BUSINESS TAXATION [G5] > cr ICMA CRADUATION Leven Gy \ cuumen 258 ees Friday, the 11th May 2018 Extra Reading Tine: 16 Minutes Writing Time: OZ Hours 50 Minutes Maximum Marks: 20 Roll No, (Attempt all questions (i) Write your Roll No. in the space provided above. (ii) Answers must be neat, relevant and brief. tis not necessary to maintain the sequence. (iv) Use of non-programmable scientific calculator 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 clear diagrami chart, where appropriate. (vi) D0 NOT write your Name, Reg. No. or Roll No., of any irrelevant information inside the answer script (vi) Question No. 1 ~"Multiple Choice Questions” printed separately, is an integral part ofthis question paper. (0) 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 Question No. 2 Proposed Time : 45 Min. | Total Marks : 24 (a) The Commissioner Inland Revenue is conducting the audit of Danish Enterprise (DE) under the Income Tax Ordinance, 2001 and is considering to allow/ disallow the following deductions through the amendment of retum filed for tax year 2018 by DE: ‘+ Donation of Rs. 323,000 paid to the Karachi University, established by the Federal Goverment Initial allowance of Rs. 1,000,000 on a used equipment acquired locally from SAF Limited + Bad debt in respect of a staff loan is Rs. 62,000, ‘+ Financial charges on a vehicle acquired on finance lease from Hassan Leasing amounted to Rs. 90,000 and depreciation amounted to RS. 275,000. Lease rentals paid during the year amounted to Rs. 325,000, ‘+ Expenditure of Rs. 340,000 on promotion of a product, which is expected to generate revenue for 14 years, © Penalty for late delivery amounting to Rs. 77,000, which had to be paid to a client on account of negligence on the part of the Procurement Manager Required: Evaluate the above deductions and suggest appropriate treatment, as per the Income Tax Ordinance, 2001 wherever necessary (b) Mars (Private) Limited (MPL) and Jupiter (Private) Limited (JPL) has just concluded an agency and principal relationship via an agreement. According to which, MPL being an agent of JPL, would be remunerated a commission of 10% of sales. Discuss the taxability of the commission Under the light of Section 233 of the Income Tax Ordinance, 2001 (c) Mr. Haider is a Tax Manager in one of the leading oil production company. He signed an employment contract at a salary of Rs. 175,000 per month, The tax deducted from his monthly remuneration amounts to RS. 19,500. (On April 30, 2018, he resigned from his current employment and immediately joined a tax firm in Saudi Arabia namely Al-Mazboot Consultants (AMC) as a Senior Manager Taxation, from where he eas monthly salary equivalent to PKR 770,000. AMC paid 75% of his salary in Saudi Arabia and remitted the remaining 25% to his bank account in Karachi through normal banking channel. Mr. Haider remained in Saudi Arabia during the rest of the tax year 2018, r-Summer 2018 1of4 Marks 08 05 PTOIn addition to above, he also received following incomes from United Kingdom (UK), tax paid thereon and brought forward foreign losses for tax year 2018: Rupees Foreign Foreign Foreign Losses Heads oftncome incomel(Loss) Tax Paid _ Brought Forward Normal business 1,540,000 225,000 (175,000) Capital gain 4,100,000 67,000 (1,600,000) ‘Speculation business. 700,000 150,000. (450,000) Other sources (1,375,000) = = Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income, net tax payable by or refundable to Mr. Haider for the tax year 2018 and the amount of foreign losses or foreign tax credit, if any, to be carried forward Question No. 3 Proposed Time : 40 Min. | Total Marks : 20 (a) Mr. Salman filed his return for the tax year 2017 on August 17, 2017. Later on he discovered an error in his annual income tax return submitted by him and intends to file a revised retum voluntarily Required: Under the provisions of the Income Tax Ordinance, 2001 (i) Narrate the conditions, which Mr. Salman has to comply with in order to submit a valid