SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 1 of 6

BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1

Marks
Question No. 1
(a) Ms. Jamila
Tax year 2019
Computation of taxable income and tax liability
Rupees
Income from Salary from Colours Pakistan Limited (CPL)
Basic salary (500,000 x 6) 3,000,000
Basic salary (500,000 x 1.1 x 6) 3,300,000
6,300,000 6,300,000 01
Medical allowance (60,000 x 6) 396,000
Medical allowance (60,000 x 1.1 x 6) 396,000
756,000 01
Less: Medical allowance exempt up to 10% of basic salary (630,000) 126,000 02
Use of refrigerator, cooking range and washing machine
15% depreciation on Rs. 200,000 for 6 months 200,000 x 15% x 6/12 01
Not applicable in case of individual =15,000
One month's bonus 500,000x 1.1 550,000 01

Differential interest on Concessional loan of Concessional interest not 01

Rs.1,000,000 taxable as loan amount not
exceeding Rs. 1 million

Leave fare assistance 240,000 01

Salary received from ex-employer in Malta is exempt as Ms. Jamila is a returning 01

expatriate and therefore her foreign source income is exempt.

Income from Salary 7,216,000

Less: Deductible allowances

Deductible allowance (60,000) 02

Taxable salary 7,156,000

Tax Borne by employer W-1 1,172,000 06

Total taxable salary 8,228,000

Rent of agriculture land used for agriculture purpose is exempt as this amount is 01
part and parcel of agriculture income which is exempt
Total Taxable Income 8,228,000

Computation of tax liability 01

Tax on Rs. 8,000,000 1,090,000
Tax on Rs. 214,667 @ 25% 82,000 01
Total tax liability 1,172,000
Tax credit for donations 100,000 01
1,072,000

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 2 of 6
BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1
Marks
Working – 1
Calculation of Tax borne by employer:
Rupees
Income from Tax borne by Taxable
Steps Applicable Tax
Salary employer income
1 7,156,000 921,200 8,077,200
2 8,077,200 1.109.300 188,100 8,265,300
3 8,265,300 1.156.325 47,025 8,312,325
4 8,312,325 1,168,081 11,756 8,324,081
5 8,324,081 1,171,020 2,939 8,327,020
6 8,327,020 1,171,755 735 8,327,755
7 8,327,755 1,171,939 183 8,327,938
8 8,327,938 1,171,985 47 8,327,985
9 8,327,985 1,171,997 12 8,327,997
10 8,327,997 1,171,999 2 8,327,999
11 8,327,999 1,172,000 1 8,328,000
12 8,328,000 1,172,000 0 8,328,000
1,172,000

(b) In light of Section 50 Foreign-source Income of short term resident individuals the taxability of
following cases are:
(i) The foreign source of Income of resident Residing in Pakistan solely for employment 01
purposes since June 30, 2016 shall be exempt for the tax year 2019.
(ii) Any Income derived from a business established in Pakistan shall be taxable. 01
(iii) Any foreign-source Income brought into or received in Pakistan shall be taxable 02

Question No. 2
(a) ‘Whistle blower” means a person who reports to the competent authority 03
(i) concealment or evasion of income tax leading to detection or collection of taxes,
(ii) fraud, corruption or misconduct,
(iii) Having power to take action against the person or
an income tax authority committing fraud, corruption, misconduct, or involved in
concealment or evasion of taxes.

(b) (i) The nature of information qualifies for reward to WHISTLEBLOWER 03

The board may sanction reward to whistleblower in case of providing credible information
leading to detection of tax:
 concealment or
 evasion of income tax,
 fraud corruption or misconduct

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 3 of 6
BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1
Marks
(ii) The claim for reward to the whistleblower shall be rejected if: 04
 the information provided is of no value
 the information is not supported by any evidence
 the Board already had the information
 the information is available in public records or
 no collection of taxes is made from the information provided from which the Board can
pay the reward.

