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Certificate in Accounting and Finance Stage Examination
The Institute of 9 September 2023

Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Tax Practices
Instructions to examinees:
(i) Answer all EIGHT questions.
(ii) Answer in black pen only.
(iii) Tax rates are given on the last page.
Q.1 Salman works as the head chef at Tasty Café (TC), which is owned by Zameendar Limited
(ZL), a company listed on the Pakistan Stock Exchange. He received the following
emoluments from TC during the year ended 30 June 2023:
Rupees
Basic salary 2,400,000
House rent allowance 600,000
Annual bonus 480,000
In addition to the above, TC also provided him with the following benefits:
(i) Free meals while on duty worth Rs. 450,000.
(ii) Staff discounts across all restaurants owned by ZL. Salman availed discount worth
Rs. 40,000 during the year.
(iii) Health insurance up to the amount of Rs. 500,000 covering his spouse and two
children as per terms of his employment. The insurance premium related to this
benefit amounted to Rs. 70,000. During the year, the insurance company incurred
expenses of Rs. 300,000 on hospitalization of his dependents.
(iv) A company-maintained car which was purchased by TC for Rs. 2,000,000. The fair
market value (FMV) of the car on 30 June 2023 is Rs. 5,500,000. The car is used
partly for official purposes and partly for personal use.
(v) An option to acquire 12,000 shares of ZL at a price of Rs. 98 per share under an
employee share scheme. The option was granted on 1 February 2023 when the FMV
of the shares was Rs. 104 per share. Salman exercised the option on 1 March 2023
when the FMV was Rs. 110 per share.
(vi) Provident fund contribution at 8% of the basic salary in a recognized provident fund.
During the year, 22% profit was credited to Salman’s account. His balance in the fund
amounted to Rs. 960,000.
(vii) Training of three-week culinary chef course. Salman attended this course in Dubai,
for which TC paid a course fee of Rs. 500,000. In relation to his stay in Dubai, he
was provided a travel allowance of Rs. 250,000. However, Salman opted to stay at a
relative’s house in Dubai and only spent Rs. 100,000 out of the total travel allowance
provided by TC.
Additional information:
(i) During the year, Salman received an interest income of Rs. 765,000 from his bank
account. The amount was net of withholding income tax at the rate of 15%.
(ii) Salman paid Rs. 300,000 as a donation to a non-profit organisation listed in the
Thirteenth Schedule of the Income Tax Ordinance, 2001. 80% of the amount was
paid through a crossed cheque, and the remaining amount was paid in cash.
(iii) During the year, TC withheld Rs. 400,000 in tax from his salary.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute under the correct head of income, the total income, the taxable income, and net
tax payable by or refundable to Salman for the tax year 2023. (Show all relevant exemptions,
exclusions and disallowances) (14)
Q.2 Kashif is a resident filer who owns a single-storey bungalow in Karachi, including a
basement. He solely uses the basement portion of the bungalow which constitutes 20% of
the total bungalow area, for storing his personal belongings.
On 1 October 2019, he rented his bungalow, excluding the basement portion, to Ahmed
under a three-year rental agreement. Other details of the rental agreement are given below:
Rupees
Monthly rent 300,000
Non-adjustable security deposit 3,500,000
Monthly security charges 40,000
In addition to the above, Kashif also provides Ahmed with backup electricity from a
generator during load shedding at a fixed monthly charge of Rs. 50,000. The electricity
connection of the basement is separate from the rest of the bungalow.
On 30 September 2022, the rental agreement concluded, and Kashif agreed to sell the entire
bungalow to Ahmed. The non-adjustable security deposit was retained as a down payment
for the purchase.
On 25 October 2022, Ahmed backed out of the deal and declined to purchase the bungalow.
As per the agreement, Kashif forfeited the non-adjustable security deposit.
On 1 November 2022, Kashif rented the bungalow to a new tenant, Rashid, under a rental
agreement with the same terms as above.
During the year, Kashif paid salary of Rs. 360,000 to the security guard of the bungalow
and incurred Rs. 450,000 for running the electricity generator.
Required:
compute the total income of Kashif under appropriate heads of income for the tax year 2023. (08)
Q.3 (a) Masoom is the sole owner of a business that is engaged in the trading of furniture.
During the year, the following transactions took place:
(i) He withdrew a furniture set worth Rs. 3 million, from his business to present it
to his daughter on the occasion of her wedding. The cost of the furniture set was
Rs. 2.5 million.
(ii) He sold an antique table for Rs. 1 million. The table had been gifted to him by
his father back in 2012. Its fair market value at the time of gift was
Rs. 2.2 million. His father originally purchased the table for Rs. 0.5 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and the Rules made
thereunder, discuss the tax treatment of the above transactions for Masoom. (05)
(b) Under the provisions of the Income Tax Ordinance, 2001, if a person sustains a loss
under any head of income in a tax year, the same can be set-off against the income
from any other head of income. State four exceptions to this principle. (04)
Tax Practices Page 3 of 6
Q.4 (a) Sweet Bakers (SB) is a bakery business owned by Mariam and her two brothers,
Ehsan and Ghulam, who share profits in the ratio of 60:20:20, respectively. SB has
three retail outlets located in Karachi, and it also owns agriculture land that is rented
to a chicken farmer. SB is registered with sales tax authorities as a Tier-1 retailer.
The following information has been extracted from the records of SB for the year
ended 30 June 2023:
Rs. in million
Net sales 500
Less: Cost of sales (350)
Gross profit 150
Less: Operating expenses (73)
Profit before tax 77
(i) Net sales include rental received from the chicken farmer, as detailed below:
▪ A monthly payment of Rs. 0.5 million.
▪ Supply of 120 paitis of eggs (agriculture produce) every month. Each paiti
holds a market value of Rs. 7,200. SB consumed these eggs in the
production of various bakery items, but they are not accounted for in the
abovementioned cost of sales.
(ii) Cost of sales include:
▪ purchase of various raw materials worth Rs. 24 million on which no
withholding tax was deducted at the time of payment. SB made total
purchases of Rs. 200 million during the year.
▪ purchase of milk powder worth Rs. 10 million, of which 10% is delivered
to the homes of the three partners for their personal use.
▪ salaries of Rs. 8.2 million, Rs. 6 million, and Rs. 4.8 million to Mariam,
Ehsan, and Ghulam, respectively.
▪ purchase of a new bakery plant worth Rs. 15 million.
(iii) Operating expenses include:
▪ purchase of point-of-sale machines worth Rs. 0.4 million which were
installed on 1 July 2022 in all outlets to integrate with FBR’s computerized
system for real time reporting of sales.
▪ payment of Rs. 5.5 million on 1 January 2023 to an IT company for the
development of an application to facilitate online orders from customers.
The useful life of this application is expected to be five years and is
available for use from 1 October 2023.
(iv) On 1 February 2023, Mariam contributed her personal van to the business,
which she had purchased at a cost of Rs. 6 million on 1 January 2022. The fair
market value of the van at the time of transfer was Rs.9 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder, compute under the correct head of income, the total income, taxable
income, and tax liability of SB for the tax year 2023. (16)
▪ Ignore minimum tax under section 113.
▪ Show all relevant exemptions, exclusions and disallowances.
(b) Under the provisions of the Income Tax Ordinance, 2001, the tax payable by women
enterprises on profit and gains derived from business chargeable to tax under the head
‘Income from Business’ shall be reduced by 25%.
Required:
Explain the term ‘Women enterprise’. Also, discuss whether the abovementioned
reduction in tax liability is available to Sweet Bakers. (03)

Q.5 (a) Akbar, a Pakistani citizen, worked at ABC Pakistan Limited, an unlisted public
company and a wholly owned subsidiary of ABC International, which is based in the
USA. Akbar’s engagement was formed through a two-year agreement, with the
provision that at the end of this period, he had the option to continue his employment
with ABC International in USA.
The two-year period ended on 30 September 2022 and Akbar left for USA on
1 October 2022 to continue his employment in USA as per the agreement.
On 15 February 2023, he resigned from ABC International, USA, and joined DEF
Limited in the UK under an employment agreement. However, due to his family
problems, he resigned from DEF Limited and returned to Pakistan on 30 April 2023.
Required:
Under the provisions of the Income Tax Ordinance, 2001, discuss the tax treatment
of Akbar’s foreign source salary income earned during the tax year 2023. (06)
(b) Consider the following independent situations:
(i) Hasan, a Pakistani citizen, has been working in the UK since 2015. In tax year
2022, Hasan invested in shares of a company, listed on the Pakistan Stock
Exchange. Within the same tax year, he subsequently sold these shares and
realized a gain of Rs. 500,000. However during the tax year 2023, he did not
earn any Pakistan source income.
(ii) Mehjabeen, a US citizen, got married in Pakistan five years ago and has since
been residing in the country. In January 2023, Mehjabeen’s father passed away
in the USA, bequeathing her a property worth USD 400,000, situated within
the USA. She neither earns income nor holds any assets in Pakistan in her
name, which has resulted in her not being required to file a return of income
until tax year 2022.
(iii) XYZ (Pvt.) Limited ceased its business operations indefinitely on
31 August 2022. XYZ submitted a notice of discontinued business to the
Commissioner in accordance with regulatory requirements. XYZ’s year-end
falls on 31 December.
Required:
Discuss whether the above persons are required to furnish the return of income for
the tax year 2023 under the provisions of the Income Tax Ordinance, 2001. (05)
(c) Under the provisions of the Income Tax Ordinance, 2001, specify the time period
within which the Commissioner may amend an assessment order. (03)
Q.6 (a) Sarfraz is a sole proprietor. Under the provisions of the Sales Tax Act, 1990, discuss
whether each of the following individuals/entities is an associate of Sarfraz:
(i) Jehanzeb: He has been working as an accountant for the past twenty years and
has been responsible for filing the tax returns of both Sarfraz and his business.
(ii) Falah Limited (FL): Sarfraz owns 20% shares in FL, while his mother owns
30% shares in FL.
(iii) Sarah: She is the adopted daughter of Sarfraz’s wife, Fatima. Sarah was
adopted by Fatima before her marriage to Sarfraz.
(iv) Umeed Trust (UT): Sarfraz is one of the trustees of UT. The trust was
established to oversee the operations of an orphanage. (06)
(b) Under the provisions of the Sales Tax Act, 1990 and the Rules made thereunder, list
different types of returns alongwith the due dates for filing of such returns. (05)
Q.7 Zeenat Enterprises (ZE), a sole proprietorship, is registered under the Sales Tax Act, 1990.
ZE is engaged in the business of manufacturing and supplying cosmetic products. The
following information has been extracted from the records of ZE for the month of
August 2023:
Rs. in million
Purchases
Taxable goods from registered persons 44
Taxable goods from unregistered persons 9
Supplies
Taxable goods to registered persons 30
Taxable goods to unregistered persons 8
Exports 12
(i) Purchases of taxable goods from registered persons include:
▪ raw material of Rs. 9.2 million (net of special discount of Rs. 1.2 million) from
an associated undertaking.
▪ glass bottles worth Rs. 4 million. Among these, 20% of the total cost corresponds
to bottles that sustained damage in transit due to an accident. As a goodwill
gesture, the supplier provided replacement bottles without any additional
consideration, accompanied by a sales tax invoice.
▪ a machine of Rs. 15 million procured from an importer. 60% of the payment
was made during the month, while the remaining amount is scheduled to be
paid in equal instalments over the next three months.
▪ pigments in retail packing, listed in the Third Schedule, for Rs. 7.5 million. The
retail price of these pigments is Rs. 7.9 million.
(ii) Purchases of taxable goods from unregistered persons comprise of beeswax obtained
from a bee farmer.
(iii) Supplies of taxable goods to registered persons include various cosmetics products,
listed in the Third Schedule, sold to a distributor for Rs. 23 million. The retail price
of these products were Rs. 25 million. During the month, the distributor returned 10%
of the goods. Corresponding debit/credit notes were issued on 5 September 2023.
(iv) Supplies of taxable goods to unregistered persons comprise of various cosmetic
products, listed in the Third Schedule, to unregistered Tier-1 retailers.
(v) Exports comprise of various cosmetic products shipped to the UAE.
(vi) Packaging material worth Rs. 6 million were returned to the supplier on
10 August 2023, and corresponding debit/credit notes were issued on the same date.
These returned materials were purchased on 2 February 2023.
(vii) A purchase of raw material from a registered person for Rs. 2.9 million on
10 February 2023, was inadvertently omitted in the sales tax returns for the month of
February 2023 and onwards.
(viii) Perfumes having the retail price of Rs. 1 million were provided to the marketing staff
as part of a promotional campaign, allowing walk-in-customers at malls and kiosks
to try the fragrances for free.
All the above figures are exclusive of sales tax, except where it is specified otherwise.
Sales tax is payable at the rate of 18%.
Required:
In light of the provisions of the Sales Tax Act, 1990 and the Rules made thereunder,
compute the amount of sales tax payable by or refundable to ZE and input tax to be carried
forward, if any, for the tax period August 2023. (Show all relevant exemptions, exclusions and
disallowances) (17)

Q.8 (a) Discuss the principles of a sound tax system. (04)
(b) List the fundamental principles of ethics for tax practitioners. Also, describe any two
of the principles. (04)
(THE END)
EXTRACTS FROM THE INCOME TAX ORDINANCE, 2001