revised return. State whether or not Mr. Salman will have to obtain approval from the Commissioner Inland Revenue. (iii) State the benefits, which Mr. Salman could derive by filing the revised return voluntarily. (b) Mr. Asker frequently visits Pakistan. During the tax year 2018, he came to Pakistan on August 03,2017 and stayed till February 10,2018. He has made certain investments in shares, life insurance policies and sukuks. Required: Being the tax consultant of Mr. Asker, identify the tax credit, if any, he will be able to avail while filing his income tax return for the tax year 2018 and how the amount of tax credit, if any, will be calculated under the Income Tax Ordinance, 2001 {c) Ms. Julie is a non-resident person residing in Paris. She considers her friend Ms. Natasha in Pakistan as her representative. Briefly explain whether or not, Ms. Natasha can be her representative under the provisions of the Income Tax Ordinance, 2001 Question No. 4 Proposed Time : 45 Min. | Total Marks : 24 Mr. Rizwan is working as Director Finance with King Kong Limited (KKL) for the last one year. The details of his monthly remuneration, during the year ended June 30, 2018, are as under: Rupees Basic salary “450,000 Uttities allowance 30,000 Medical allowance 42,000 House rent allowance 165,000 r-Summer 2018 20f4 Marks " 03 01 06 06In addition, Mir. Rizwan was also provided the following: © A company maintained 1600cc car has been given for both official and private use. The car was purchased by the company at a fair market value of Rs. 1,900,000 on September 01, 2017. ‘+ During the tax year, Mr. Rizwan got an offer from another company. However, he agreed to stay with KKL employment against an additional amount of Rs. 1,200,000. + Provident fund (PF) contribution of Rs. 15,300 per month. An equal amount per month was contributed by Mr. Rizwan to the fund. Interest income of Rs. 542,000 at the rate of 20% of accumulated balance of PF was credited to his PF account The fund is recognized by Commissioner inland Revenue + On March 01, 2018, KKL sold an item of inventory to Mr. Rizwan for Rs. 23,000. The net realizable value of the item of inventory at the end of February 28, 2018 and June 30, 2018 was Rs, 45,000 and Rs. 49,000 respectively. KKL had acquired it in July 2017 at a cost of Rs. 34,000. ‘= An option was granted to Mr. Rizwan in November 2016 to acquire 3,400 shares in KKL. The option was exercisable after completion of one year of service with KKL. Mr. Rizwan paid an amount equivalent to Rs. 325,000 to acquire the option when the fair market value of the option was Rs. 400,000. On December 01, 2017, he paid an amount equivalent to Rs, 270,000 to acquire the shares in KKL. The shares were issued to him on December 19, 2017 when the market value was Rs. 425 per share. On May 23, 2018, Mr. Rizwan sold 2,400 shares and received net proceeds equivalent to Rs. 1,725,000 in his bank account. This amount was received after deduction of bank charges of Rs. 7.250 and brokerage commission equivalent to Rs. 14,000. Other information relevant to the tax year 2018 is as under: © On November 01, 2017, he borrowed a loan amounting to Rs. 20 million from a schedule bank for the acquisition of '@ new house. The interest paid till June 30, 2018 amounted to Rs. 1,700,000. © On October 01, 2017, Mr. Rizwan fell ill and was admitted to Hope Hospital. The company reimbursed him the actual expenses incurred at the hospital amounting to Rs. 85,000. ‘+ Mr. Rizwan received net dividend of Rs. 92,700 from ABC Limited, a company listed on Pakistan ‘Stock Exchange Limited (PSX). Withholding tax and Zakat deducted from dividend amounted to Rs.9,270 and Rs,5,400 respectively. He also received a dividend of Rs. 125,000 from a company in Singapore through normal banking channels. However, no tax was withheld either in Pakistan or Singapore. © Withholding tax deducted from Mr. Rizwan’s salary during the tax year 2018 amounted to Rs, 1,415,000, Required: Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income