MORE TAX ACADEMY-MOCK EXAMS- OIL AND GAS AND OTHER MINERALS

MORE TAX ACADEMY

CHARTERED INSTITUTE OF TAXATION
(GHANA)

PROFESSIONAL EXAMINATIONS

AUGUST 2017 EXAMINATIONS

(MOCK EXAMS)

FINAL 1: PAPER 8 OIL AND GAS AND OTHER

MINERALS TAXATION

TIME ALLOWED: 1hr 30 minutes

ANSWER ALL QUESTIONS

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 MORE TAX ACADEMY-MOCK EXAMS- OIL AND GAS AND OTHER MINERALS

Question 1 (Q1=8/13-8/16)
Explain, briefly the following sources of revenue accruing to the Government of Ghana from
the upstream petroleum operations in Ghana:
a) Royalty;
b) Carried Interest;
c) Additional Interest;
d) Surface Rentals.
e) Upstream Petroleum Operations
f) (Additional Oil Entitlement and Additional Participating Interest.
g) Full Cost and Successful Efforts accounting methods.
h) Ring Fencing;
i) Finance Lease
j) Thin Capitilisation

Question 2 (=8/13)

a) The Public Interest and Accountability Committee (PIAC) was established under Section
51 of the Petroleum Revenue Management Act (Act 815) with the following objectives as
spelt out in Section 52:

To monitor and evaluate compliance with Act 815 by government and other relevant
institutions in the management and use of petroleum revenues and investments;
To provide space and platform for the public to debate whether spending prospects and
management and use of petroleum revenues conform to development priorities; and
To provide an independent assessment on the management and use of revenues to assist
Parliament and the executive in the oversight and performance of related functions.
The Committee is mandated by the law to publish a semi-annual and an annual report by the
15th September and 15th March each year. Since its establishment, PIAC has issued two (2)
reports in compliance with Act 815.
You are required to identify at least five (5) non-compliance issues or violations of the
provisions of Act 815 disclosed by the PIAC report. (10 marks)

b) Does the functions of the Petroleum Commission conflict with that of the Ghana National
Petroleum Corporation? - Discuss. (15 marks)

Question 3(8/16)
The Petroleum Revenue Management Act, 2011 (Act 815) was passed by the
Parliament of Ghana to regulate the collection, allocation and management by
government of petroleum revenue derived from upstream and midstream petroleum
operations. Act 815 therefore has provisions for the establishment of certain funds.
Required:
Mention the said fund sand explain how the funds are required to operate towards
the achievement of the said objectives of Act 815. (20 MARKS)

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 MORE TAX ACADEMY-MOCK EXAMS- OIL AND GAS AND OTHER MINERALS

Question 4 (2/15)
Gold Ltd. is a mining company operating in the Terra mining area in Ghana for the past twenty years.
It has disposed of 25% of its exploration and production rights in the Terra mining area for a sum of
GH50,000,000 in 2016. In the same year Gold Ltd acquire 10% exploration and production rights in
the Sunshine mining area for GH25,000,000.

The highlights of 2016 revenue and expenditure disclosed in tax returns filed by Gold Ltd. Include the
following:

Revenue GH
Consideration received from sale of exploration and production rights 50,000,000
Gross income from its operations in 2016 200,000,000
Gross Dividend from a resident company in which it has 35% voting rights 50,000
Total Revenue 250,050,000

Expenses include the following:

Operating Cost 70,000,000
Depreciation 10,000,000
Exploration and production rights (Sunshine mining area) 25,000,000
Administrative Expenses 5,000,000

Profit before tax 40,000,000

The written down values of classes of assets brought forward from 2015 are as follows:
Class 1 assets 2,000,000
Class 2 assets 4,500,000
Mining Assets 5,000,000
Class 4 Assets 600,000

Identify the tax types that Gold Ltd will be liable to pay in 2016 and also compute the liability for
each tax type. State the assumptions underlying your calculations.

Additional Information

The capital allowance rates for the classes of assets are as follows:

Class 1 40% on reducing balance basis

Class 2 30% on reducing balance basis
Mining Assets 20% on straight line basis
Class 4 20% on reducing balance basis

Gold Ltd. claimed GHC1,000,000 as capital allowances for mining assets in 2013.

TAX RATES
Corporate - 25% or 35%
Capital Gains Tax 15%
Gift Tax 15%
Branch Profit 10%

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 MORE TAX ACADEMY-MOCK EXAMS- OIL AND GAS AND OTHER MINERALS

Withholding Tax Rates

Royalty 5%
Dividends and Interest - 10%
Natural Resource Payments 10%

Question 5a
Excellent Petroleum Ltd is an oil and gas exploration and production company that has
started exploration in the Voltaian Basin of Ghana in 2006. It discovered oil and gas in
commercial quantities in 2009 and started commercial production in 2013. Ghana has initial
(carried) interest of 10% in the operations. Excellent Petroleum Ltd sold 10% of its interest in
the Voltaian Basin to Lakeside Oil Fields for US$500,000,000 in 2014. Information on total
income, exploration and development costs incurred before production commenced disclosed
in the financial statements of Excellent Petroleum Ltd are as follows:
US$
Exploration Costs 200,000,000.00
Development Costs 2,000,000,000.00
Income from sale of an asset in 2009 60,000,000.00
Insurance receipt in respect of destruction of an asset 2010 40,000,000.00
Cost incurred on assignment of the interest 5,000,000.00

You are required to calculate the following:

(a) Capital allowance entitlement of Excellent Petroleum Ltd and Lakeside Oil Fields for
the applicable years. Rate of capital allowance is 20% on straight line basis. Explain
the assumptions underlying your calculations.

Q5b
a) Explain the concept of Separate Petroleum Operation as provided under the
provisions of the Income Tax Act, 2015 (Act 896).
(b)

b) Explain the tax treatment of direct and indirect assignment of interest in a

petroleum right as provided under the provisions of the Income Tax Act 2015 (Act
896).

c) What are Signature Bonus and Production Bonus. Explain the tax treatment of bonus as
provided under the provisions of Income Tax Act, 2015 (Act 896).