Tax rates for salaried individuals
S. No. Taxable income Rate of tax

1. Where the taxable income does not exceed Rs. 600,000 0%
Where taxable income exceeds Rs. 600,000 but does not exceed 2.5% of the amount exceeding
2.
Rs. 1,200,000 Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 15,000 plus 12.5% of the amount
3. Rs. 2,400,000 exceeding Rs. 1,200,000
Where taxable income exceeds Rs. 2,400,000 but does not exceed Rs. 165,000 plus 20% of the amount
4. Rs. 3,600,000 exceeding Rs. 2,400,000
5.
Rs. 6,000,000 exceeding Rs. 3,600,000
Where taxable income exceeds Rs. 6,000,000 but does not exceed Rs. 1,005,000 plus 32.5% of the amount
6.
Rs. 12,000,000 exceeding Rs. 6,000,000
Rs. 2,955,000 plus 35% of the amount
7. Where taxable income exceeds Rs. 12,000,000 exceeding Rs. 12,000,000
Tax rates for non-salaried individuals and AOP

1. Where taxable income does not exceed Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000 5% of the amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 800,000 but does not exceed Rs. 10,000 plus 12.5% of the amount
3.
Rs. 1,200,000 exceeding Rs. 800,000
4.
Rs. 2,400,000 exceeding Rs. 1,200,000
5.
Rs. 3,000,000 exceeding Rs. 2,400,000
6.
Rs. 4,000,000 exceeding Rs. 3,000,000
7.
Rs. 6,000,000 exceeding Rs. 4,000,000
8. Where taxable income exceeds Rs. 6,000,000
exceeding Rs. 6,000,000
Initial allowance
The rate of initial allowance shall be 25% for plant and machinery.
Depreciation rates
1. Motor vehicle 15%
2. Plant and machinery 15%
Tax rate for profit on debt

The tax rate for profit on debt is 15%.
The Institute of 11 March 2023

Tax Practices
Q.1 For the purpose of this question, assume that the date today is 30 September 2023.
Cheng, a Chinese citizen, has been in Pakistan since the year 2015. For career growth, he
left his employment with Hope Limited (HL), an unlisted FMCG, on 30 September 2022
and joined a leading chain of hotels namely Desire Hotels (DH) on 1 October 2022. The
details of his emoluments during the year ended 30 June 2023 are as follows:
HL DH
Particulars
--------- Rupees ---------
Basic salary per month 350,000 450,000
Medical allowance per month 35,000 60,000
Utilities allowance per month 20,000 30,000
Lunch provided by the employer at subsidized
rate – per month cost to employer 10,000 25,000
Company maintained car (for both official as well
as personal purposes):
▪ cost 3,000,000 5,000,000
▪ fair market value as on 30 June 2023 2,500,000 6,000,000
Annual bonus related to the tax year 2022 350,000 -
Gratuity under an unapproved scheme 1,225,000 -
Additional information (other benefits provided by DH):

(i) Two return air tickets to China to the extent of Rs. 600,000 for Cheng and his spouse.
During the year, he incurred Rs. 550,000 on account of his traveling to China.
(ii) Rs. 750,000 received for signing a bond with DH, according to which Cheng cannot
leave the organization before 30 June 2024.
(iii) Rs. 400,000 received from DH as commission for securing a large contract.
(iv) Payment of the outstanding loan of Rs. 3,800,000 by DH as per the terms of the
employment contract. Cheng had obtained this interest free loan from HL, for the
construction of a house. On 1 July 2019, the house was given on rent under a 5-
year rental agreement at an annual rental of Rs. 800,000.
Other information:
(i) During the year, he received CNY 31,500 (net of 30% tax) equivalent to Rs. 1,260,000
in his Pakistani bank account being a share of profit from a business in China.
(ii) During the year, he received cash dividend of Rs. 97,750 (net of withholding tax at
the rate of 15%) and bonus dividend of 2,000 shares from Ambitious Limited (AL), a
company listed on the Pakistan Stock Exchange. The fair market value of AL’s share
on the date of entitlement of bonus shares and on 30 June 2023 were Rs. 25 and
Rs. 20 respectively.
(iii) He transferred an amount of Rs. 600,000 to the bank account of a non-profit
organization as donation for the flood affectees.
(iv) On 25 June 2023, he paid an annual premium of Rs. 300,000 on a life insurance
policy.

Required:
compute total income, taxable income and tax payable by or refundable to Cheng for the
tax year 2023. (Show all relevant exemptions, exclusions and disallowances) (19)
Q.2 Taha who has recently joined a tax consultancy firm, prepares the following table with
regard to taxability of interest income earned by various persons during the tax year 2023:
Taxability of interest income

Amount of
Name of Mode of Admissibility
Status interest income Head of Tax
person investment of related
(Rs. in million) income regime expense
Resident Term Deposit Income from
Aatif 1.1 FTR Yes
Individual Receipts of a bank other sources
Resident Term Deposit Income from
Bilal 5.5 NTR Yes
Individual Receipts of a bank other sources
Resident Bahbood Savings Income from
Seema 5.2 Exempt No
Individual Certificate other sources
Non- Securities issued
Income from
Kamal resident *3.3 by the resident NTR Yes
other sources
Individual person
Loan agreement
Resident with Association Income from
Sikandar 4.4 NTR Yes
Individual of Persons being business
its member
Dream Resident Term Finance
Income from
Bank Banking 10.1 Certificates of a NTR Yes
other sources
Limited Company company
*Profit was paid outside Pakistan on approved securities which were widely issued outside Pakistan.
Required:
Prepare the corrected ‘Taxability of interest income’ columns in the table. (07)
Q.3 For the purpose of this question, assume that the date today is 31 August 2023.
Faith Brothers (FB) is engaged in the business of manufacturing tools and equipment.
Following information has been extracted from FB’s records for the year ended
30 June 2023:
Rs. in million
Revenue 1,400
Expenses (1,270)
Other income 47
Net profit 177
(i) Expenses include:
▪ accounting depreciation of Rs. 188 million.
▪ cash payment of Rs. 1 million for purchasing the ten air tickets.
▪ payment of Rs. 4 million to shipping line on account of demurrages for
containers blocked at port. Moreover, penalties of Rs. 9 million were also paid
to various clients on delaying their orders because of closure of production plant
for two weeks during the year.
▪ payment of Rs. 50 million to a builder for the construction of a building. The
work is still in progress at the year end.
▪ payment of AED 100,000 equivalent to Rs. 5 million to a research institute in
UAE for the purpose of developing a new product.
▪ a foreign exchange loss of Rs. 15.8 million in respect of amount payable to FB’s
associated company in Qatar. This liability arose on 1 January 2022 from the
import of a second-hand plant at a cost of QAR 400,000. As per the agreement,
the payment would be made on 1 January 2024. Relevant exchange rates are as
follows:
1 January 2022 30 June 2022 30 June 2023
Rs. per QAR 45 40 79.5
(ii) Other income comprises of:
▪ recovery of bad debts of Rs. 16 million. The amount of Rs. 30 million was
written off three years ago, out of which only Rs. 10 million was allowed by the
tax authorities.
▪ capital gain of Rs. 40 million on sale of following securities on 1 March 2023:
Capital gain
Date of purchase
(Rs. in million)
Modaraba certificates 10 July 2022 8
Shares of an unlisted company 20 February 2022 12
Shares of a listed company 15 January 2019 20
▪ a loss of Rs. 9 million in respect of an insurance claim. The claim was lodged
against damage of a new machinery during the shipment that rendered it unfit
for use.
(iii) Tax depreciation for the year on all fixed assets, other than imported second-hand
plant, amounted to Rs. 214 million.
(iv) Following are the details of losses brought forward from previous years:
Rs. in million
Loss from business relating to tax year 2021 52
Loss from speculation business relating to tax year 2022 14
Unabsorbed tax depreciation 168
Capital losses on sale of listed securities relating to:
▪ tax year 2019 8
▪ tax year 2020 6
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(a) compute total income, taxable income and income tax liability of FB for the
tax year 2023. (17)
(b) determine the amount of FB’s remaining unutilised tax losses alongwith the tax year
upto which such losses may be carried forward. (03)
Q.4 (a) Mujtaba Hussain is engaged in the business of cashew nut processing. On
31 July 2022, he entered into a six-month forward contract for the purchase of raw
materials used in his business to safeguard against losses due to price fluctuations. On
31 January 2023 i.e. the maturity date of the forward contract, he took the delivery of
the raw materials and settled the contract by making the due payment.
Required:
Under the provisions of the Income Tax Ordinance, 2001 discuss the tax treatment of
the above transaction. (03)

(b) For the purpose of this part of the question, assume that the date today is
30 September 2023.
On 1 July 2022, Kulsoom, a widow, established an online garment retail business and
employs various ecommerce platforms to market a diverse range of garments to
customers throughout Pakistan. She operates the business from her residential house.
During the year, the sales from online business were Rs. 6,000,000 and total
expenditures including her personal expenses were Rs. 5,800,000.
At the year end, her sole assets consisted of a 1300cc personal car and Rs. 800,000 as
cash on hand.
Required:
advise the requirement of filing of return of income and tax treatment of the above to
Kulsoom. (Calculation of taxable income and tax liability is not required) (05)
Q.5 (a) Assurance & Co., a partnership firm, has filed an appeal against the order of the
Commissioner (Appeals) to the Appellate Tribunal Inland Revenue (ATIR) which is
pending before ATIR. Recently, the firm has appointed a new tax adviser who
proposed seeking relief through Alternative Dispute Resolution (ADR) mechanism
provided by the Income Tax Ordinance, 2001.
Required:
Under the provisions of the Income Tax Ordinance, 2001, advise Assurance & Co. in
respect of the following matters:
(i) Cases eligible for settlement through ADR mechanism (02)
(ii) Composition of the ADR committee (03)
(b) State the provisions of the Income Tax Ordinance, 2001 relating to the filing of revised
return of income by a taxpayer. (04)
(c) Under the provisions of the Income Tax Ordinance, 2001 who is required to furnish
the foreign income and assets statement. Also list the particulars to be mentioned in
the said statement. (03)
Q.6 (a) Following are the independent transactions carried out by different enterprises:
(i) In November 2022, an agreement for the acquisition of machine on hire
purchase was signed. In December 2022, the machine was acquired under this
agreement against 25% down payment of Rs. 30 million. The remaining
balance is to be paid in 24 equal monthly installments of Rs. 4.5 million each.
(ii) In December 2022, an advance of Rs. 12 million was received against delivery
of goods to be made in March 2023.
(iii) A machine of Rs. 38 million was purchased in July 2022 but it was put to use
in November 2022.
(iv) Goods of Rs. 7 million were sold in September 2022 but due to limited storage
capacity at buyer’s premises, the goods were delivered in January 2023.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
identify and discuss the time (month) of supply for the chargeability of sales tax in
respect of the above transactions. (05)
(b) In the light of the Sales Tax Act, 1990 and Rules made thereunder, identify the
situation(s) under which the Inland Revenue Department may recover the amount of
sales tax from a person without issuing him a show cause notice. Also state the
procedure for the recovery of the said amount. (04)
Q.7 Confidence Engineering (CE), a sole proprietorship, is registered under the Sales Tax Act,
1990. CE is engaged in the business of manufacturing and supplying auto parts. Following
information is available from CE’s records for the month of February 2023:
Rs. in million
Purchases
Taxable goods from registered persons 338
Supplies
Taxable goods to registered persons 220
Taxable goods to unregistered persons 40
(i) Taxable goods from registered persons include wires and cables of Rs. 6 million,
which were used in the repair of machinery.
(ii) Taxable goods from unregistered persons include goods worth Rs. 14 million
purchased from a cottage industry.
(iii) Taxable goods to registered persons include:
▪ auto parts of Rs. 5 million, which were supplied free of cost in exchange of
defective parts covered under warranty.
▪ auto parts of Rs. 4 million, which were withdrawn by the owner for his personal
use.
▪ raw materials of Rs. 2 million, which were given to factory engineer for his
personal use.
▪ goods of Rs. 32 million, which were sold to Pray Traders (PT) at a credit term
of 2/10, n/30. PT paid the amount within 10 days and availed the discount.
(iv) Taxable goods to unregistered persons include goods of Rs. 16 million provided to a
cottage industry.
(v) Raw materials of Rs. 25 million were destroyed due to a fire incident at the factory
store. All such materials were purchased from registered suppliers.
(vi) Raw materials of Rs. 26 million were returned to suppliers. The materials were
purchased in November 2022.
(vii) A sales tax invoice of Rs. 8 million dated 15 July 2022 was erroneously not declared
in the sales tax returns for the month of July 2022 and onwards.
(viii) Taxable goods of Rs. 19 million were returned by the customers. These goods were
sold in July 2022.
(ix) Electricity bill of Rs. 1.2 million was paid in cash.
(x) Sales tax credit brought forward from last month amounted to Rs. 27 million.
All the above figures are exclusive of Sales Tax which is payable at the rate of 17%. Assume
that proper debit/credit notes were issued for the purchase and sales returns.
Required:
(a) In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder,
compute the amount of sales tax payable by CE and input tax to be carried forward,
if any, for the tax period February 2023. (Show all relevant exemptions, exclusions and
disallowances) (15)
(b) State the reason(s) for your treatment of all exemptions, exclusions and disallowances
while computing CE’s sales tax liability in part (a). (04)
Q.8 Give two examples, each of tax avoidance and tax evasion. Also suggest the appropriate
tax measures to prevent that tax evasion. (06)
(THE END)


