BUSINESS TAXATION [S3] STRATEGIC LEVEL WINTER 2019 EXAMINATIONS. Tuesday, the 19th November 2019 donuts Maximum Marks: 100 Roll No. (Attempt all questions. (ii) White your Roll No. in the space provided above. (ii) Answers must be neat, relevant and bref. itis not necessary to maintain the sequence. (iv) Use of non-programmable scientific calculators of any model is allowed. (v) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper. (vi) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments, effective presentation, language and use of diagram’ chart, where appropriate. (vil). 20 NOT write your Name, Reg. No. or Roll No., or any irrelevant information inside the answer script. (vii) Question Paper must be returned to invigilator before leaving the examination hall DURING EXTRA READING TIME, WRITING IS STRICTLY PROHIBITED IN THE ANSWER SCRIPT EXAMINEES ARE ADVISED TO MANAGE SOLUTIONS/ ANSWERS WITHIN PROPOSED TIME Marks Question No. 1 Proposed Time : 36 Min. | Total Marks : 20 {a) Mr. Ahmer opted for ‘Golden Handshake Scheme’ when offered by his company. The company paid him a sum of Rs. 500,000 under the “Golden Hand Shake Scheme’ in addition to the taxable salary of Rs. 1,600,000 for the tax year 2020. Following are the relevant details of taxable income and tax liability of Mr. Amer for the past three years: Rupees Tax Year Taxable Income Tax Li 2019 1,350,000 159,500 2018 1,100,000 120,000 2017 1,000,000 60,000 Total 3,450,000 339,500 Mr. Ahmer is concemed to know the options available to him for the taxability of Golden Handshake Scheme, Required: Compute taxable income and tax liability of Mr. Ahmer for the tax year 2020 under the provisions of the Income Tax Ordinance, 2001 08 (b) Mr. Sajjad is planning to purchase an apartment in a posh area of the city, guide him regarding purchase of assets through banking channel in the light of section 75A of the Income Tax Ordinance, 2001 06 {c) In the light of section 2 (38 AA) and (38 AC) of the Income Tax Ordinance 2001, define the following (i) Offshore Assets 03 (ii) Offshore Enabler 03 Question No. 2 Proposed Time : 45 Min. | Total Marks : 25 Mehtab Pharmaceuticals (Pvt.) Limited (MPPL) is engaged in the business of manufacturing wide range of pharmaceutical products for both domestic and foreign markets. BT. Winter 2019 10f5 PTOFollowing is an extract of company's statement of profit or loss for the tax year ended June 30, 2019: Mehtab Pharmaceuticals (Pvt.) Limited Statement of Profit or Loss [Extract] for the year ended June 30, 2019 Rupees Notes Sales Nt 39,150,000 Cost of sales N-2 __ (25,700,000) Gross Profit 13,450,000 Administrative expenses N-3 (6,350,000) Financial charges N-4 (1,600,000) Other charges N-5 (2,000,000) Other income NG 900,000 Profit before tax 5,500,000) Notes to Statement of Profit or Loss: Nets N-2: N-3: N-4: N-6: Sales: + 20% of the sales are made to customers in Indonesia and Singapore. Export sales are stated after deduction of foreign withholding taxes of Rs. 1,170,000. + Domestic sales are inclusive of 17% sales tax, Cost of Sales: + All the expenses, other than cost of sales, are related only to the company's domestic sales. + The company has the policy to charge depreciation between cost of sales and administrative expenses in the ratio of 64% and 36% respectively. + Accounting depreciation charged to cost of sales amounted to Rs. 1,440,000 Administrative Expenses: These expenses include the following + Accounting depreciation charged to administrative expenses amounted to Rs. 810,000. * Donations were paid to a hospital established under a private trust amounted to Rs, 200,000, Financial Charges: + It includes an amount of interest of Rs. 180,000 on account of machinery obtained on finance lease for the manufacturing of both domestic and export products sales. Total lease rentals paid during the year amounted to Rs. 500,000. At the end of the lease term which expired on January 31, 2019, the machinery was transferred to company at a residual value of Rs. 640,000. : Other Charges: + MPPL paid Rs. 1,708,000 to a company in China for carrying out a scientific research on behalf of MPPL. Other Income: + It includes gain on disposal of delivery van of Rs. 130,000. The van was acquired on July 01, 2017 at a cost of Rs. 900,000 and sold for Rs. 850,000. Delivery van