Section B

VAT
CGT
Inheretance Tax

Direct Tax

Business Income, Employment Income. Direct Tax is a tax who is paid by the earner

Indirect Tax

Imposed on consumption of Goods and Services e.g. GST

Economic Factors of Tax

 Through Tax Government may support any industry e.g. Tax on Investment income in Power
Industry in Pakistan.
 Through Tax Government may support any market e.g. 2008 market crash
 Through Tax government can control inflation

e.g. Disposable Income (Take home pay) =Total Income -direct tax

If government increase direct tax, it will result in reduced disposable income therefore it will
reduce the buying power of consumer thus they will not pay for unnecessary commodities
and ultimately it will result in lower prices of commodities.

 Through Tax government can control supply of money e.g. lower interest rate, increased
demand and will result in increased inflation another example is Individual saving accounts of
the UK government in which interest income is tax free.
 Through Tax traffic is controlled e.g. oxford street in London
 Through Tax Government discourage smoking

Social Factors
One of objective of Tax is redistribution of income

Progressive Tax System (Lower Rate on Low Income

Proportionate (same Rate)

Regressive (High Tax on low income, lower income)

 Compliance Cost

Environmental Factors
Governments imposes Taxes on cars with High CO2 emission

Tax Evasion
Is a illegal way of tax saving which may result in huge penalties

E.g. understatement of Income and Overstatement of Expense

Tax Avoidance
Legal Way of Tax saving.

E.g. your income is 1,800,000 Minimum Taxable Income is 600,000.

To Avoid Tax you can disclose 600,000 in your wife’s Name, 600,000 on your sons Name and 600,000 on
your name. In this way you can avoid the tax in legal way.

Property Income
There are three steps in Taxation

1. Calculation of Taxable income

2. Calculation of Tax
3. Payment of Tax

 Basis of assessment for Property income is Cash Basis

 Letting Business
 We are calculating Property income For Landlord

Rental Income XXX

Less Allowed Expense (XXX)
Property Business Income XXX

We are calculating Taxable Income for Fiscal Year (6 April 2020 to 5 April 2021)
Our Fiscal year for this course is 2020/21
Capital expenditure
The expenditure for assets provided for use in a residential property e.g. furniture, TV is not an
allowable expenditure, however the replacement cost of the same assets is allowed but it is subject to
same quality or cost of the replacing asset. It means that

 First time buying of furniture is capital expenditure (Not Allowed)

 But Future replacement cost is allowed subject to no improvement (means similar quality)
 Any Amount paid for improvement at the time of replacement (Not Allowed)

E.g.

First time cost $1000

Scrap proceeds $90

Replacement cost 1,550

Similar Quality available in the market 1080

Allowed Expenditure is $990

Petula (Page 11 of the Handouts)

Rental income 12,000

Replacement of washing machine (420)

Other Expenditure (1640)

Property Business Income 9940

Rafe
Rental Total
Income Income
House 1 3600 6000 9600
House 2 5000 2500
House 3 7800

19900
Income Tax Computation
Non Saving Saving

Trading Interest Income

Employment Divident Income

Property Income

Pension

0-5000 20%
5000-37500 20%
37500-150,000 40%
150,000-Above 45%