Where taxable income exceeds Rs. 600,000 but does not exceed 2.5% of the amount exceeding
2.
Rs. 1,200,000 Rs. 600,000
3. Rs. 2,400,000 exceeding Rs. 1,200,000
4. Rs. 3,600,000 exceeding Rs, 2,400,000
5.
Rs. 6,000,000 exceeding Rs. 3,600,000
6. Rs. 12,000,000 exceeding Rs. 6,000,000

Where taxable income exceeds Rs. 800,000 but does not exceed Rs. 10,000 plus 12.5% of the amount
3.
Rs. 1,200,000 exceeding Rs. 800,000
4.
Rs. 2,400,000 exceeding Rs. 1,200,000
5.
Rs. 3,000,000 exceeding Rs. 2,400,000
6.
Rs. 4,000,000 exceeding Rs. 3,000,000
7.
Rs. 6,000,000 exceeding Rs. 4,000,000
Capital gains on disposal of securities

The rate of tax to be paid under section 37A shall be as follows:
S. No. Holding period Rate of tax
1. Where the holding period does not exceed one year 15%
2. Where the holding period exceeds one year but does not exceed two years 12.5%
3. Where the holding period exceeds two years but does not exceed three years 10%
4. Where the holding period exceeds three years but does not exceed four years 7.5%
5. Where the holding period exceeds four years but does not exceed five years 5%
6. Where the holding period exceeds five years but does not exceed six years 2.5%
7. Where the holding period exceeds six years 0%
Provided that:
(i) the reduced rates of tax on capital gain arising on disposal shall apply where the securities are acquired on or after the first
day of July 2022; and
(ii) the rate of 12.5% tax shall be charged on capital gain arising on disposal where the securities are acquired on or before the
30th day of June 2022 irrespective of holding period of such securities.
Initial allowance
Depreciation rate
Depreciation rate specified for the purpose of section 22 for plant and machinery is 15%.
Rate of Dividend Tax

The rate of dividend tax is 15%.
Tax Practices
Suggested Answer
Certificate in Accounting and Finance – Spring 2023
A.1 Mr. Cheng

Computation of total income, taxable income and tax liability
For the tax year 2023
Income from salary: HL DH Total
------------------- Rupees -------------------
Basic salary 1,050,000 4,050,000 5,100,000
350,000×3 450,000×9
Medical allowance 105,000 540,000
35,000×3 60,000×9
Less: 10% Exempt (105,000) (405,000)
- 135,000 135,000
Utilities allowance 60,000 270,000 330,000
20,000×3 30,000×9
Subsidized food provided by the employer 30,000 Exempt 30,000
10,000×3
Company maintained car 37,500 187,500 225,000
150,000(3,000,000 250,000(5,000,000
×5%)×(3/12) ×5%)×(9/12)
Annual bonus 350,000 - 350,000
Gratuity under an unapproved scheme 1,225,000
Less: Exempt (75,000)
1,150,000 - 1,150,000
Return tickets to China 550,000 550,000
Amount received for signing a bond 750,000 750,000
Commission for securing a contract 400,000 400,000
Loan paid off by DH 3,800,000 3,800,000
Profit on loan at benchmark rate (10%) 95,000 95,000
3,800,000×10%×3/12
12,915,000
Income from property:
Rent 800,000
Less: Repair allowance @ 1/5 (160,000)
Less: Profit on loan (as above) (95,000)
545,000
Income from business:
Foreign source income
Share of profit in business 1,260,000÷0.7 1,800,000
FTR income:
Dividend from a listed company 97,750÷0.85 115,000
Bonus dividend -
Total income 15,375,000

Less: FTR income (115,000)
Taxable income 15,260,000
Tax liability:
Upto Rs. 12,000,000 2,955,000
Above Rs. 12,000,000 @ 35% 1,141,000
4,096,000
Less: Foreign tax credit
Actual tax paid (1,800,000 – 1,260,000) 540,000
Tax liability at average rate of tax [(4,096,000÷15,260,000)×1,800,000] 483,145 (483,145)
3,612,855
Page 1 of 8
Less: Tax credit on donations
Donation amount 600,000
30% of taxable income 15,260,000×30% 4,578,000
Tax credit on donation [3,612,855/15,260,000×600,000 being lower] (142,052)
No tax credit on payment of insurance premium -
Tax liability – NTR 3,470,803
Tax liability on FTR income (Dividend) 115,000×15% 17,250
Total tax liability 3,488,053
Less: Tax deduction at source on dividend (17,250)
Income tax payable 3,470,803
A.2 Admissibility
Name of person Head of income Tax regime
of related expenses
Atif - FTR No
Income from other
Bilal NTR Yes
sources
Income from other
Seema NTR Yes
sources
Kamal - Exempt No
Exempt (Include in income
Sikandar - No
just for rate purpose)
Dream Bank Income from business NTR Yes
Tax Practices
Suggested Answer
A.3 (a) Faith Brothers

Computation of total income, taxable income and tax payable/refundable
Rs. in million
Income from business
Profit before tax 177.0
Add: Inadmissible expenses

Accounting depreciation 188.0
Payment to builder 50.0
Payment to a research institute in UAE 5.0
Foreign exchange loss 15.8
Loss on disposal of a capital asset (new machinery damaged during
shipment) 9.0
267.8
Less: Admissible expenses
Cash payment for the purchase of ten air ticket -
Payment of demurrages -
Payment of penalties -
Bad debts recovered not allowed in the previous year (16.0)
Shortfall in recovery of bad debts 16–(30–10) (4.0)
Reversal of capital gain (40.0)
(60.0)
Income before tax depreciation 384.8
Less: b/f business loss (52.0)

Tax depreciation (214.0)
Tax depreciation on plant (W-1) (3.9)
(217.9) (269.9)
Income before unabsorbed tax depreciation 114.9
Less: Unabsorbed tax depreciation 114.9×50% (57.5)
Total business income 57.4
Capital gain
Modaraba certificates 8.0
Shares of an unlisted company 12.0
Loss on disposal of a capital asset (new machinery damaged during
shipment) (9.0)
3.0
Shares of a listed company 20.0
Less: B/f capital loss (6.0)
14.0
Total income 82.4
Less: Separate block of income

Capital gain on Modaraba (8.0)
Capital gain on listed company share (14.0)
(22.0)
Taxable income 60.4
Page 3 of 8
Tax liability
Upto 6 million 1.3
Above 6 million 54.4×35% 19.0
20.3
Tax on capital gain – on madaraba 8×15% 1.2
– on listed company shares 14×12.5% 1.8
23.3
W-1: Cost of plant and depreciation thereon

Rs. in million
Purchase cost (400,000×45) 18.0
Foreign exchange gain – June 2022 400,000×5(45–40) (2.0)
16.0
Initial allowance @ 25% (4.0)
12.0
Depreciation – tax year 2022 12×15% (1.8)
10.2
Foreign exchange loss – June 2023 400,000×39.5(79.5–40) 15.8
26.0
Depreciation – tax year 2023 26×15% (3.9)
22.1
(b) Amount of unutilized losses alongwith maximum period to which these losses can be
carried forward:
Given Utilized c/f Maximum
------- Rs. in million ------- period (TY)
Loss from business - Tax year 2021 52 52 - -
Speculation - Tax year 2022 14 - 14 2028
Unabsorbed tax depreciation 168 57.5 110.5 No time limit
Capital loss on sale of listed securities:
- Tax 2019 8 - - Already lapsed
- Tax 2020 6 6 - -
A.4 (a) The forward contract entered into by Mujtaba Hussian for the purchase of raw materials
used in his business is in the nature of a hedging contract. He entered into this contract
to safeguard against losses due to price fluctuation. Such contracts have specifically been
excluded from the definition of speculative business. Consequently, payment to settle
the forward contract is an expenditure incurred in the normal course of business and is
a deductible expenditure.
(b) As a widow, she has been exempt from filing an income tax return despite owning a
1300 cc car. However, starting a new business during the tax year 2023 obligates her to
file an income tax return if her income from business exceeds Rs. 300,000.
Although the reported figures in the question depict income of Rs. 200,000, which is
below the threshold limit of Rs. 300,000, the expenditure amount is comprised of both
personal as well as business expenses. However, for computing taxable income, only
business expenses shall be allowed. Therefore, by considering business expenses only,
her income may exceed Rs. 300,000 and consequently, she will be required to file the
income tax return.
Moreover, if her taxable income from business exceeds Rs. 600,000, she is required to
pay tax based on rates given in the First Schedule of the Income Tax Ordinance.
Tax Practices
Suggested Answer
A.5 (a) (i) Assurance & Co. may apply for settling the dispute through the ADR mechanism
in the following cases:
▪ Where the liability of tax is Rs. 100 million or above or the admissibility of a
refund;
▪ The extent of waiver of default surcharge or penalty; or
▪ Any other specific relief required to resolve the dispute.
However, no application shall be accepted if a criminal proceeding has already
been initiated against such a case.
(ii) The Board may, after examination of the application of an Assurance & Co.,
appoint a committee, comprising of:
(A) Chief Commissioner Inland Revenue having jurisdiction over the case;
(B) person to be nominated by Assurance & Co. from a panel notified by the
Board comprising of:
– chartered accountants, cost and management accountants, and
advocates having a minimum of ten years’ experience in the field of
taxation.
Provided that the Assurance of Co. shall not nominate a chartered
accountant or an advocate if the said chartered accountant or the
advocate is or has been an auditor or an authorized representative of
the taxpayer;
– officers of the Inland Revenue Service who have retired in BS 21 or
above; or
– reputable businessmen as nominated by Chambers of Commerce and
Industry.
(C) a person to be nominated through consensus by the members appointed
under (A) and (B) above, from the panel as notified by the Board in
clause (B) above;
Provided that where the member under this clause cannot be appointed
through consensus, the Board may nominate a member proposed by the
taxpayer to be nominated as per clause (B).
(b) Any person who has furnished a return, discovers any omission or wrong statement
therein, may file a revised return subject to the following conditions:
(i) It is accompanied by the revised accounts or revised audited accounts, as the case
may be.
Provided that the Commissioner may waive this condition if satisfied that filing of
revised accounts or audited accounts is not necessary.
(ii) The reasons for revision of the return, in writing, duly signed by the taxpayer are
filed with the return.
(iii) Taxable income declared is not less than or loss declared is not more than income
or loss.
A revised return may be filed within sixty days from the date of return filing without the
Commissioner's approval.
However, after sixty days, a revised return may be filed with the approval of the
Commissioner in writing for revision of the return.
Page 5 of 8
Approval from Commissioner shall be deemed to have been granted by the
Commissioner if:
(i) the Commissioner has not made an order of approval in writing for revision of
return, before the expiration of 60 days from the date when the revision of return
was sought, or
(ii) taxable income declared is more than or the loss declared is less than the income
or loss, as the case may be determined u/s 120.
(c) Every individual resident taxpayer who has foreign income of not less than USD 10,000
or foreign assets with a value of not less than USD 100,000 shall furnish a foreign income
and assets statement. The statement must be in the prescribed form and verified in the
prescribed manner, and should include the following particulars:
▪ The person’s total foreign assets and liabilities as of the last day of the tax year;
▪ Any foreign assets transferred by the person to any other person during the tax
year and the consideration for the said transfer; and
▪ Complete particulars of foreign income, the expenditure derived during the tax
year, and the expenditure wholly and necessarily for the purposes of deriving the
said income.
A.6 (a) Time of supply Reasons

(i) November 2022 Time of supply in relation to the supply of goods
under a hire purchase is the time at which the
agreement is entered into.
(ii) March 2023 Time of supply is the period in which goods are
delivered.
(iii) July 2022 Time of supply is the time when goods are
available to the recipient of the supply
irrespective of their use.
(iv) September 2022 Time of supply is the time when goods are
available to the recipient for the supply
irrespective of actual delivery.
(b) Short paid amounts recoverable without notice:

Where a registered person pays the amount of tax less than the tax due as indicated in
his return, the short paid amount of tax along with default surcharge shall be recovered
from a such person without giving him a show cause notice and without prejudice to
any other action prescribed under the Sales Tax Act or the rules made thereunder, as
follows:
▪ By stopping the removal of any goods from his business premises, and
▪ Through the attachment of his business bank accounts,
Provided that no penalty under the Sales Tax Act shall be imposed unless a show cause
notice is given to the such person.
Tax Practices
Suggested Answer
A.7 (a) Confidence Engineering

