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(a) In the interpretation of “Taxing Statutes,” there are principles on which the interpretation of a particular statute is based by the courts. Legal practitioners are expected to have the knowledge in order to understand the statutes and their implications. These fundamental principles guide judges in interpreting the laws to arrive at their decisions.
Required:
Evaluate three of the rules of literal interpretation in taxation.
(9 Marks)
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Forward Nigeria Limited, a Nigerian manufacturing company, has been operating for several years with an accounting year-end on June 30. The company recently decided to change its year-end to September 30. The adjusted profits for the relevant periods are as follows:
| Period | Adjusted Profit (N) |
|---|---|
| Year ended June 30, 2014 | 2,700,000 |
| Year ended June 30, 2015 | 3,300,000 |
| Period ended September 30, 2015 | 1,500,000 |
| Year ended September 30, 2016 | 4,200,000 |
| Year ended September 30, 2017 | 3,600,000 |
Additional Information:
Required: a. Explain the tax law provisions for a business changing its accounting year-end. (5 Marks)
b. Describe the Revenue practice related to these provisions. (3 Marks)
c. Compute the assessable profits for all affected years of assessment, considering the tax law and Revenue practice. (12 Marks)
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Kanbus Nigeria Plc is a company incorporated to manufacture and distribute food products that are widely accepted in many homes in Nigeria. It has operated for over 15 years since taking over the business of JHN Nigeria Limited. The main business of JHN Nigeria Limited was distribution of food items and other agricultural produce in the South-West geographical zone of Nigeria.
The Chief Executive Officer (CEO) of Kanbus Nigeria Plc, Mr. Babadada, was a former staff of Collinson India Limited for several years and thus brought into Kanbus Nigeria Plc a wealth of experience. Earlier in his working career, Mr. Babadada, had worked with Kong Manufacturing Limited, a Chinese company, where he imbibed the culture of collaboration with staff in the decision making process. Mr. Babadada, is
assisted by a formidable team of managers recruited from major food and beverage companies in the country.
The management of Kanbus Nigeria Plc. engaged different consultants to handle professional issues, including consultancy matters in respect of law, medical, finance, tax, accounting, etc. which were outsourced to different, well-known and competent hands.
Your firm, Kassman and Co. (Chartered Accountants), were engaged to handle both corporate and personal income tax matters
Required:
As the consultant, you have been requested by the Managing Partner, Kassman and Associate, to explain to the Chief Executive Officer of Kanbus Nigeria Plc., the following:
a. Professional issues that can be handled by your firm. (5 Marks)
b. Five main sources of Nigerian tax laws. (5 Marks)
c. Five allowable expenses in the ascertainment of assessable profits of companies. (5 Marks)
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Mr. Abiodun James returned to Nigeria after a long period in America. In 2018, he incorporated James and Sons Nigeria Limited. At a board meeting in August 2021, the company’s accountant presented a tax query from the Federal Inland Revenue Service (FIRS) for review. Some directors believed that since external auditors were engaged, the FIRS should rely on their competence to confirm the accuracy of audited financial statements. The Managing Director clarified the role of the FIRS in corporate tax administration, managed by the Federal Inland Revenue Service Board (FIRSB).
Required:
a. State five members of the Federal Inland Revenue Service Board. (5 Marks)
b. Outline and briefly explain five duties of the Federal Inland Revenue Service (FIRS). (5 Marks)
c. Explain the basis for tax disputes that may arise with the Revenue. (5 Marks)
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The Federal Government of Nigeria expanded the taxes and levies which the tiers of government can impose through the Schedule to the Taxes and Levies (Approved List for Collection) Act (Amendment) Order, 2015. In this Order made by the Minister of Finance, several new tax/levy heads, such as infrastructure maintenance/development levy, wharf landing charge/fee, consumption tax, the National Information Technology Development levy, etc., were introduced.
However, on May 8, 2020, the Federal High Court sitting in Lagos, delivered judgment in suit number FHC/L/CS/1082/2019, between The Registered Trustees of Hotel Owners and Managers Association of Lagos (suing for itself and on behalf of all its members) vs The Attorney-General of the Federation and others. The court held that the Ministerial Order of 2015 is unconstitutional, null, and void.