and net tax payable by or refundable to Mr. Rizwan for the tax year 2018. Question No. 5 Proposed Time : 20 Min. | Total Marks : 12 Malik-e-Ashtar (Pvt. Limited (MAL) is registered under the Sales Tax Act, 1990 and is engaged in the business of export and supply of consumer goods. Following information has been extracted from MAL’s records for the month of March 2018: Supplies Rupees Purchases Rupees. To un-registered customers 1,275,000 Taxable goods from registered suppliers 3,100,000 To registered customers 2,900,000 Exempt goods from registered suppliers 1,630,000 Exempt supplies 850,000 Taxable goods from un-registered Exports 1,400,000 _ suppliers 445,000 Additional Information ‘* Supplies to registered persons include goods amounting to Rs. 290,000, which were supplied to an associated company at a special discount of 35%, r-summer 2018 30f4 Marks PTO+ A registered supplier had supplied goods worth Rs. 675,000 to MAL in March 2018. However, MAL did not receive the sales tax invoice from the supplier. + MAL distributed free samples of one of its new product among corporate clients. The value of these samples amounted to Rs. 135,000. ‘+ Taxable goods purchased from registered suppliers include: > Goods worth Rs. 445,000 purchased from Asif Limited, which was blacklisted on March 15, 2018 due to issuance of fake invoices. » Goods purchased from MT Enterprise amounting to Rs. $7,000. MT Enterprise did not declare this amount in its tax return for the month of March 2018, > Anew machine purchased for Rs. 700,000, which was commissioned into operation during March 2018, > Office equipment of Rs. 310,000 were purchased for the warehouse. + On March 28, 2018, MAL paid sales tax of Rs. 140,000 on electricity bill «Equipment worth Rs. 585,000 manufactured by MAL, were used by MAL in testing related to research of exempt supplies, Required: Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount of sales tax payable by or refundable to MAL for the tax period March 2018. Question No. 6 Proposed Time : 20 Min. | Total Marks : 10 (a) Mr. Asif is a manufacturer of plastic products. For the year ended June 30, 2017, his annual sales were Rs. 11,050,000. He is not registered under the Sales Tax Act, 1990. Mr. Zia, a newly appointed Commissioner Corporate Regional Tax Office considering that Mr. Asif is liable to be registered under the Sales Tax Act, 1990 and sent a notice on August 05, 2017, however, he has not received any response despite of the fact that due date of reply to such notice has lapsed. Required: Advise the process that Mr. Zia needs to follow onwards in the light of the Sales Tax Act, 1990 and Rules made thereunder. (b) Mr Ammar has recently been registered under the Sales Tax Act, 1990. He is engaged in the export and distribution of consumer products. Before filing the first return for the tax period April 2018, he wishes to obtain advice on the certain matters, Required: You, being a Tax Advisor of Mr. Ammar, are required to comment on the matters he produced: (i) Consequences of non-payment of the entire amount of tax due as indicated in the retum, (ii) Concept of provisional and final adjustment in relation to ‘apportionment of input tax’ (ili) Excess tax collected from the customer. THE END EXTRACT OF TAX RATES FOR SALARIED TAXPAYERS. Marks 12 02 03 02 03 & Taxable Income Rate of Tax ‘Vier the arbi isome exceeds Rs 2.500.000 bt dees no exceed Rs 3000000 | Rs 250-500 + 20% of he amour vceedng Rs. 2.500000 ‘Viere the tacble came exceed Rs 3 50,000 bu doesnot exceed As 4000000" | Rs 472,000 + 25 ol he amount exceeding R.3S00 000 ‘Wiere the arbi nome exceed Rs 400,00 but doesnot exceed Rs 7.000000 | Rs $97,000 +27.5% ofthe amount exceeding Rs. 4000000 No 1 2. | Where the tacble name exceed Rs 3,000,000 but doesnot exceed RS 3500000_| Rs 360 500 +22.5% ofthe amount excoodng RS 3000000 3 4 5. | Wher the tab nme excods Rs. 7000000 1422 000+ 30% oth amount exceeding Rs 7,000,000, r-Summer 2018 4of4