Computation of tax payable
For tax period February 2023
Taxable Sales tax
Amount @ 17%
Input Tax: ----- Rs. in million -----
Wires and cables 6 1.02
Taxable goods from remaining registered persons 332 56.44
(338–6)
Purchases from cottage industry 14 -
Purchases from remaining unregistered person 46 -
(60–14)
Raw material given to the factory engineer (2) (0.34)
Raw material destroyed by fire (25) (4.25)
Purchase return within 180 days (26) (4.42)
Electricity bill 1.2 0.20
48.65
Input tax brought forward from last year 27.00
Total input tax 75.65
Output Tax:
Supplies under warranty period 5 -
Goods withdrawn by owner for personal use 4 0.68
Raw material given to factory engineers 2 -
Sales to Pray Traders 32 5.44
Remaining sales to registered person 177 30.09
(220–5–4–2–32)
Sales to a cottage industry 16 2.72
Remaining sales to unregistered person 24 4.08
(40–16)
Invoice dated 15 July 2022 8 1.36
Sales return (lapse of 180 days) (19) -
44.37
Admissible credit (90% of output tax i.e. 39.93 (44.37×90%) or
input tax i.e. 75.65, whichever is lower (39.93)
Sales tax payable 4.44
Further tax payable for sales to unregistered person (24×3%) 0.72
Sales tax to be carried forward (75.65 – 39.93) 35.72
(b) (i) Input tax on purchases from unregistered person including cottage industry shall
not be allowed.
(ii) The ‘sale price’ of the product sold includes the cost of parts, if any, to be supplied
during the warranty period, therefore it is not considered as a ‘separate supply’ and
hence no sales tax is chargeable at the time of disposal of ‘parts’ to meet the
warranty claim.
(iii) Putting to private use of raw material is not a supply and therefore it is not
chargeable to tax.
(iv) The adjustment on account of sale return credit can only be claimed if credit note
is issued within 180 days of the relevant supply. Therefore, no tax credit will be
available to CE.
Page 7 of 8
A.8 Tax Avoidance:
▪ Make donations to an approved charity organization to claim a tax credit.
▪ A partnership firm may be converted into a small company to avail benefit in tax rate of
such company.
Tax Evasion Measures to prevent tax evasion

Mr. B earned an income of Rs. 10 million. Cash inflow/outflow shall be made through a
However, he only declared Rs. 6 million declared bank account.
which is verifiable from the banks. He has
hidden the remaining amount in a separate
bank account.
Mr. C earned a turnover of Rs. 10 million. Only those expenses shall be admissible which
However, he kept it as cash in his locker and are paid through banking channel / Cash
hid it from tax authorities. He paid all related expenses shall not be admissible.
expenses from this cash.
(The End)

Tax Practices
Q.1 Azaadi & Co. (AC) is an association of persons engaged in the business of manufacturing
disposable products. Following information has been extracted from AC’s records for the
year ended 30 June 2022:
Rs. in million
Sales 380
Less: Sales tax (45)
Less: Trade discount (15)
Net sales 320
Less: Cost of sales (240)
Gross profit 80
Loss before tax (66)
(i) Cost of sales includes:
▪ payment of Rs. 12 million (including sales tax of Rs. 2 million) to Hashim Limited
(HL) for the purchase of a new machine for making plastic container in exchange
of an old machine having a book value and a fair market value of Rs. 5 million
and Rs. 4 million respectively on exchange date. The transaction was carried out
on 1 July 2021.
Old machine was purchased on 1 January 2020. Disposal of old machine and
depreciation of new machine were not recorded in AC’s books of accounts. Tax
WDV of old machine was the same as accounting WDV on the disposal date.
▪ purchase of raw materials of Rs. 40 million against which no withholding tax was
deducted at the time of payment. During the year, AC purchased total raw
material of Rs. 120 million.
▪ closing inventory of damaged finished goods of Rs. 18 million. Due to heavy rain,
these goods were damaged and it is expected to fetch Rs. 12 million only.
(ii) Operating expenses include:
▪ salary of Rs. 0.275 million paid to office boy in cash. He was paid a monthly salary
of Rs. 25,000 for eleven months.
▪ warehouse rent of Rs. 1.6 million paid through credit card linked to notified
business bank account.
▪ bad debt of Rs. 2.8 million written off against receivable from a customer on his
insolvency.
▪ commission of Rs. 3.2 million paid to one of the members of AC, by crediting the
amount to his bank account.
▪ scholarship of Rs. 4.5 million paid to Sara, one of AC’s staff members, for higher
studies in accordance with the terms of the employment.
▪ payment of Rs. 6.4 million for the purchase of a specialized software for AC’s
manufacturing department on 1 April 2022. The software is expected to be used
for five years. Although the software is available for use from the date of purchase,
AC’s members have decided to implement this software from 1 July 2022.
▪ depreciation and financial charges of Rs. 2.1 million and Rs. 1.5 million
respectively in respect of a car which was acquired on financial lease.
On 1 July 2021, AC entered into a lease agreement with a bank for a car of
Rs. 10.5 million against the annual lease rentals of Rs. 3.0 million, payable in
arrears. The car has been used 80% for business purposes and 20% for personal use
of members.
Required:
(a) compute the total income, taxable income and tax liability of Azaadi & Co. for the tax
year 2022. (15)
(b) discuss the tax implication in respect of scholarship received by Sara in her return of
income for tax year 2022. (02)
Note: Show all relevant exemptions, exclusions and disallowances.
Q.2 Nasir has been working as head of finance in Asaaish (Private) Limited (APL). He received
following monthly emoluments from APL during the year ended 30 June 2022:
Rupees
Basic salary 800,000
Medical allowance 100,000
Cost of living allowance 200,000
In addition to the above, APL also provided him the following benefits:
(i) Residential house owned by APL for no rent. The fair market value of the rent was
Rs. 300,000 per month.
(ii) Company maintained car. The car was acquired on lease by APL on 1 July 2020 at an
annual rental of Rs. 1,100,000. The fair market value of the car as on 1 July 2020 and
30 June 2022 were Rs. 4,000,000 and Rs. 6,000,000 respectively. 70% of the car is used
for office purpose while 30% is used for personal purposes.
(iii) 250 liter of fuel every month. The average petrol price during the year was
Rs. 180 per liter.
(iv) Reimbursement of car maintenance expenses upto Rs. 20,000 per month. During the
year, APL reimbursed Rs. 150,000 to him in this respect.
(v) Health insurance for Nasir and his dependents as per the terms of employment. For
this purpose, APL is paying annual insurance premium of Rs. 100,000. The insurance
company incurred expenses of Rs. 500,000 on hospitalization of his dependents.
(vi) Ad-hoc relief allowance equal to one month’s basic salary keeping in view the increase
in inflation.
Nasir incurred a monthly expenditure of Rs. 20,000 from July 2021 to November 2021 while
working from home under the COVID guidelines issued by APL’s management.
Withholding tax deducted by APL from his salary during the tax year 2022 amounted to
Rs. 4,500,000.
Other information:
(i) During the year, he got married and received Rs. 1,000,000 in cash as gifts from
various relatives and friends including Rs. 400,000 from his parents. In addition, his
parents gifted him a car worth Rs. 5,000,000.
(ii) During the year, he paid a cash donation of Rs. 480,000 to a non-profit organization
listed in the Thirteenth Schedule.
(iii) During the year, Nasir contributed Rs. 4,700,000 to an approved pension fund under
the Voluntary Pension System Rules, 2005.
Required:
(a) compute the total income, taxable income and net tax payable by or refundable to
Nasir for the tax year 2022. (Show all relevant exemptions, exclusions and disallowances) (14)
(b) With reference to provision of residential house to Nasir by APL, discuss the tax
implication for APL in this regard. (02)
Q.3 (a) Nargis is a resident filer. During the tax year 2022, she disposed of various assets.
Relevant details of these assets are as follows:
Disposal Purchase
Cash Fair market Cost of
Date of Date of
consideration value purchase
disposal purchase
---- Rs. in million ---- Rs. in million
Investment in shares
of a public unlisted 2.8 3.0 01-Apr-22 2.0 01-Jun-20
company
Investment in shares
3.5 3.5 01-Jul-21 2.1 30-Jun-13
of a listed company
Personal car 5.0 6.0 31-Dec-21 3.8 01-Jan-19
Painting 1.2 1.2 16-Sep-21 1.7 16-Feb-17
Jewelry 8.0 7.6 30-Jun-22 (see note 1) 01-May-16
Note 1: She received the jewelry as a gift from her mother in law at the time of her
marriage when its fair market value was Rs. 4.8 million.
Required:
(i) compute the amount to be chargeable to tax under the head of capital gain. Also
state the reason for ignoring gain / loss, if any. (06)
(ii) compute the tax liability of Nargis in respect of the capital gain computed in
(i) above assuming that she has no other source of income. (02)
(b) Shahid is a resident filer and has provided following information pertaining to tax year
2022:
(i) On 16 June 2018, he inherited a bungalow having a fair market value of
Rs. 50 million from his father on his death. On 1 January 2022, he decided to
sell the bungalow to Zamin for Rs. 60 million and received a deposit of
Rs. 6 million. On 14 February 2022, he forfeited the deposit on refusal of Zamin
to purchase the bungalow in accordance with the terms of the contract.
On 31 March 2022, he sold and transferred the bungalow to Kazim for
Rs. 54 million.
(ii) He owns a factory building at Faisalabad. On 1 July 2021, he let out this factory
building along with the plant and machinery at a monthly rent of Rs. 1 million.
During the year, he incurred expenses of Rs. 3.5 million on the repair and
maintenance of the factory.
(iii) He owns an agricultural land in Punjab. On 1 January 2022, he rented out the
agriculture land at an annual rent of Rs. 4 million. The fair market value of the
annual rent was Rs. 5 million.
Required:
compute the total and taxable income of Shahid under appropriate heads of income
for the tax year 2022. Also compute his tax liability for the tax year 2022. (07)
Q.4 Under the provisions of the Income Tax Ordinance, 2001, discuss the taxability of foreign
source income of the following resident persons for tax year 2022. (Computation of tax
amount, if any, is not required)
(a) Li, a Chinese engineer, has been working since March 2020 as a production manager
in a Karachi based company, Karam Limited. During the tax year 2022, his bank
account in China was credited with CNY 40,000 on account of rental income for his
apartment situated in China. He remitted 40% of this amount to his bank account in
Pakistan. (03)
(b) Omar, a Pakistani national, came into Pakistan on 1 September 2021 after 20 years of
service in UAE. On 1 January 2022, his bank account in UAE was credited with
AED 50,000 on account of dividend received from a UAE based company. He
remitted 50% of this amount to his bank account in Pakistan. (03)
(c) Sidra, a Pakistani national, left Pakistan on 1 July 2021 for employment in a Singapore
based company at a monthly salary of SGD 10,000. However, due to personal reasons,
she returned back to Pakistan on 20 December 2021 and remained in Pakistan till
30 June 2022. She brought the entire foreign salary amount to Pakistan. (02)
Q.5 (a) Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(i) briefly discuss the terms ‘Normal assessment’ and ‘Best judgement assessment’. (03)
(ii) state the requirements that should be complied with by a sole proprietor on
discontinuance of business. (02)
(iii) list the additional records which are required to be kept by a sole proprietor
whose business income exceeds Rs. 500,000 as compared to a sole proprietor
whose business income is upto Rs. 500,000. (02)
(b) Rustum Enterprises opts for the final tax regime with regard to its exports business.
Required:
Under the Income Tax Ordinance, 2001 list down the rules that shall apply to income
subject to final tax. (03)
Q.6 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, explain
whether the following persons are required to be registered with the Inland Revenue
Department:
(i) A manufacturer of taxable supplies located in the residential area of Korangi,
Karachi.
(ii) A retailer whose annual turnover is Rs. 20 million.
(iii) A distributor of exempt supplies.
(iv) An exporter of taxable goods. (04)
(b) Goods exported shall be charged to tax at the rate of zero percent. What are the
exceptions to this general rule? (03)
Q.7 Zahid Enterprise (ZE) is registered under the Sales Tax Act, 1990. ZE is engaged in the
business of manufacturing garments. Usman who recently joined ZE as an officer, has
prepared the following computation of ZE’s sales tax liability for the month of June 2022:
Taxable
Description Sales Tax
Amount
Input Tax: ---- Rs. in million ----
Purchases from registered persons 140 23.80
Purchases dated 21 December 2021 inadvertently not claimed in
December 2021 return 10 1.70
Gas bill paid in cash 2 0.34
Electricity bill of rented premises showing particulars of landlord 3 0.51
Debit note dated 20 June 2022 issued to a supplier for taxable supply
against invoice dated 31 March 2022 6 1.02
Payment on 3 June 2022 against sales tax invoice dated 5 April 2022 70 11.90
Payment of provincial sales tax @ 13% against transporter’s invoice
dated 17 June 2022 for supplying goods to export processing zone 8 1.04
Advance paid to a supplier at the time of placing an order for
customized goods. The goods will be delivered in October 2022 12 2.04
Purchase of plant and machinery 20 3.40
45.75
Output Tax:
Sales of taxable goods to registered persons Note 1 180 30.60
Sales of taxable goods to unregistered persons Note 2 44 7.48
Credit note dated 15 June 2022 issued to a customer for
taxable supply against invoice dated 1 December 2021 Note 3 (7) (1.19)
Garments withdrawn by owner during June 2022 4 -
36.89
Sales tax refundable 8.86
Note 1: It includes goods of Rs. 50 million supplied to the export processing zone for further
manufacturing.
Note 2: 20% of these customers are end users.
Note 3: Assume that the collector has not extended the time period for the issuance of debit
or credit note(s).
All the above figures appeared in taxable amount column are exclusive of sales tax. Sales
tax is payable at the rate of 17% except where it is specified otherwise.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder:
(a) prepare ZE’s corrected computation of sales tax liability for the month of June 2022. (15)
(b) state the reason(s) for ignoring the transaction, if any, while computing ZE’s
corrected sales tax liability in part (a) above. (04)
Q.8 (a) Discuss whether the following tax services can be provided to an audit client which
is not a public interest entity:
(i) Preparation of tax returns
(ii) Tax calculation for the purpose of preparing accounting entries (05)
(b) Following is the list of various types of taxes/duties:
(i) Agriculture income tax (ii) Custom duty
(iii) Tax on transfer of immovable property (iv) Capital value tax
(v) Property tax (vi) Sales tax on services
Required:
In respect of each of the above mentioned taxes/duties, identify whether they are
covered under the scope of legislation of the Federation or the Provinces. (03)
(THE END)
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 10,000 plus 10% of the amount
3.
Rs. 1,200,000 exceeding Rs. 600,000
4.
Rs. 2,400,000 exceeding Rs. 1,200,000
5.
Rs. 3,000,000 exceeding Rs. 2,400,000
6.
Rs. 4,000,000 exceeding Rs. 3,000,000
7.
Rs. 6,000,000 exceeding Rs. 4,000,000
Tax rates for salaried individuals and AOP

