghana where the source of income is not Ghana, it is not taxable in Ghana where the source of the income is not Ghana for the income to be taxed it must be brought in or received in Ghana to make it subject to tax in Ghana (s.6 of IRA, 2000 (Act 592).

Sources of Tax rules and laws in Ghana are:

  • Domestic Legislations
  • IRA, 2000 (Act 592)
  • CEPS (Management) Law 1993
  • VAT Act, 1998 (Act 546)

 

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Quantitative Tools in BusinessTaxation and Fiscal Policy

GIFT TAX PROVISIONS

Gift box

GIFT TAX PROVISIONS

 Gift tax provisions are the various rules or regulations laid down by the Ghana Revenue Authority on how Gift tax in Ghana can be collected.

Act 592 (Internal revenue Act, 2000) has provisions for various types of gifts that are taxable under different circumstances.

 Act 592 has two provisions for taxable gifts. The first is gifts received from one’s employment and the second is gifts received under the Gifts Tax provision under chapter III of the same Act. The differences are as follows:

  • Gifts received from employment, although not distinctly stated; form part of gains and profits arising from the employment and are generally donated by the employer, any of his associates or in the course of the exercise of the employment. Gifts under the gifts tax provisions may arise from any source.
  • The tax payable on gifts arising from employment sources is computed using graduated rates of tax while gifts assessable under the gift tax provisions are taxed at a flat rate of 10%.

 

iii. Gifts from employment sources are taxed together with other incomes arising from the employment as well as individual’s income from any trade, profession or vocation for a year of assessment. Gifts arising under the gifts tax provisions are not included in incomes from other sources. They are taxed separately.

 

  1. In the case of gifts from employment, the whole amount is taxed. However, in the case of gifts under the gifts provisions, there is a tax free element of GH¢50.
  • The value of the gift from employment sources is determined as either cost to the donor or how much would have been realized when sold. On the other hand, the value of a gift under the gift tax provisions is the market price at the time and date of receipt.
  • Gifts arising from employment sources may take any form – cash or in kind. Gifts taxable under the gift tax provisions are specific.

 

 

 

 

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Public Sector Accounting and FinanceTaxation and Fiscal Policy

TAXATION

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TAXATION

 Taxation is the system of compulsory contributions levied by a government or other qualified public body on people, corporations and property, in order to fund public expenditure (Microsoft Encarta, 2005).

Taxation is the process of levying of compulsory payments or contributions by the government on individuals, entities and or property to support the cost of government activities. Gbadago(2012), (Unpublished).

The person upon which tax is levied is usually referred to as ‘tax payer’. The tax payer could be seen as an individual investor or a limited liability company.

Taxation plays a very key role in revenue mobilization. This in turn requires well-designated tax policies that are translated into clear legislation and are administratively feasible. Perhaps the greatest challenge facing countries is how to improve upon the effectiveness of their tax administration. The amount usually imposed on the tax payer is known as tax. Tax is therefore the financial charges imposed on the tax payer by tax authorities.

Taxation has certain basic aims. For example, to raise revenue, to decrease the consumption of undesirable goods and can also serve as fiscal policy tool during inflation.

In Ghana for instance, the Internal Revenue Service adopt the direct tax system which is progressive as far as mobilizing tax revenue.

The types of direct taxes are:

  • Income tax
  • Gift tax
  • Capital gain tax

Income Tax

Income tax is a type of direct tax imposed on the profit or gains attributed to a person as defined by the law governing such tax system, Internal Revenue Act2000(Act 592). The law does not specifically defines income. However, it gives an indication of what are seen as income to be taxed.

 

Gift Tax

Section 110 of Act 592 defines gift as a receipt without consideration or for inadequate consideration. The receipt may constitute certain types of assets identified by the law which may be transferred between persons. Taxable gift means any of the following:

 

The following constitute taxable gifts

  1. Buildings of Permanent or temporary nature
  2. Land

iii. Shares, bonds and other securities

  1. Money, including foreign currency
  2. Business and business assets
  3. Any means of transportation (land, air or sea)

 

Capital Gain Tax

Capital gain tax is the taxation of the increase in the capital value of assets between the date of acquisition of the assets and the date of disposal. Tax payers are required to report any capital gain and pay any tax arising there from within thirty days of the realization of an asset.

Indirect Tax

 Indirect taxes are taxes collected from someone other than persons or organization responsible for paying the taxes.

Indirect taxes levied on the person or organization with the expectation that the tax would be shifted or passed on to another.

Indirect taxes may take the form of specific duty (rate of duty based on fixed or specific amount per some physical attribute of the commodity being taxed).With indirect tax payment of tax is easy and convenient and evasion is difficult.

The types of indirect taxes are,

  • Value added Tax (VAT)
  • Import and Export duties
  • Excise duties
  • National Health Insurance levy

Value Added Tax

Value added tax (VAT) is a tax applied on the value that is added to goods and services at each stage in the production and distribution chain imposed under the value added tax(VAT)Act

1998(Act 546). It forms part of the final price the consumer pays for the goods or services.

Import and Export Duties

Import and export duties are levied on items, goods or service, imported or exported out of the country.

Excise Duties

Excise duties are taxes imposed on manufactured items in a country. Examples are alcoholic beverages, log and lumber, building materials (cement, roofing sheets) fuel and energy Section56 of Law330, as amended is to the effect that on application to the Commissioner and subject to such conditions as he may impose, no excise duty shall be payable on any goods manufactured in Ghana and Shipped as stores for consumption outside Ghana on a ship or aircraft proceeding to a place outside Ghana or exported by their manufacturer.

National Health Insurance Levy

The National Health Insurance Levy (NHIL) is a general tax on consumption expenditure imposed under the National Health Insurance Act, 2003(Act 650). The National Health Insurance

Levy is charged on payments for goods and services supplied in Ghana or imported into the country.

 

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