Question No. 3
(a) Following are the conditions: 04
(i) return has been filed;
(ii) tax required to be deducted or collected has been deducted or collected and paid;
(iii) withholding tax statements for the immediately preceding tax year have been filed
(iv) the administrative and management expenditure does not exceed 15% of the total receipts:
Provided that clause (iv) shall not apply to a non-profit organization, if—
 charitable and welfare activities of the non-profit organization have commenced for the
first time within last three years; and
 total receipts of the non-profit organization during the tax year are less than one hundred
million Rupees

(b) Surplus fund means funds or monies: 05

 not spent on charitable and welfare activities during the tax year;
 received during the tax year as donations, voluntary contributions, subscriptions and other
incomes;
 which are more than twenty-five percent of the total receipts of the non-profit organization
received during the tax year; and
 are not part of restricted funds.
If surplus fund of an non profit organisation is more than 25% of the total receipts than it shall be
taxed at the rate of 10%

(c) In this case 15% of total receipts is Rs. 528,000 (15% of 3,520,000) whereas total administrative 06
and management expenses are Rs. 264,000 which are less than 15% of total receipts, therefore
the Non-Profit Organization, namely Green Valley, qualifies for 100% tax credit under section
100C of the Ordinance.

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 4 of 6
BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1
Marks
(d) Lyla Fabric (LF) was required to estimate the tax payable for the relevant tax year in case the tax 05
payable for the current tax year was likely to be more than the amount otherwise payable.
U/s 205, where the tax paid u/s 147 is less than 90% of the tax chargeable for the relevant tax
year, the taxpayer is liable to pay default surcharge '@ 12% per annum on the shortfall calculated
from the 1st April in that year to the date on which assessment is made or 30th June of the
financial year next following, whichever is the earlier.
Under the given circumstances, the total advance tax paid by LF u/s 147 along with other
adjustable withholding taxes amounted to Rs. 22.14 million which is less than 90% tax liability for
the tax year 2019. Taxes deducted u/s 150 and 154 are final taxes and not subject to be adjusted
against NTR liability.
Therefore, LF is exposed to the levy of default surcharge u/s 205(1B) as under:
Rupees
Total gross NTR tax liability as per return 33,000,000
90% of the tax liability (33,000,000 x 90%) 29,700,000 01
Less: amount deducted / paid at source (22,140,000) 02
[10,000,000+1,500,000+8,000,000+240.000+2,400,000]
Amount of shortfall 7,560,000
Period of default from 1.4.2019 to 31.12.2019= 274 days 01
Amount of default surcharge ( 7,560,000 x 12% x 274/365) 681,021 01

Question No. 4
(a) As per sec 2(35) “taxable activity”, means any economic activity carried on by a person whether 05
or not for profit, and includes :
 an activity carried on in the form of a business, trade or manufacture;
 an activity that involves the supply of goods, the rendering or providing of services, or both to
another person;
 a one-off adventure or concern in the nature of a trade; and
 anything done or undertaken during the commencement or termination of the economic activity,
but does not include –
 the activities of an employee providing services in that capacity to an employer;
 an activity carried on by an individual as a private recreational pursuit or hobby; and
 an activity carried on by a person other than an individual which, if carried on by an individual,
would fall within sub-clause (b).

(b) Sec 8A of Sales Tax Act 1990: 05

Where a registered person receiving a taxable supply from another registered person is in the
knowledge or has reasonable grounds to suspect that some or all of the tax payable in respect of
that supply or any previous or subsequent supply of the goods supplied would go unpaid of
which the burden to prove shall be on the department, such person as well as the person making
the taxable supply shall be jointly and severally liable for payment of such unpaid amount of tax.
Provided that the Board may by notification in the official gazette, exempt any transaction or
transactions from the provisions of this section

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 5 of 6
BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1
Marks
Question No. 5
Atif Aslam Limited
Computation of Net Sales Tax Liability
For the tax period January 2019
Taxable Sales Amount of
SALES TAX CREDIT (INPUT TAX)
Value Tax rate Sales Tax
Raw material purchased from registered suppliers 7,700,000 17% 1,309,000 0.5
(800,000 – 300,000)
Raw material purchased from un-registered suppliers 2,000,000 - -
Import of raw material [own consumption] 900,000 17% 153,000 0.5
Value addition [no value addition due to own cons.] - -
Import of Foam from Malaysia 1,200,000 17% 204,000 0.5
Value addition - 3% 36,000 0.5
Import of specific machinery [Eight sch. item] 1,000,000 5% 50,000 0.5
Purchase of Waste Papers 300,000 Exempt 0.5
Purchase of 7,500 boxes of Tissue Papers @ Rs 90/box 675,000 17% 114,750 0.5
13,775,000 1,866,750
(-)Inadmissible/un-adjustable input W-1 (131,689) 05
Input Tax for the month 1,735,061