Where taxable income exceeds Rs. 8,000,000 but does not exceed Rs. 1,345,000 plus 25% of the amount
8.
Rs. 12,000,000 exceeding Rs. 8,000,000
9. Rs. 30,000,000 exceeding Rs. 12,000,000
Where taxable income exceeds Rs. 30,000,000 but does not exceed Rs. 7,295,000 plus 30% of the amount
10.
Rs. 50,000,000 exceeding Rs. 30,000,000
11. Rs. 75,000,000 exceeding Rs. 50,000,000
Minimum tax under section 113

The minimum tax as percentage of the person’s turnover for the year is 1.25%.
Tax on capital gains on disposal of immovable property

S. No. Amount of gain Rate of tax
1. Where the gain does not exceed Rs. 5 million 3.5%
2. Where the gain exceeds Rs. 5 million but does not exceed Rs. 10 million 7.5%
3. Where the gain exceeds Rs. 10 million but does not exceed Rs. 15 million 10%
4. Where the gain exceeds Rs. 15 million 15%

S. No. Period Rate of tax
1. Where holding period of a security is less than 12 months 12.5%
2. Where holding period of a security is 12 months or more but less than 24 months 12.5%
Where holding period of a security is 24 months or more but the security was acquired on or
3. after 1.7.2013 12.5%
4. Where the security was acquired before 1.7.2013 0%
Initial allowance
Depreciation rate
Depreciation rate specified for the purpose of section 22 for plant and machinery is 15%.
Tax Practices
Suggested Answers
Certificate in Accounting and Finance – Autumn 2022
A.1 (a) Azadi and Co.

Computation of total taxable income and tax liability for tax year 2022
Rs. in million
Loss before tax (66.00)
Add: Inadmissible expenses / admissible income
Payment for purchase of machine 12.00
Purchase of raw material for which no withholding tax was deducted
(120×20%) 24.00
Salary paid to office boy in cash -
Warehouse rent -
Bad debt written off -
Commission paid to member of AOP 3.20
Payment for purchase of accounting software 6.40
Depreciation on leased car 2.10
Lease financial charges 1.50
49.20
Less: Admissible expenses and inadmissible income
Tax depreciation on machine [3.5(W-1)+0.79(W-1)] (4.29)
Loss on disposal of old machine (4–5) (1.00)
NRV adjustment (18–12) (6.00)
Scholarship given to Sara -
Amortization of ERP software [6.4÷5×(91÷365)] (0.32)
Lease rentals [0.71(3×2.5÷10.5)×80%] (0.57)
(12.18)
Total income (28.98)
Computation of minimum tax:

Turnover (380 – 45 – 15) 320.00
Tax @ 1.25% 4.00
W-1: New Machine

Cost: Rs. in million
Payment through cheque 12.00
Sales tax on purchase (2.00)
Fair market value of old machine 4.00
14.00
Initial allowance @ 25% (3.50)
10.50
Depreciation for the year @ 15% [1.575×50%] (0.79)
9.71
(b) As Sara is an employee of AC and employee is not considered as an associate of

employer, the scholarship received by Sara from AC is exempt from tax.
Page 1 of 8
A.2 (a) Mr. Nasir
Computation of total income, taxable income and net tax payable/refundable
For tax year 2022
Rupees
Salary
Income from salary:
Basic salary (800,000×12) 9,600,000
Medical allowance (100,000×12) 1,200,000
Cost of living allowance (200,000×12) 2,400,000
Housing [360,000{300,000 OR 360,000(45%×800,000) whichever is
higher}×12] 4,320,000
Company maintained car (4,000,000×5%) 200,000
Fuel [(250×180)×12×30%] 162,000
Maintenance of car -
Hospitalization born by insurance company -
Ad-hoc relief allowance 800,000
Expenses incurred for work from home -
18,682,000
Income from other sources
Gift - Cash 1,000,000
- Car -
1,000,000
Total income / Taxable income 19,682,000
Tax liability
On Rs. 12,000,000 2,345,000
On remaining 7,682,000 (19,682,000 – 12,000,000) @ 27.5% 2,112,550
4,457,550
Less: Tax credit on donations (being donation in cash form) -
Less: Tax credit on contribution to approved pension fund, lower of
following:
▪ Total contribution paid by Nasir i.e. Rs. 4,700,000
▪ 20% of taxable income (19,682,000×20%) i.e. Rs. 3,936,400
Tax credit on contribution 4,457,550/19,682,000×3,936,400 (891,510)
3,566,040
Less: withholding tax (4,500,000)
Tax refundable (933,960)
(b) APL will not be considered to have earned any rental income from this property and
accordingly there will be no tax consequences for it.
Tax Practices
Suggested Answers
A.3 (a) (i) Capital gain Cash

consideration
Cost of Capital Taxable
/ FMV
purchase gain/loss capital gain
(whichever is
higher)
----------------------- Rs. in million -----------------------
Investment in shares of a
public unlisted company 3.0 2.0 1.0 0.75
(1.0×3/4)
Investment in shares of a
listed company 3.5 2.1 1.4 1.4
Personal car (not covered

under the definition of
capital asset) 6.0 3.8 - -
Painting (loss on painting not

to be recognized) 1.2 1.7 - -
Jewelry 8.0 4.8 3.2 2.4

(3.2×3/4)
5.6 4.55
(ii) Taxation of capital gain
Capital gain to be taxed under NTR:

Gain on investment in shares of public unlisted company 0.75
Gain on disposal of jewelry 2.40
3.15
Tax liability:
On Rs. 3 million 0.37
Above Rs. 3 million @25% 0.04
0.41
Capital gain to be taxed under separate block of income:

Tax on gain on disposal of investment in shares of listed company
(1.4×0%) -
Page 3 of 8
(b) Shahid
Computation of total and taxable income for the tax year 2022
Rs. in million
Income from property
Forfeited deposit 6.00
Less: Repair allowance @ 1/5 (1.20)
4.80
Capital gain
Disposal of bungalow [4(54–50)×(1÷4)] 1.00

Rent of factory building along with plant and machinery (1×12) 12.00
Less: Repair & maintenance (3.50)
8.50
Exempt income
Rental income of agricultural land [5÷2] 2.50
Total income 16.80
Less: Exempt income (rental of agricultural land) (2.50)
Less: Separate block of income (capital gain) (1.00)
Taxable income 13.30
Tax Liability
On 6 million 1.220
Above 6 million @ 35% 2.555
3.775
Tax on capital gain (1×3.5%) 0.035
Total tax liability 3.810
A.4 (a) Short term resident individual:

As Li is a resident individual solely by reason of the employment and his presence in
Pakistan for not more than three years, he is treated as short term resident individual.
Consequently, his foreign source income (rental income) shall be exempt from tax
provided that foreign source income shall not be brought into Pakistan. However, he
remitted 40% of the amount to his bank account in Pakistan so 40% of his rental
income shall be taxable while the remaining i.e. 60% shall be exempt from tax.
(b) Returning expatriates:

As Omar is citizen of Pakistan and he was not a resident person in any of the four
preceding tax years i.e. from tax year 2018 to tax year 2021, he is treated as a
returning expatriate for tax year 2022 and his dividend income (foreign source
income) shall be exempt from tax. In this case, there is no implication of amount
remitted to Pakistan.
(c) Foreign source salary income of a resident person:

Foreign source salary of Sidra shall be exempt from tax if she paid foreign income tax
in respect of her salary. In this case, there is no implication of amount remitted to
Pakistan.
Tax Practices
Suggested Answers
A.5 (a) (i) Normal assessment:

If a taxpayer has furnished a complete return of income other than a revised
return, the Commissioner shall be treated to have assessed the income and tax
due thereon.
Best judgment assessment:

▪ This type of judgment is made where a person fails to:
− furnish return of income in response to notice of a Commissioner; or
− furnish a return as required to be filed by air carrier or shipping
companies; or
− furnish the wealth statement; or
− produce before the commissioner, or a special audit panel or any
person employed by a firm of chartered accountants or a firm of cost
and management accountants, accounts, documents and records
required to be maintained or any other relevant document or
evidence that may be required by him for the purpose of making
assessment of income and determination of tax due thereon.
▪ Under any of the above cases, the Commissioner may, based on any
available information or material and to the best of his judgment, make an
assessment of the taxable income of the person and the tax due thereon.
(ii) Notice of discontinued business:

Sole proprietor shall give the Commissioner a notice in writing to that effect
within fifteen days of the discontinuance of business.
He shall furnish a return of income for the period commencing on the first day
of the tax year in which the discontinuance occurred and ending on the date of
discontinuance and this period shall be treated as a separate tax year.
(iii) Following additional records are required to be kept by sole proprietor whose
business income exceeding Rs. 500,000 as compared to a sole proprietor whose
business income is upto Rs. 500,000.
▪ In case of a wholesaler, distributor, dealer and commission agent, where a
single transaction exceeds Rs. 10,000, the name and address of the
customer ;
▪ Cash book and/or bank book;
▪ General ledger or annual summary of receipts, sales, payments, purchases
and expenses under distinctive heads;
▪ Where a single transaction exceeds Rs. 10,000 with the name and address
of the payee; and
▪ Where the taxpayer deals in purchase and sale of goods, quarterly
inventory of stock-in-trade showing description, quantity and value.
(b) Following rules apply to the income subject to final tax:

(i) Such income is not chargeable to tax under any head of income in computing
the taxable income.
(ii) No deduction is allowed for any expenditure incurred in deriving the income.
(iii) The amount of the income is not reduced by:
– any deductible allowance; or
– the set off of any loss
Page 5 of 8
(iv) The tax deducted is not reduced by any tax credit
(v) There is no refund of the non-adjustable tax collected or deducted at source
unless such tax is in excess of the amount of final tax for which the taxpayer is
chargeable.
(vi) An assessment is treated to have been made and the person shall be required to
furnish a return of income in respect such income.
A.6 (a) (i) All manufacturers of taxable supplies are required to be registered under the
Sales Tax Act, 1990, unless the manufacturer falls in the category of cottage
industry. A manufacturer located in residential area of Korangi, Karachi shall
be considered to fall under cottage industry if it also fulfills the following
conditions:
▪ it does not have an industrial gas or electricity connection;

▪ it does not have a total labour force of more than ten workers; and
▪ its annual turnover from all supplies does not exceed ten/eight million
rupees.
(ii) Tier 1 retailer is required to register while other than Tier 1 is not required to
register.
(iii) Distributors of exempt supplies is not required to register.
(iv) An exporter of taxable goods who intends to obtain sales tax refund against his
zero rated supplies is required to register.
(b) Following is the list of goods which are exported but shall not be charged at the rate
of zero percent:
▪ Goods exported but have been or are intended to be re-imported into Pakistan;
or
▪ Goods which have been entered for export under section 131 of the Customs
Act, 1969 (IV of 1969), but are not exported; or
▪ Have been exported to countries specified by the Federal Government, by
notification in the official Gazette in this regard.
Tax Practices
Suggested Answers
A.7 (a) Zahid Enterprises

Computation of tax payable / refundable
For the tax period June 2022
Taxable Sales Tax
Amount @ 17%
--- Rs. in million ---
Input Tax
Purchases from registered persons during June 2022 140 23.80
Purchases - invoice dated 21 December 2022 10 1.70
Gas bill paid in cash 2 0.34
Electricity bill of rented premises showing particulars of landlord - -
Debit note dated 20 June 2022 issued to supplier against invoice
dated 31 march 2022 (6) (1.02)
Payment on 3 June 2022 against invoice dated 5 April 2022 - -
Payment of provincial sales tax @ 13% against transporter’s
invoice dated 17 June 2022 for supplying goods to export
processing zone 8 1.04
Advance paid to supplier at the time of placing order for
customized goods which will be delivered in October 2022 - -
25.86
Less: Refundable input tax (for zero rated) (5.44 (W-1)+1.04) (6.48)
19.38
Output Tax:
Sales of taxable goods to registered person 130 22.1
Supplies for further manufacturing to export processing zone
(Zero rated) 50 -
Sales of taxable goods to unregistered person 44 7.48
Credit note dated 15 June 2022 issued to customer for taxable
supply against invoice dated 1 Dec 2021 - -
Garments withdrawn by owner 4 0.68
30.26
Admissible credit (90% of output tax i.e. 27.23(30.26×90%) or input tax i.e. Rs.
19.38, whichever is lower 19.38
10.88
Less: Input tax on plant and machinery (other than zero rated) (W-1) (2.65)
Further tax payable for sales to unregistered persons (44×80%×3%) 1.06
Sales tax to be carried forward -
Sales tax refundable (5.44 + 1.04 + 0.75) 7.23
W-1: Apportionment of input tax