was depreciated at the rate of 20% per annum. The company does not charge depreciation in the year of disposal. Additional Information: * Tax depreciation for the year amounted to Rs. 1,800,000. BT. Winter 2019 20f5 MarksMarks * The details of tax paid, under relevant sections of the Income Tax Ordinance, 2001 during the tax year 2019 are as under: Rupees ‘Advance tax paid — u/s 147 400,000 Tax deducted by banks from export proceeds 78,300 Required: Under the relevant provisions of the Income Tax Ordinance, 2001, compute MPPL's taxable income and tax payable [under normal tax regime (NTR) and final tax regime (FTR)] for the tax year 2019, under the appropriate heads, giving clear reasons/ explanations for the exclusions from the computations. [Ignore Minimum Tax and Altemative Corporate Tax (ACT)] 25 Question No. 3 Proposed Time : 27 Min. | Total Marks : 15 (a) Mair Foods (Pvt,) Limited is a leading brand in the food industry. It is one of the top employers in the country, creating jobs in the local economy. The company is planning to announce a ‘Management Training Program’ for the fresh graduates. Required: In a meeting held with the Chief Financial Officer (CFO) of the company, being the Tax Manager, you are required to give details under the relevant provisions of the Income Tax Ordinance, 2001, regarding the following (i) Priority of claiming tax credits — u/s 4(3) 05 (ii) Provisions of tax credit for persons employing fresh graduates — u/s 64C 05 (b) Mr. Farhan is an experienced tax adviser and a trainer. During a training session of Tax Department's staff of UGC Limited, few queries regarding securities and movable property were raised by the staff members, attending the session Required: Being the Tax Advisor and Trainer, answer the following under the provisions of the Income Tax Rules, 2002: (i) Procedure for determination of holding period in case of securities, short position and future contracts with reference to Rule 13C 03 (ii) Rule for attachment of share in movable property as laid down under Rule 141 02 Question No. 4 Proposed Time : 32 Min. | Total Marks : 18 Nadeem Limited (NL) is registered as a ‘manufacturer under the Sales Tax Act, 1990. Following information has been extracted from the company’s financial records for the month of October 2019. Rupees ‘Supplies Purchases Zero-rated goods — registered persons 3,000,000 Supplies from registered persons for local Taxable goods ~ registered persons —_7,000,000 taxable supplies [N-1] 3,800,000 Taxable goods — un-registered persons 1,300,000 Exempt supplies 900,000 Exempt goods 1,600,000 Purchases for Export supplies 1,500,000 Purchases for Exempt Supplies 1,100,000 Machinery (N-2] 4,500,000 Office stationery (allocable to taxable supplies) 200,000 Total 12,900,000 Total 412,000,000 BT. Winter 2019 30f5 PTONotes: N-1: Supplies from Registered Persons for Local Taxable Supplies: * It includes supplies worth Rs.900,000 which was purchased for the personal use of Director Finance under his employment contract. + Remaining purchases were used in making taxable supplies. N-2: Machinery: * The total cost of machinery, to be used for making taxable and exempt supplies, is as follows Rupees Cost of machinery — Taxable supplies 3,000,000) Cost of machinery — Exempt supplies 1,500,000 Total cost 4,500,000 Additional Information: © Input Tax: Input tax credit brought forward from previous tax periods amounted to Rs. 120,000. > Input tax claim on electricity and gas bills for common use of all supplies amounted to Rs, 51,000. » In September 2019, the company claimed input tax credit of Rs. 95,000 on purchase of taxable goods from Michael (Pvt) Limited. On October 10, 2019, Michael (Pvt.) Limited was declared blacklisted by the Commissioner due to a tax fraud. * Withholding Sales Tax: > Sales tax deducted by withholding agent amounted to Rs. 100,000. > Sales tax withheld as withholding agent amounted to Rs. 150,000. * Sales tax is payable at 17%. All the above figures are exclusive of sales tax, where applicable. Required: {a) In the light of provisions of the Sales Tax Act, 1990 and Rules made thereunder, calculate sales tax payable by/ (refundable) to Nadeem Limited (NL) for the month of October 2019. (b) Under section 21(3) of the Sales Tax Act, 1990, describe the effects of blacklisting or