Question

1. Mr Asiedu's salary is GH¢369.00. He is entitled to of this amount free of tax and a further tax-free allowance of GH¢77.00. On his remaining income after these deductions, he pays 10Gp in the cedi on the first GH¢60.00, 40Gp in the cedi on the next GH¢45.00, 60Gp in the cedi on the next GH 45.00 and 70Gp in the cedi on the remaining balance if any. a) How much income tax does he pay? b) If his salary is increased by GH 45.00, find his net increase in salary.​

Answer 1

Mr. Asiedu's income tax is calculated by first accounting for the tax-free portion of his salary and an additional tax-free allowance, then applying the specified tax rates to the remaining taxable income. Mr. Asiedu pays a total income tax of GH¥64.30. His net increase in salary after a GH¥45.00 raise would be the salary raise minus any additional tax incurred due to the increased income.

Step-by-step explanation:

Calculating Mr. Asiedu's Income Tax and Net Increase in Salary

To calculate how much income tax Mr. Asiedu pays, we'll follow the tax rates applicable to his salary increments. Firstly, we apply any tax-free allowances. After deductions, we calculate the tax on the remaining income at specified rates. For the second part, we determine the net increase in salary after a GH¥45.00 raise considering the same tax structure.

Here is a step-by-step calculation for part (a) - Mr. Asiedu's income tax:

1. Mr. Asiedu's salary: GH¥369.00
2. Tax-free amount: 1/3 of GH¥369.00 = GH¥123.00
3. Additional tax-free allowance: GH¥77.00
4. Total tax-free income = GH¥123.00 + GH¥77.00 = GH¥200.00
5. Taxable income = GH¥369.00 - GH¥200.00 = GH¥169.00
6. Taxes on the first GH¥60.00: 10Gp per cedi = GH¥6.00
7. Taxes on the next GH¥45.00: 40Gp per cedi = GH¥18.00
8. Taxes on the next GH¥45.00: 60Gp per cedi = GH¥27.00
9. Remaining balance: GH¥169.00 - (GH¥60.00 + GH¥45.00 + GH¥45.00) = GH¥19.00
10. Taxes on the remaining GH¥19.00: 70Gp per cedi = GH¥13.30
11. Total income tax: GH¥6.00 + GH¥18.00 + GH¥27.00 + GH¥13.30 = GH¥64.30

For part (b) - Mr. Asiedu's net increase in salary:

1. New salary: GH¥369.00 + GH¥45.00 = GH¥414.00
2. Repeating the initial steps for deductions and tax calculation:
3. Total tax-free income remains the same: GH¥200.00
4. Taxable income with salary increase: GH¥414.00 - GH¥200.00 = GH¥214.00
5. Calculating tax as per the increased taxable income
6. Determine the additional tax paid due to the increase
7. Net increase in salary = GH¥45.00 - Additional tax paid

Note that each tax calculation would follow the specified brackets and rates for the corresponding portions of Mr. Asiedu's salary.