Value of supply Plant and machinery Residual input tax
Description
------------------------ Rs. in million ------------------------
Taxable supplies
178 2.65 19.38
(Non zero rated) (130+44+4)
Taxable supplies
50 0.75 5.44
(Zero rated)
228 3.40 24.82
(25.86–1.04)
Page 7 of 8
(b) Reason for ignoring the transaction:
(i) For claiming input tax against electricity bill, it should have registration
number and the address where the connection is installed for which a return is
furnished. Since bill does not contain the said particulars of Zahid Enterprise,
input tax thereon shall not be allowed.
(ii) Input tax is claimed once in purchase period so it shall not be claimed again at
the time of payment.
(iii) Time of supply is the time at which goods are delivered or made available to
the recipient. Since goods will be delivered in October 2022, this is not
chargeable to tax in June 2022 and consequently input tax thereon shall be
adjustable in October 2022 return.
(iv) Since credit note to a customer is issued after one hundred and eighty days
from related taxable supply, reduction in output tax shall not be made.
A.8 (a) (i) Providing tax return preparation services does not usually create a threat so this
service can be provided to audit client.
(ii) Preparing calculations of current and deferred tax liabilities (or assets) for an
audit client for the purpose of preparing accounting entries that will be
subsequently audited by the firm creates a self-review threat. The significance
of the threat will depend on:
▪ The complexity of the relevant tax law and regulation and the degree of
judgment necessary in applying them;
▪ The level of tax expertise of the client's personnel; and
▪ The materiality of the amounts to the financial statements.
Safeguards
Safeguards shall be applied, when necessary, to eliminate the threat or reduce it
to an acceptable level. Examples of such safeguards include:
▪ Using professionals who are not members of the audit team to perform the
service;
▪ If the service is performed by a member of the audit team, using a partner
or senior staff member with appropriate expertise who is not a member of
the audit team to review the tax calculations; or
▪ Obtaining advice on the service from an external tax professional.
(b) (i) Agriculture income tax Provinces

(ii) Custom duty Federation
(iii) Tax on transfer of immovable property Provinces
(iv) Capital value tax Federation
(v) Property tax Provinces
(vi) Sales tax on services Provinces
(The End)

Tax Practices
(i) Answer all SEVEN questions.
Basit, a senior manager at Master Limited (ML), resigned on 31 January 2022 after
completion of three and a half year of service. During the tax year 2022, he received the
following emoluments from ML:
(i) Salary of Rs. 610,000 per month.
(ii) Allowance of Rs. 60,000 per month for services of domestic servant. Out of which, he
paid Rs. 36,000 per month in respect of these services.
(iii) Allowance equal to 5% of salary solely expended in the performance of his duties of
employment.
(i) On 1 July 2021, he leased a car having fair market value of Rs. 4,800,000 at a monthly
rental of Rs. 120,000. He pays lease rentals from his own sources but has used this
vehicle for both official and personal purposes.
(ii) On 1 July 2021, 13000 shares of ML were allotted to Basit under an employee share
scheme, against the payment of Rs. 30 per share. According to the scheme, he was not
allowed to sell / transfer the shares upto 31 December 2021. On 31 May 2022, he sold
5000 shares of ML at its fair market value (FMV). FMV of each share on different
dates are as follows:
1 July 2021 31 December 2021 31 May 2022
Rs. 50 Rs. 90 Rs. 80
(iii) On 15 February 2022, he received the following payments from ML as final
settlement:
▪ Rs. 320,000 on account of leave encashment.
▪ Rs. 2,200,000 under gratuity scheme approved by the board.
▪ Rs. 700,000 salary arrears related to tax year 2021.
(iv) Withholding tax deducted by ML from Basit’s salary during the tax year 2022
amounted to Rs. 1,400,000.
Other information:
(i) On 31 January 2022, he received gold worth Rs. 200,000 as a gift from his old friend.
(ii) On 1 February 2022, he purchased mutual fund units of Rs. 2,500,000.
(iii) On 1 April 2022, he left for United Kingdom and joined Oliver Limited (OL) as an
employee at a monthly salary of GBP 3,200. He remained abroad till end of the tax
year 2022. No withholding tax was deducted by OL from his salary.
(iv) While residing in UK, Basit served as a visiting faculty member at a University. He
earned GBP 1,500 from the university and incurred an expenditure of GBP 500 for
providing services at the university. Withholding tax deducted by the university
amounted to GBP 225.
(v) Average exchange rate during 1 April 2022 to 30 June 2022 was GBP 1 = Rs. 250.
Required:
(a) compute the total income, taxable income and net tax payable by or refundable to
Basit for the tax year 2022. (Show all relevant exemptions, exclusions and disallowances) (16)
(b) what other option is available to Basit for the taxation of salary arrears of Rs. 700,000
received from ML as part of final settlement. (Revised computation is not required) (01)
(c) identify the additional statement that Basit needs to file in respect of his foreign source
income. Also briefly discuss the particulars to be mentioned in the additional
statement. (02)
Q.2 (a) Under the provisions of the Income Tax Ordinance, 2001 discuss the tax
implication/treatment in each of the following independent matters:
(i) Purchase of immovable property in cash. (03)
(ii) Payment of any sum by a private company to its shareholder by way of a loan. (03)
(iii) Profit on debt received by a non-resident person on a security issued by a
resident person. (03)
(b) For the purpose of this part of the question, assume that the date today is
31 August 2022.
During the year ended 30 June 2022, Faster & Co. (FC) started a new project.
Following information is available:
▪ Incurred Rs. 5 million on feasibility study of the project.
▪ Obtained a 3% loan of AED 2 million from a UAE bank on 1 January 2022 for
the purchase of plant and machinery. The interest is payable annually and
principal amount is repayable at the end of third year.
▪ Installed the plant and machinery at a cost of Rs. 150 million on 14 March 2022.
The exchange rates of 1 AED to PKR on different dates are as follows:
Average between
1-Jan-2022 30-Jun-2022 1-Jan-2022 to
30-Jun-2022
Rs. 50 Rs. 55 Rs. 53
Required:
Compute the amount of allowable deduction in determining the taxable income of FC
for tax year 2022. (04)
(c) List the persons or incomes that are allowed a tax credit equal to 100% of the tax
payable. Also specify the conditions/limitations which are required to be fulfilled for
availing the said tax credit. (Ignore tax credit available to charitable organisation) (04)
Aakash Kumar owns an industrial undertaking under the name and style of Premjee & Co.
(PJC) which is engaged in the business of manufacturing fast moving consumer goods.
Following information is available from PJC’s records for the year ended 30 June 2022:
(i) Loss before tax for the year was Rs. 87 million.
▪ a penalty of Rs. 2 million for late delivery of goods to a customer.
▪ commission of Rs. 2.5 million which was paid to a distributor, Liaquat Bashir,
on sale of PJC’s products of Rs. 50 million. These products are covered in the
Third Schedule of the Sales Tax Act, 1990. Name of Liaquat Bashir is not
appearing in the active taxpayers’ list under the Income Tax Ordinance, 2001.
▪ freight charges of Rs. 1.2 million which were paid in cash to a freight forwarding
company in Karachi.
▪ accounting depreciation of Rs. 40 million.
(iii) Other income includes:

▪ an insurance claim of Rs. 6 million, equivalent to accounting book value,
received on 8 November 2021 in respect of a vehicle which was completely
destroyed by fire. The cost and fair market value of the vehicle before fire
incident were Rs. 10 million and Rs. 8 million respectively. This vehicle was
purchased on 1 October 2019.
▪ amounts recovered during the year from two debtors i.e. Shameem and
Faheem. These amounts had been written off in the last year. Details are as
follows:
Shameem Faheem
---- Rs. in million ----
Bad debts claimed in the last tax return 19.2 28.8
Bad debts allowed by tax authorities last year 13.2 14.8
Amounts recovered during the year 16.8 10.6
▪ rent of Rs. 21.6 million. On 1 July 2021, Aakash leased one of its factory
buildings alongwith the plant to Kamran at a monthly rent of Rs. 1.8 million,
payable in advance. The building was purchased for Rs. 85 million on
16 August 2019 whereas a second hand locally purchased plant was installed at
a cost of Rs. 34 million on 1 July 2021. During the year, Aakash incurred
Rs. 3.2 million on repair and maintenance of the factory building.
(iv) PJC’s liabilities include amounts of Rs. 14 million and Rs. 17 million in respect of
purchases made on 18 March 2018 and 1 August 2018 respectively. These purchases
were allowed as admissible deductions while computing income from business in
their relevant tax years.
(v) During the year, outstanding financial charges of Rs. 2.8 million were waived by the
bank on rescheduling the loan. These charges were claimed as admissible deduction
in the tax year 2020.
(vi) Tax depreciation for the year on all fixed assets, other than factory building and plant
which were leased out to Kamran, amounted to Rs. 48 million.
Other information:
(i) On 15 August 2021, Aakash entered into a derivative contract for the purchase of
gold. The contract was to be expired on 15 November 2021. Aakash sold the contract
before the settlement date and earned a net gain of Rs. 23 million on the contract.
(ii) On 30 June 2022, Aakash earned capital gains of:
▪ Rs. 20 million on sale of his immovable property which was purchased on
1 June 2019.
▪ Rs. 3.6 million on sale of shares in a private company. These were acquired on
1 June 2021.
(iii) During the year, Aakash received his share of profit from an AOP of Rs. 70 million.
Required:
compute total income, taxable income and net income tax payable by or refundable to
Aakash for the tax year 2022. (18)
Note: ▪ Ignore minimum tax under section 113.
Q.4 (a) Briefly explain the term ‘Sectoral benchmark ratios’. Also, explain the circumstances
in which a Commissioner shall determine taxable income on the basis of sectoral
benchmark ratios. (03)
(b) (i) Riaasat Limited (RL) is a manufacturing company. With effect from
1 July 2022, RL is considering to change its tax year from the normal to the
special tax year ending on 31 December.
Required:
Identify the due/last date of filing of RL’s tax return in respect of the following:
▪ Filing of tax return for the year ended 30 June 2022.
▪ Filing of tax return for the transitional period.
▪ Filing of first tax return for the special tax year. (03)
(ii) Assume that RL has changed its tax year from normal to special and filed its tax
returns for relevant tax years, as discussed in (b)(i) above.
Required:
Identify the due/last date of amendment of assessment related to:
▪ normal tax year for the year ended 30 June 2022.
▪ first special tax year. (02)
(c) Following information pertains to three unlisted companies:

Paid up Total Annual
Company capital reserves turnover Shareholders
----------- Rs. in million -----------
60% shares are held
A Limited 30 80 150
by a foreign company
40% shares are held
B Limited 80 (35) 220 by the Provincial and
Federal governments
C Limited 40 5 500 100% shares are held
by a local group
Required:
Under the provisions of the Income Tax Ordinance, 2001 briefly discuss whether each
of the above companies can be classified as small, public or private. Also state the
additional information, if any, which may be required for determining the
classification of these companies. (07)
Q.5 (a) Following are the independent transactions carried out by different enterprises during
the month of February 2022:
(i) Taxable goods of Rs. 800,000 were sold to one of the dealers. The amount was
net of 20% trade discount which was in accordance with market norms. The
discounted price was not shown on the tax invoice.
(ii) Taxable goods of Rs. 1,500,000 were used for internal testing and evaluation
purposes. 40% of these goods were locally procured while remaining 60% of
these goods were own manufactured.
(iii) Advance of Rs. 600,000 was received for goods to be delivered in April 2022.
(iv) 1,000 units of taxable goods listed in the Third Schedule were sold at a unit
price of Rs. 5,000. Retail price of each unit was Rs. 6,000.
(v) New parts of Rs. 1,200,000 were issued free of cost to replace the defective parts
under warranty.
(vi) Taxable goods of Rs. 400,000 were sold at credit terms of 2/10, n/30. Customer
paid the amount within ten days and availed the discount.
Required:
state the value of supply chargeable to tax for the month of February 2022. Also state
the reason for your treatment. (08)
(b) Kazmi Traders (KT) is registered under the Sales Tax Act, 1990. KT is engaged in the
business of manufacturing and supply of paper products. Following information is
available from KT’s records for the month of February 2022:
Rs. in million
Purchases
Taxable goods from registered persons (20% of these goods
320
were returned to suppliers)
Exempt goods from registered persons 56
Electrical and sanitary fittings (60% used in factory
17
building and 40% used in office building)
Plant and machinery 84
Supplies
Taxable goods to registered persons (10% of these goods
200
were returned by the customers)
Exports 98
Electricity bill paid in February 2022 includes sales tax of Rs. 1.36 million. 60% of the
amount was related to the factory building while remaining amount was related to the
office building.
All the above figures are exclusive of sales tax, except where it is specified otherwise.
Sales tax is payable at the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to KT and input tax to be
carried forward, if any, for the tax period February 2022. (Show all relevant exemptions,
Q.6 (a) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly discuss the
chargeability of sales tax in case of a retailer. (05)
(b) Shajee Limited (SL) purchases cosmetic products from Tajee (Private) Limited (TPL).
In the month of October 2021, SL received a consignment of 5000 units from TPL.
On delivery, SL found that 50% of the items were expired and decided to return them.
Both SL and TPL are registered under the Sales Tax Act, 1990 and file sales tax return
on regular basis.
Required:
Under the Sales Tax Rules, 2006 specify the document which must be issued by SL on
return of goods to TPL. Also state the particulars that should be mentioned on the
document to be issued. (04)
Q.7 (a) State any four non-revenue objectives which the government achieves by imposing
taxation. (03)
(b) Discuss any three principles of a sound tax system. (03)
(THE END)