suspension of registration of Michael (Pvt.) Limited. Question No. 5 Proposed Time : 18 Min. | Total Marks : 10 {a) In the light of provisions of the Federal Excise Act, 2005, define the following terms: (i) Dutiable supply — wis 2 (8c) (i) Un-manufactured tobacco - u/s 2 (24A) (b) In the following cases, who will be liable to pay duty under the relevant provisions of the Federal Excise Act, 2005? (i) ‘Goods produced or manufactured in Pakistan’ and ‘Goods imported into Pakistan (ii) ‘Services provided or rendered in Pakistan by the person residing outside Pakistan’ and ‘Goods produced or manufactured in non-tariff areas and brought to tariff areas for sale or consumption therein’ BT. Winter 2019 40f5 Marks 15 03 02 03 02 03Marks Question No. 6 Proposed Time : 22 | Total Marks : 12 Sheerani (Pvt.) Limited (SPL) is one of the leading multi-model conglomerates, engaged in several businesses across Pakistan, and is registered under the Sales Tax Act, 1990. SPL is registered at the Large Taxpayers Unit (TU) of the Inland Revenue Department, Karachi, for the last one year. However, due to regulatory issues, SPL commenced its business operations in July 2019. Following are the relevant information, regarding various business transactions of SPL, for the month of July 2019: (i) SPL paid an advance of Rs. 150,000 to a registered supplier, Gem Limited, against future purchases. However, Gem Limited did not issue any document against the advance receipt. (ii) Invoices issued by SPL’s bank against various excisable/ taxable services rendered to SPL shows a sum of Rs. 10,000 SPL’s Textile Division rendered toll manufacturing to Centrum Associates for which value of supply was estimated at Rs. 90,000. Centrum Associates operates a large garments unit, which is registered under the Sales Tax Act, 1990 as an association of persons (AOP). During the month, finished cloth of Rs. 100,000 was sold to Asia Airways Limited for its aircrafts’ seats. Sales invoices were settled during the month. (iv) Sales tax of Rs. 10,000 was paid on imports made ten 10 days before the start of business. (v)_SPL’s Furniture Division supplied furniture of Rs. 250,000 to an unregistered school in Karachi However, in view of negative market feedback and consequential losses, SPL closed down the Furniture Division at the end of May 2019. Stock of unsold furniture at the end of the month amounted to Rs. 400,000. (vi) SPL supplied tooth brushes worth Rs. 800,000 in small villages and towns at a discounted price ‘of Rs. 500,000. The terms of the contract with Government stipulate that the balance amount of Rs. 300,000 will be reimbursed to the company by the Government of Pakistan. Required Determine the tax treatment of each of the above transactions independently in the light of the relevant provisions of the Sales Tax Act, 1990. 12 ‘THE END EXTRACT OF TAX SLABS FOR SALARIED INCOME \Where the income of an individual chargeable under the head “salary” exceeds seventy-five per cent of his taxable income, the res of tax fo be applied wil be as follows: a = Toxable Income Rate of Tax 1L_| Where the taxable nome doesnot erased Rs 600,000 O% 2_| Where the taxable income exceeds Rs 600,000 but does nt exceed Rs 7,200,000 | 6% of he amount exceeding Rs. 600,000 3._| Wher the taxable income exceeds Rs 200,000 but does not exceed s.1,800,000 | Rs. 30,000 + 10% ofthe amount exceeding Rs. 1,200,000 “4 | Where the taxable income exceeds Rs 1,800,000 but does nat exceed Rs 2,500,000 | Rs 60,000 + 15% of he amount exceeding Rs. 100,000 5_| Wier the taxable income exceeds Rs 2,500,000 but doesnot exceed RS 3,500,000 | Rs. 195,000 + 17.5% ofthe amount exceeding Rs 2,500,000 EXTRACT OF TAX SLABS FOR BUSINESS INCOME ‘Where the rates of ax imposed on income of every individual and essaciation of persons, except salaried individual, willbe as fllows: a = Toxable Income Rate of Tax “L_| Wher the taxable inoome exceeds RS.1200,000 but does nat exceed RS 2,400,000 | RS. 70,000 + 15% of the amount exceeding Rs.1 200,000 2._| Where the taxable income exceeds Rs 2,400,000 but doesnot exceed Rs 3,000,000 | Rs. 260,000 + 20% ofthe amount exceeding Rs.2 400,000 3. | Where the taxable income exceeds Rs 3,000,000 but doesnot exceed Rs 4,000,000 | Rs. 370,000 + 25% ofthe amount exceeding Rs. 3,000,000 BT. Winter 2019 5 ofS