ICMA.

BUSINESS TAXATION – (LA-402)

SEMESTER-4

Pakistan
SPRING (AUGUST) 2014 EXAMINATIONS
Wednesday, the 20th August 2014

Time Allowed: 2 Hours 30 Minutes Maximum Marks: 80 Roll No.:

(i) Attempt all questions.

(ii) Answers must be neat, relevant and brief.
(iii) Use of non-programmable scientific calculators of any model is allowed.
(iv) Read the instructions printed inside the top cover of answer script CAREFULLY before attempting the paper.
(v) In marking the question paper, the examiners take into account clarity of exposition, logic of arguments,
effective presentation and language.
(vi) DO 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.
Marks
Q. 2 (a) Define the term ‘public company’ as per the Income Tax Ordinance, 2001. 03

(b) Mr. Aslam is a non-resident person working as a Senior Manager in one of the renowned
companies of the United States of America. In addition to his foreign salary income, he
has some properties and investments in shares in Pakistan from which he is earning
handsome income. Mr. Aslam has little knowledge about the Pakistani Tax Laws and he is
worried about the payment of his tax liability for the tax year ended June 30, 2014.
Required:
Suppose you are Tax Consultant and Mr. Aslam has sought your professional opinion in
respect of the following matters in the light of the Income Tax Ordinance, 2001:
(i) Being a non-resident whether foreign-source income and Pakistan-source income of
Mr. Aslam are taxable or exempt from tax? Discuss. 02
(ii) What types of Pakistan-source Income are taxable? 04
(iii) Under what regime the Pakistan-source income of Mr. Aslam will be treated? 01
(iv) What is the last date for submitting the statement in lieu of return in respect of his
Pakistan-source income? 01

(c) Tax authorities are required to serve notices, orders or requisitions on certain persons
under the various provisions of the Income Tax Ordinance, 2001.
Required:
Identify the manner when it should be treated that the notice has been properly served on
following persons:
(i) resident individuals. 04
(ii) association of persons (AOPs). 02

Q. 3 (a) Discuss any two types of tax credits available under section 61, 62, 63 and 64 of the
Income Tax Ordinance, 2001. 04

(b) Ms. Saleha has an investment of Rs. 600,000 in the Mutual Funds. Her employer
assessed her annual tax liability amounting Rs. 250,000 before allowance of any tax
credit. However, her total taxable income is Rs. 2,500,000.
Required:
(i) What is the formula for calculation of tax credit for investment in shares? 04
(ii) Calculate the benefit of tax credit that can be availed by Ms. Saleha under the
provision of the Income Tax Ordinance, 2001. 02

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(iii) Describe the condition where amount of tax payable, by the person for the tax year
in which the shares were disposed of, shall be increased by the amount of the credit
allowed. 01

(c) The Finance Bank Limited (FBL) has remitted Rs. 700,000 as a commission to Pakistan
Branch of M/s. Technocom Inc., a non-resident Singapore based company. Although in
the agreement it is clearly mentioned that the applicable income tax can be deducted from
the payment, but FBL remitted full amount without any deduction of tax under Section
152(2) of the Income Tax Ordinance, 2001.
Required:
Elaborate the provisions contained in section 152 (3) of the Income Tax Ordinance, 2001
which may allow the payment made by FBL without any deduction of tax. 05