Where taxable income exceeds Rs. 400,000 but does not exceed 5% of the amount exceeding
2.
Rs. 600,000 Rs. 400,000
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 10,000 plus 10% of the amount
3.
Rs. 1,200,000 exceeding Rs. 600,000
4.
Rs. 2,400,000 exceeding Rs. 1,200,000
5.
Rs. 3,000,000 exceeding Rs. 2,400,000
6.
Rs. 4,000,000 exceeding Rs. 3,000,000
7.
Rs. 6,000,000 exceeding Rs. 4,000,000
Tax rates for salaried individuals and AOP

6. Rs. 5,000,000 exceeding Rs. 3,500,000
Where taxable income exceeds Rs. 5,000,000 but does not exceeds Rs. 670,000 plus 22.5% of the amount
7.
Rs. 8,000,000 exceeding Rs. 5,000,000
Where taxable income exceeds Rs. 8,000,000 but does not exceeds Rs. 1,345,000 plus 25% of the amount
8. Rs. 12,000,000 exceeding Rs. 8,000,000
Where taxable income exceeds Rs. 12,000,000 but does not exceeds Rs. 2,345,000 plus 27.5% of the amount
9. Rs. 30,000,000 exceeding Rs. 12,000,000
Where taxable income exceeds Rs. 30,000,000 but does not exceeds Rs. 7,295,000 plus 30% of the amount
10.
Rs. 50,000,000 exceeding Rs. 30,000,000
Initial allowance
The rate of initial allowance u/s 23 shall be 25% for plant and machinery.
Depreciation rates
1. Building 10%
2. Motor vehicle, plant and machinery 15%
Pre-Commencement Expenditure
The rate of amortisation of pre-commencement expenditure u/s section 25 shall be 20%.
Tax on capital gains on disposal of immovable property

2. Where the gain exceeds Rs. 5 million but does not exceeds Rs. 10 million 7.5%
3. Where the gain exceeds Rs. 10 million but does not exceeds Rs. 15 million 10%
Tax on capital gains on disposal of securities

The rate of tax to be paid under section 37A shall be 12.5%.
Tax Practices
Suggested Answers
A.1 (a) Mr. Basit

For tax year 2022
Rupees
Salary
Pakistan source income:
Salary [610,000×7] 4,270,000
Allowance for services of domestic servant [60,000×7] 420,000
Allowance @ 5% of salary solely expended in the performance of his duties of
employment (4,270,000×5%) 213,500
Acquired car on lease -
Shares acquired under employee share scheme
[1,170,000(13,000×90)–390,000(13,000×30)] 780,000
Leave encashment 320,000
Gratuity (2,200,000–300,000) 1,900,000
Salary arrears of tax year 2021 700,000
Foreign source income:
Salary (3,200×250×3) 2,400,000
Total income from salary 11,003,500
Capital gain
Loss on sale of ML’s shares [400,000(5,000×80)–450,000(5,000×90)] (50,000)

Pakistan source income:
Gift received 200,000
Foreign source income:
Income earned from university [1,000(1,500–500)×250] 250,000
450,000

Less: Foreign source salary – Exempt (2,400,000)
Add: Capital loss (Separate block of income) 50,000
Tax liability
On Rs. 8,000,000 1,345,000
On remaining Rs. 1,053,500 @ 25% 263,375
1,608,375
Less: Foreign tax credit [250,000×17.77%(1,608,375/9,053,500×100) = 44,425]
OR [225×250 = 56,250] whichever is lower. (44,425)
1,563,950
Less: Tax credit for investment in mutual fund
[1,810,700(9,053,500×20%)×17.27%(1,563,950/9,053,500×100)] (312,708)
1,251,242
Less: Withholding tax (1,400,000)
Tax refundable 148,758
Page 1 of 9
(b) Arrears amount may be taxed at the rates of tax year 2021 that would have been
applicable if the salary had been paid to the Basit in tax year 2021.
(c) Basit is required to furnish a foreign income and assets statement giving particulars of:
(i) his total foreign assets and liabilities as on 30 June 2022;
(ii) any foreign assets transferred by him to any other person during tax year 2022 and
the consideration for the said transfer; and
(iii) complete particulars of foreign income, the expenditure derived during the tax year
2022 and the expenditure wholly and necessarily for the purposes of deriving the
said income.
A.2 (a) (i) In case any immovable property having fair market value (FBR value or DC rate
whichever is higher) greater than five million rupees is purchased in cash, then
it will have following implications:
▪ Such asset shall not be eligible for initial allowance or depreciation.
▪ Such amount shall not be treated as cost for computation of any gain on
disposal (sale value will be treated as capital gain).
▪ Such person shall pay a penalty of 5% of the FBR value or DC rate
whichever is higher.
(ii) Any payment by way of loan by a private company as defined under the
Companies Act, 2017 to its shareholder to the extent of accumulated profits is
treated as dividend. Therefore, the amount will be taxed as dividend in the hands
of shareholder. Accordingly, company is required to deduct withholding tax on
payment.
Where subsequently any loan or advance is repaid, shareholder will be entitled

to a refund of the tax, if any, paid by him as a result of such advance or loan
having been treated as dividend.
(iii) Any profit received by a non-resident person on a security issued by a resident

person shall be exempt from tax if:
▪ the persons are not associates;
▪ the security was widely issued outside Pakistan for the purposes of raising
a loan outside Pakistan for use in a business carried on by the resident
person in Pakistan;
▪ the profit was paid outside Pakistan; and
▪ the security is approved by the Board for the purposes of this section.
(b) Faster & Co.

Computation of amount of allowable deduction in determining taxable income
Rs. in million
Initial allowance on plant and machinery [160(W-1)×25%] (40.00)
Depreciation on plant and machinery [18(160(W-1)×75%×15%)×50%] (9.00)
Amortization of pre-commencement expenditure (5×20%) (1.00)
Finance charges [(2×3%÷2)×53] (1.59)
(51.59)
W-1: Cost of plant and machinery Rs. in million

Acquisition cost 150
Change in AED rate [2×(55−50)] 10
160
Tax Practices
Suggested Answers
(c) Tax credit for certain persons

Following incomes or taxpayers shall be allowed a tax credit equal to one hundred per cent
of the tax payable:
(i) Persons engaged in coal mining projects in Sindh supplying coal exclusively to power
generation projects;
(ii) A start-up for the tax year in which the startup is certified by the Pakistan Software
Export Board and for the following two years;
(iii) Persons deriving income from exports of computer software or IT services or IT
enabled services up to the period ending on 30 June 2025 if 80% of the export
proceeds are brought into Pakistan in foreign exchange through normal banking
channels.
The above tax credit shall be available subject to fulfillment of the following conditions:
(i) Annual return of income has been filed;
(ii) Withholding tax statements for the relevant tax year have been filed, where the
person is a withholding agent; and
(iii) Sales tax returns for the tax periods corresponding to the relevant tax year have been
filed, if the person is required to file sales tax return under any of the Federal or
Provincial sales tax laws.
Page 3 of 9
A.3 Aakash
For tax year 2022 Rs. in million
Loss before tax (87.0)
Commission expense disallowed due to sale to inactive tax payer [2.5−0.1(50×0.2%)] 2.4
Accounting depreciation 40.0
Bad debts recovered from Shameem [16.8−6(19.2−13.2)] 10.8
Outstanding payments for more than 3 years 14.0
Financial charges waived by the bank 2.8
70.0
Less: Admissible expenses and inadmissible / FTR income
Penalty -
Freight charges paid in cash -
Tax depreciation (48.0)
Insurance claim received (6.0)
Loss on disposal of vehicle (W-1) (1.2)
Reversal of Bad debts recovered recorded as other income (16.8+10.6) (27.4)
Bad debts recovered from Faheem [10.6−14(28.8−14.8)] (3.4)
Rental income – Chargeable under income from other sources (21.6)
(107.6)
Income from non-speculation business (124.6)
Income from speculation business

Net gain from derivative contract 23.0
Income from business (A) (101.6)
Capital gain
Sale of property (20÷4) 5.0
Sale of private company shares (3.6×3/4) 2.7
(B) 7.7

Rental income from leasing of property comprised of building and 2nd hand locally
purchased plant (1.8×12) 21.6
Less: Deductions
Repair and maintenance (actual) (3.2)
Depreciation of building (85×90%×90%×10%) (6.9)
Depreciation of plant (34×15%×50%) (2.6)
(C) 8.9
Total income (A+B+C) (85.0)

Less: Capital gain on sale of property (separate block of income) (5.0)
Taxable income (90.0)
Since Aakash’s taxable income for tax year 2022 is negative, his share of profit from associate
is ignored.
Tax Liability Rs. in million

Tax on capital gain on sale of property (separate block of income) (5×3.5%) 0.175
Tax Practices
Suggested Answers
W-1: Loss / Gain on disposal of vehicle Rs. in million

Insurance claim 6.0
Cost 10
Depreciation TY 2020 (10× 15%) (1.5)
TY 2021 (10×85%×15%) (1.3)
TY 2022 -
7.2
Loss on disposal of vehicle (1.2)
Note: Answers in which loss has been computed by treating the vehicle as passenger transport
not plying for hire, has also been considered correct.
A.4 (a) ‘Sectoral benchmark ratios’ means standard business sector ratios notified by the
Board on the basis of comparative cases and includes financial ratios, production
ratios, gross profit ratio, net profit ratio, recovery ratio, wastage ratio and such other
ratios in respect of such sectors as may be prescribed.
Where a taxpayer:
▪ has not furnished record or documents including books of accounts;
▪ has furnished incomplete record or books of accounts; or
▪ is unable to provide sufficient explanation regarding the defects in records,
documents or books of accounts,
it shall be construed that taxable income has not been correctly declared and the
Commissioner shall determine taxable income on the basis of sectoral benchmark
ratios prescribed by the Board.
(b) (i) Particulars Due/last date

▪ Filing of normal tax year return for the year ended
30 June 2022 31 Dec 2022
▪ Filing of transitional tax year return 30 Sep 2023
▪ Filing of first special tax year return 30 Sep 2024
(ii) ▪ Amendment of assessment related to normal tax

30 June 2028
year for the year ended 30 June 2022
▪ Amendment of assessment related to first special
30 June 2029
tax year
Page 5 of 9
(c) Company Status of company
A Limited ▪ Not a small company because its paid up capital plus undistributed
reserves exceeds Rs. 50 million.
▪ It can be a public company if foreign company is owned by a foreign
government.
▪ Otherwise, A Ltd. will be a private company.
B Limited ▪ If remaining 60% holding is with foreign government or foreign
company owned by foreign government then public company.
▪ Otherwise, small company being its paid-up capital plus undistributed
reserves are below 50 million and annual turnover is below Rs. 250
million if:
– employee not exceeding 250 at any time during the year.
– is not formed by splitting up or the reconciliation of a company
already in existence (1 July 2005).
– is not a small and medium enterprise.
If any of the above condition shall not be met then it shall be classified
as private company.
C Limited ▪ Not a small company because its annual turnover exceeded Rs. 250
million.
▪ Not a public company because 100% shareholding is with local group.
▪ Therefore, it shall be classified as private company.
A.5 (a) Value of

Reason
supply (Rs.)
(i) 1,000,000 Discount can be claimed if it is as per market norms and has
(800,000 ÷ 80%) been shown on tax invoice. Since the amount of discount has
not been shown on tax invoice, it shall be chargeable to tax at
gross amount.
(ii) 900,000 Use of own manufactured items for in-house consumption will
(1,500,000×60%) be subject to sales tax. However, goods locally procured is not
deemed to be supply.
(iii) Nil Time of supply is the time at which goods are delivered or
make available to the recipient. Since goods were not delivered
in February, this was not chargeable to tax in the month of
February.
(iv) 6,000,000 For taxable supplies specified in third schedule, sales tax is
(1000×6,000) charged on the retail price of goods.
(v) Nil Free replacement of defective parts is considered as original
supply and not a separate supply so this was not chargeable to
tax in February return.
(vi) 400,000 Cash discount shall not be deducted while computing value of
supply, so gross amount shall be chargeable to tax.
Tax Practices
Suggested Answers
(b) Kazmi Traders

Computation of tax payable / refundable
For the tax period February 2022
Taxable Sales Tax
Amount @ 17%
--- Rs. in million ---
Input Tax
Taxable goods from registered persons 256 43.52
(320×80%)
Taxable goods from unregistered persons 32 -
Exempt goods from registered persons 56 -
Electrical and sanitary fitting 17 -
Electricity bills 1.36
44.88
Less: Refundable input tax (for zero rated) (W-1) (15.82)
29.06
Output Tax:
Taxable goods to registered persons 180 30.60
(200×90%)
Exports 98 -
30.60
Admissible credit (90% of output tax i.e. 27.54(30.6×90%) or input tax i.e.
Rs. 29.06, whichever is lower 27.54
Less: input tax on fixed assets (taxable supplies) (W-1) (9.25)
Sale tax to be carried forward (fixed asset portion only) 6.19
Sale tax to be carried forward (29.06–27.54) 1.52
Total sale tax to be carried forward 7.71
Sales tax refundable on zero rated supplies [15.82(W-1)+5.03(W-1)] 20.85