Working – 1
Gross Taxable
Apportionment of input tax Sales Tax
Value Value
Input tax for the month (Excl. input tax on Foam) 12,575,000 10,275,000 1,626,750

Rupees
Total sales [5,850+3,100+250+600+700] × 1000 10,500,000
Exempt supplies 250,000
Export to Australia – Zero rated supplies 600,000
Inadmissible input tax (250,000 × 1,626,750 / 10,500,000) 38,732
Un-adjustable input tax (600,000 × 1,626,750 / 10,500,000) 92,957
Inadmissible/un-adjustable input 131,689

Taxable Sales Amount of

SALES TAX CREDIT (OUTPUT TAX)
Value Tax rate Sales Tax
Taxable supplies to registered persons 5,850,000 17% 994,500 0.5
(7,200-700-650)
Taxable supplies to un-registered persons 0.5
(3,500,000 – 400,000) 3,100,000 17% 527,000
Further tax [supply to un-registered person] 3% 93,000 0.5
Exempt goods 250,000 Exempt - 0.5
Sale of Foam imported from Malaysia 1,500,000 17% 255,000 0.5
Extra tax 2% 30,000 0.5
Export to Australia 600,000 0% - 0.5
Supply of Shampoo to registered exporter (No DTRR) 700,000 17% 119,000 0.5
Supply of Tiles [specified goods (SG)] Rule 5 of 0.5
Exempt
SSPR** 650,000 -
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2018 EXAMINATIONS 6 of 6
BUSINESS TAXATION [S3] – STRATEGIC LEVEL-1
Marks
Supply of Storage Batteries [SG] 2% not deducted 400,000 17% 68,000 0.5
Further tax @ 3% [end consumer][S.R.O 648(I)/2013] Exempt - 0.5
Output tax of the month 13,050,000 2,086,500
Working
Admissible credit (lower of 1,735,061- 05
45,952*=1,689,109) or 90% of 2,086,500 =1,877,850
*Input on machinery not related to exempt or zero
rated supplies
(50,000 - (Rs. 250,000+Rs. 600,000) / Rs. 10,500,000
x Rs. 50,000 = 45,952)
Admissible credit (1,689,109 + 45,952) (1,735,061) 0.5
Sales tax payable 351,439
Sales tax refundable – on export sales 92,957 0.5

Question No. 6
(a) Sec 9 of the Federal Excise Act, 2005: 05
Normally the liability to pay Federal excise duty is of the registered person but under the
following cases the duty may be recovered from other persons:
Closing or Discontinuation of Business: S. 9(1)
Where any private company or business enterprise is closed, discontinued or otherwise ceases
to exist and amount of duty cannot be recovered from it then it may be recovered from every
such person who was an owner, partner or director of the company or business enterprise.
These persons shall be Jointly and severally liable for the payment of the excise duty.
Transfer of Ownership: Sec 9(2)
Where the ownership of a business or part thereof is transferred to another person as an
ongoing concern, the duty chargeable to such business shall be paid by the person to whom the
sale is made or ownership is transferred. If any amount of excise duty remains unpaid then it
shall be the first charge on the assets of the business and payable by the transferee.
Termination of Business: Sec 9(3)
Where any amount of excise duty is outstanding against such a business which is terminated,
the same will be recovered from a person who has terminated the business or part thereof.

(b) Sec 16 of the Federal Excise Act, 2005: 05

The federal excise duty is levied only on such goods and services as are specified in the First
Schedule to the Federal Excise Act, 2005. All other goods whether imported or produced or
manufactured in Pakistan and services shall be exempt from excise duty levied under section 3
of the Act.
Certain other goods and services as are specified in the Third Schedule are also exempt from
the excise duty. But this exemption is subject to such conditions and restrictions as may be
specified in the Third Schedule.
It is to be noted that a person shall not be allowed adjustment of the duty already paid on
exempted goods directly used as input goods for manufacture or production. It is immaterial
whether the exemption from duty is conditional or without any condition.

THE END
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or tre ated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.