Q. 4 Prime Leather Works (Pvt.) Limited has provided following information for the tax year 2014 to
calculate its taxable income and tax liability:
Description Note Amount (Rs.)
Sales 1 60,000,000
Less: Cost of sales 2 (40,000,000)
Gross Profit 20,000,000
Less: General and admin expenses 3 (12,000,000)
Less: Selling expenses 4 (3,000,000)
Add: Other Income 5 1,000,000
Net Profit 6,000,000
1. Total sales include sales of Rs. 20 million which are subject to final taxation.
2. Cost of sales includes accounting depreciation of Rs. 4 million.
3. The following expenses are also included in the general and administrative expenses:
a. Accounting depreciation of Rs. 2 million.
b. Bonus paid to the employees Rs. 3 million.
c. Provision for doubtful receivables Rs. 1.5 million.
d. Provision for the post employment benefits Rs. 2 million.
e. Fines and penalties paid to Federal Board of Revenue (FBR) Rs. 0.7 million.
4. Selling expenses include commission expense of Rs. 1.5 million. However, tax has not
been withheld while making the payment of the commission.
5. Other income include the following items:
a. Accounting gain on disposal of fixed assets Rs. 0.2 million.
b. Interest income Rs. 0.3 million.
c. Dividend income from listed securities Rs. 0.5 million.
Additional Information:
6. Tax depreciation is Rs. 10 million.
7. Bad debts of Rs. 0.5 million.
8. Gratuity paid amounting Rs. 1.7 million.
9. Taxable gain on disposal of fixed asset is Rs. 0.15 million.
10. Breakup of advance tax is as follows:
a. On supplies u/s 153 Rs. 0.7 million.
b. Tax on utilities Rs. 0.3 million.
c. Tax on cash withdrawals Rs. 0.05 million.
d. Tax on dividend income Rs. 0.05 million.
e. Tax on interest income Rs. 0.03 million.
Required:
Calculate taxable income and net tax liability of Prime Leather Works (Pvt.) Limited for tax
year 2014. 18

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Q. 5 (a) M/s. Sultan Limited is contemplating ways to increase its sales. Assume you are a Tax
Consultant and the management of the company is seeking your advice on the sales tax
implications. Discuss the provisions of the Sales Tax Act, 1990 in respect of the sales tax
and valuation of the goods under the following schemes:

(i) For a certain range of products, it is being proposed to provide sample packs ‘Free
of Cost’ to the customers. 02
(ii) A mix of products ‘X’, ‘Y’ and ‘Z’ is proposed to be sold at a concessional rate as a
‘Package Deal’. 02
(iii) Sales of certain products are intended to be introduced under the hire purchase/
installment mode. However, an additional issue raised in this regard that the rate of
sales tax will be changed subsequently. 02

(b) Sitara Manufacturers (SM) deals in the taxable and exempted supplies. SM provided
following information for determination of its sales tax liability for the month of June, 2014.
 SM made purchases amounting Rs. 800,000 from Elahi & Sons who is registered
person.
 Mr. Ahsan invoiced Rs. 150,000 to SM without charging any sales tax.
 SM further incurred manufacturing and other cost amounting Rs. 150,000.
 Out of total stock, SM supplied goods of worth Rs. 1,500,000 to Sidra & Co., which is
a registered company under the Sales Tax Act, 1990.
 In addition to above SM made exempted supplies of Rs. 600,000 and supplied goods
of worth Rs. 500,000 to non-registered person.
 SM also paid sales tax on electricity bill amounting Rs. 18,000.
Required:
Compute sales tax liability of SM under the Sales Tax Act, 1990 for the month of June,
2014. 08

Q. 6 (a) Ajmal Traders is engaged in the retail business. They are not registered with the sales tax
authorities. They intended to get themselves registered as a retailer. However, before
getting themselves registered, they have certain questions.
Required:
Being the company’s Tax Advisor, you are required to answer the following queries in the
light of the relevant provisions of the Sales Tax Act, 1990:
(i) What is the threshold of the value of supplies upon which registration with the sales
tax authorities is compulsory? 01
(ii) Whether zero-rated and exempted supplies will be considered as a part of value of
supplies for the purpose of charging and collecting sales tax? 01
(iii) Can a retailer adjust input tax or claim refund of sales tax? 01
(iv) At what dates, quarterly sales tax returns are required to be filed by the retailer? 02
(v) Whether issuance of invoice is mandatory for supplies made by the retailer? How
such invoices will be generated? 02

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(b) Define the following terms as per section (2) of the Federal Excise Act, 2005:
(i) Franchise. 02
(ii) Property Developers or Promoters 02

(c) (i) In the light of Customs Act, 1969 an imported plant and machinery that has been
temporarily exported may be re-imported duty free subject to the certain conditions.
Enumerate such conditions. 02
(ii) According to the Customs Act, 1969 describe the method used to determine the
value of damaged goods. 02

THE END

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