The court submitted that the Constitution vests the legislature with the power to make laws. The court further stated that schedules to a law are part and parcel of the law and, as such, only the legislature can amend schedules to a law. The implication of this ruling is that all the taxes and levies that were added to those in the Taxes and Levies (Approved List for Collection) Act Cap. T2 LFN 2004, via the Ministerial Order 2015, are illegal and cannot be enforced.
Since the judgment, your firm has been faced with a series of inquiries from taxpayers on the taxes/levies they are now expected to pay.
Required:
a. State five (5) taxes collectible by the Federal Government.
b. State five (5) taxes/levies collectible by the State Governments.
c. State ten (10) taxes/levies collectible by the Local Governments.
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Your company has recruited five new employees, and the Director of Training has instructed you to explain certain provisions in the Income Tax Act, 2015 (Act 896) to them:
i) Research and development expenditure (3 marks)
ii) Contribution and donations to worthwhile causes (3 marks)
iii) Financial cost from derivatives (4 marks)
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The retention of tax by one person when making payment to another person regarding the obligations of a withholding agent is sometimes described as an easy way of tax administration.
Required:
Explain the obligations of a withholding agent.
(5 marks)
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Atakora Manufacturing Ltd is a company at Winneba that manufactures roofing sheets. The company has recently registered for VAT and is not sure about the treatment of its input VAT paid prior to VAT registration. The company has sought your guidance on how to treat input taxes paid prior to registration.
Required:
Advise the company on the deductibility rules of input VAT incurred by a company prior to VAT registration.
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An application for a voluntary VAT registration may be denied the opportunity to register for VAT although the Value Added Tax Act, 2013 (Act 870) makes provision for voluntary VAT registration.
Required:
State the conditions under which an application for voluntary VAT registration may be denied.
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According to section (38) of the Value Added Tax Act, 2013 (Act 870), the Minister may by legislative instrument make regulations to grant relief from tax on taxable imports of goods or taxable supplies of goods acquired in the country to the persons specified in the Third Schedule.
Required:
State FOUR (4) conditions that must be satisfied by VAT-registered manufacturing companies before they are granted upfront relief of VAT and levies on imported raw materials. (10 marks)
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Where the Commissioner-General makes an assessment under a tax law, the Commissioner-General shall serve a written notice of the assessment on the taxpayer.
Required:
State EIGHT (8) elements contained in Commissioner-General’s notice of tax assessment. (5 marks)
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The Commissioner-General may, in the circumstances specified in section 28 (3) of the Revenue Administration Act, 2016 (Act 915), make a pre-emptive assessment of tax payable or to become payable by a person under a tax law whether or not the person is required to file a tax return.
Required:
Under what circumstance will the Commissioner-General make a pre-emptive assessment? (5 marks)
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In the circumstances specified in section 28 (3) of the Revenue Administration Act, 2016 (Act 915), the Commissioner-General may make a pre-emptive assessment of tax payable or to become payable by a person under a tax law, whether or not the person is required to file tax returns.
Required:
Under what circumstances would the Commissioner-General make a pre-emptive assessment?
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The following relates to information of two companies, both resident in Ghana, for 2021 year of assessment with the basis period January to December each year:
| Company A (GH¢) | Company B (GH¢) | |
|---|---|---|
| Income | 10,000,000 | 12,000,000 |
| Cost of Sales | (4,200,000) | (4,400,000) |
| Gross Profit | 5,800,000 | 7,600,000 |
| Less: Operating Costs | (4,900,000) | (3,000,000) |
| Chargeable Income | 900,000 | 4,600,000 |
Additional information:
Required:
i) What is the tax implication of holding 25% or more of the voting power of another resident company? (1.5 marks)
ii) What is the position of the tax law on tax payment made by Company B to the UK? (1.5 marks)
iii) What is the total tax payable by both companies? (8 marks)
iv) What is the total tax expenditure? (1 mark)
(12 marks)
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