Input tax on plant and
Value of supply Residual input tax
machinery
180 9.25 29.06
98 5.03 15.82
278 14.28 44.88
(84×17%)
Page 7 of 9
A.6 (a) Tier-1 retailers:
Tier-1 retailers are required to be registered under Sale Tax Act, 1990. They shall pay
tax at the rate as applicable to the goods sold under relevant provisions of the Sales
Tax Act or a notification issue thereunder.
Tier-1 retailers shall integrate their retail outlets with Board’s computerized system for
real-time reporting of sales.
In case a Tier-1 retailer does not integrate his retail outlet in the manner as prescribed
during a tax period or part thereof, the adjustable input tax for whole of that tax period
shall be reduced by 60%.
Other than Tier-1 retailers:

Retailers other than those falling in Tier-1 are not required to be registered under Sales
Tax Act, 1990. Tax shall be charged from them, through their monthly electricity bills,
at the rate of five percent where the monthly bill amount does not exceed rupees twenty
thousand and at the rate of seven and half per cent where the monthly bill amount
exceeds the rupees twenty thousand and the electricity supplier shall deposit the
amount so collected directly without adjusting against his input tax. The above tax is
other than normal tax of 17%, further tax of 3% and extra tax.
(b) Return of supply

SL shall issue a debit note (in duplicate) in respect goods returned, indicating the
quantity being returned, its value determined on the basis of the value of supply as
shown in the tax invoice issued by the supplier and the amount of related sales tax paid
thereon, as well as the following, namely:
▪ name and registration number of SL;
▪ name and registration number of TPL;
▪ number and date of the original sales tax invoice;
▪ the reason of issuance of the debit note; and
▪ signature and seal of the authorized person issuing the note.
A.7 (a) ▪ To strengthen anemic enterprises by granting them tax exemptions or other
conditions or incentives for growth;
▪ To protect local industries against foreign competition by increasing local import
taxes;
▪ As a bargaining tool in trade negotiations with other countries;
▪ To counter the effects of inflation or depression;
(b) (i) Fiscal adequacy

The sources of revenue taken as a whole should be sufficient to meet the
expenditures of the government, regardless of business, export taxes, trade
balances and problems of economic adjustments. Revenues should be capable of
expanding or contracting annually in response to variations in public
expenditures.
(ii) Equality or theoretical justice

Taxes levied must be based upon the ability of the citizen to pay.
(iii) Administrative feasibility

In a successful tax system, tax should be clear and plain to taxpayers, capable of
enforcement by the adequate and well-trained public officials, convenient as to
the time and manner of payment and not unduly burdensome to discourage
business activity.
Tax Practices
Suggested Answers
(The End)
Page 9 of 9

Principles of Taxation
Q.1 Nauman has been working as manager finance in Dua Limited (DL), a public listed
company, for many years. He received following monthly emoluments from DL during the
year ended 30 June 2021:
Rupees
In addition to the above, the employer also provided him the following benefits:
(i) Company maintained car for both official and personal use. The car was purchased
on 1 July 2016 at the cost of Rs. 1,400,000. As per company policy, Nauman
purchased this car at its book value of Rs. 450,000 on completion of five years
i.e. 30 June 2021. Fair market value of this car on the date of sale to Nauman was
Rs. 1,000,000.
(ii) Provident fund contribution of Rs. 18,000 per month to a recognized provident fund.
An equal amount was also contributed by Nauman to the fund. Interest income of
Rs. 540,000 at the rate of 18% of accumulated balance of the fund was credited to
Nauman’s account.
(iii) On 1 July 2020, he was transferred to Lahore and was paid relocation allowance of
Rs. 300,000.
(iv) HR Committee approved a performance bonus for the year ended 30 June 2021 for
all employees. Nauman received Rs. 400,000 as performance bonus on 15 July 2021.
(v) On 1 April 2021, Nauman obtained a loan of Rs. 5,000,000 @ 6% per annum from
DL to purchase a new house for his own use. First instalment of the loan was paid on
30 June 2021. He incurred legal expenses of Rs. 20,000 for obtaining the loan.
Other information relevant to tax year 2021:

(i) During the year, Nauman received interest income of Rs. 510,000 on his investments
in defence savings certificates. The amount was net of withholding income tax at the
rate of 15% and Zakat of Rs. 200,000 was deducted under the Zakat and Usher
Ordinance, 1980.
(ii) On 1 October 2020, Nauman received advance rent of Rs. 1,200,000 for 12 months
for renting office premises. This amount includes Rs. 400,000 for utilities, cleaning
and security. During the tax year 2021, Nauman incurred following expenditures in
relation to the premises:
Rupees
Repair and maintenance 70,000
Insurance premium 50,000
Administration and collection charges of rent 30,000
Utility, cleaning and security 250,000
Nauman has opted normal tax regime for chargeability of tax on income from
property.
Required:
compute total income and taxable income of Nauman for the tax year 2021. Show all
relevant exemptions, exclusions and disallowances. (13)
Q.2 (a) Mukhtar, a resident individual, is in process of finalization of his wealth statement for
the tax year 2021. He has provided you the following information:
(i) During the tax year 2021, Mukhtar received share of profit of Rs. 1,400,000
from an AOP. As on 30 June 2020, his total investment in the AOP was
Rs. 5,300,000. He was also provided a car worth Rs. 2,500,000 by the AOP for
office use only.
(ii) In 2014, he had purchased 10 tola gold for Rs. 500,000. At 30 June 2021, the
market value of the gold was Rs. 107,000 per tola.
(iii) During the tax year 2021, he sold his personal car for Rs. 1,876,000. The car
was purchased in 2019 for Rs. 1,700,000.
(iv) During the tax year 2021, he paid Rs. 600,000 against outstanding interest free
loan of Rs. 1,000,000. The loan was obtained in tax year 2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001 advise Mukhtar that how
the above matters would be dealt with in his wealth statement and its reconciliation
for the tax year 2021. (04)
(b) Following information pertains to Ms. Ayesha for the tax year 2021:
Rs. in million
Income from non-speculation business 15.0
Income from property 3.0
Gain on sale of jewellery 2.5
Gain on sale of listed securities 4.0
Loss from speculation business (4.5)
Loss on sale of shares of a private company (3.6)
Loss on sale of antique (1.6)
Loss on sale of listed securities (6.0)
Loss from agriculture (8.0)
Loss from other sources (19.0)
Required:
Under the Income Tax Ordinance, 2001, discuss how the above losses can be set off
against her aforesaid incomes. Also discuss the amount of losses that can be carried
forward for adjustment against her future incomes. (08)
Q.3 (a) State the provisions of the Income Tax Ordinance, 2001 relating to each of the
following:
(i) Change of tax year from special to normal (02)
(ii) Change in the method of accounting for income chargeable to tax under the
head ‘income from business’ (03)
(b) Aoun has discovered an error in his annual income tax return which was submitted
on the due date. Now he intends to file a revised return voluntarily.
Required:
Under the provisions of Income Tax Ordinance, 2001 state the conditions which
Aoun must comply with for filing valid revised return. (04)
Principles of Taxation Page 3 of 6
Q.4 Abbas, a resident individual, is engaged in the business of manufacturing various consumer
goods under the name and style of ‘Kamyab Enterprises (KE)’. Following information has
been extracted from KE’s records for the year ended 30 June 2021:
Rupees
Sales 43,089,000
Cost of sales (26,042,000)
Gross profit 17,047,000
Administrative and selling expenses (7,800,000)
Financial charges (2,100,000)
Other income 5,560,000
Profit before tax 12,707,000
Cost of sales includes:
(i) accounting depreciation of Rs. 1,200,000. The tax written down values of KE’s fixed
assets on 1 July 2020 were:
Rupees
Plant and machinery 6,860,000
Computers and related products 800,000
Motor vehicles (80% for business purposes) 3,000,000
A new computer was purchased on 1 April 2021 for Rs. 150,000.
Motor vehicle which was purchased on 15 June 2019 at the cost of Rs. 1,000,000 was
sold for Rs. 750,000 on 31 May 2021. Carrying value of this motor vehicle was equal
to sale proceeds.
(ii) an amount of Rs. 40,000 paid to factory supervisor on 23 March 2021 as advance
salary for the month of April. Since he was in urgent need of the amount and the
banks were closed on 23 March 2021 due to the Pakistan Day, he was paid in cash.
Administrative and selling expenses include:

(i) expenditure on ‘In-house scientific research’ related to KE’s business. It includes
salaries of Rs. 880,000 paid to scientists, material of Rs. 230,000 used in the research
and Rs. 700,000 paid to a company in China for supporting KE’s scientists in the
research work. This expenditure was not recorded as intangible asset as it could not
provide an advantage for a period of more than one year.
(ii) an expense of Rs. 650,000 paid as an instalment towards the purchase price of an
industrial plot.
(iii) purchase of goats worth Rs. 225,000 for sacrifice on Eid-ul-Azha. The payment was
made through cross cheque.
(iv) donations of Rs. 1,000,000 to approved non-profit organisations. 40% of this amount
was donated to organisations listed on the Second Schedule of the Income Tax
Ordinance, 2001. All donations were made through crossed cheques.
(v) an insurance premium of Rs. 200,000 paid to a registered insurance company for
health insurance of Abbas and his dependents.
Other income includes:

(i) an amount of Rs. 720,000 received from income tax department on account of tax
refund related to tax year 2018. This amount includes an additional payment of
Rs. 80,000 due to delay in tax refund.
(ii) capital gains of Rs. 430,000 and Rs. 250,000 on sale of investments in shares of
Manzil Limited, a public unlisted company and Himmat Limited, a public listed
company respectively on 20 June 2021. Both investments were made on
1 January 2019.
Required:
compute total income, taxable income and net income tax payable by or refundable to
Abbas for the tax year 2021. (18)
Note: ▪ Your computation should commence with profit before tax figure of Rs. 12.707 million.
Q.5 Kamkaj & Co. is an association of persons (AOP) with three members namely Baqir, Omer
and Sadabahar (Pvt.) Limited (SPL), sharing profit and loss in the ratio of 20:30:50
respectively.
Following information is available with regard to AOP and its members for the tax years
2020 and 2021:
(i) AOP’s income for tax years 2020 and 2021:

2020 2021
---------- Rupees -----------
Income from business* (18,000,000) 25,000,000
Dividend income - 4,000,000
*Net of annual fixed commission of Rs. 7,000,000 to SPL
(ii) On 1 February 2021, Baqir earned capital gain of Rs. 5,200,000 on sale of his property
which was purchased on 1 January 2018.
(iii) Omer also operates a sole proprietor business from which he earned profits of
Rs. 6,000,000 and Rs. 2,500,000 in tax years 2020 and 2021 respectively.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the following for the tax
years 2020 and 2021:
▪ Taxable income of AOP
▪ Taxable income and tax liability of Baqir and Omer (10)
Note: – Show all relevant exemptions, exclusions and disallowances.
– Tax rates for tax year 2020 are the same as tax year 2021.
– Ignore minimum tax under section 113.
Q.6 (a) In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder,
briefly explain as to the chargeability/adjustment of sales tax in respect of each of the
following independent matters:
(i) Free provision of taxable goods to the company’s CEO as per the terms of his
employment.
(ii) Free replacement of defective parts in the case of taxable goods, sold under
warranty.
(iii) Payment of machine fuel by one of the directors using his own credit card. The
machine is used to manufacture taxable goods.
(iv) Taxable goods sold on instalment to a customer at a price inclusive of mark up.
(v) Advance payment received against taxable goods to be supplied to a registered
person in next month.
(vi) Local supplies of goods manufactured by a cottage industry.
(vii) Material purchased for the construction of office building.
(viii) Electronic cash register purchased for retail outlet. (08)
(b) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe
temporary sale tax registration. Also state the rights, obligations and responsibilities
of a person holding temporary registration. (05)
Q.7 Mehrban Associates (MA) is registered under the Sales Tax Act, 1990. MA is engaged in
the business of manufacturing and supplying of various consumer goods. Following
information is available from MA’s records for the month of August 2021:
Rupees
Purchases
Taxable goods from registered persons 4,960,000
Taxable goods from unregistered persons 1,400,000
Exempt goods from unregistered persons 520,000
Supplies
Taxable goods to registered persons 8,650,000
Taxable goods to unregistered persons 1,560,000
Exempt goods to local unregistered persons 1,740,000
Export of taxable goods to UAE 1,300,000
Export of exempt goods to UAE 1,900,000
(i) Taxable goods from registered persons include:
▪ materials worth Rs. 296,000, which were exclusively used for manufacturing
exempt supplies.
▪ materials worth Rs. 675,000, which were exclusively used for manufacturing
export related goods.
▪ goods worth Rs. 150,000 which were purchased in cash from a supplier.
▪ 500 kg of tea purchased at a cost of Rs. 360,000 in one kg packing, covered under
Third Schedule. Retail price of tea per kg is Rs. 900. By end of August 2021,
300 kg were supplied to an unregistered wholesaler at a price of Rs. 790 per kg.
(ii) Taxable goods supplied to unregistered persons include goods worth Rs. 320,000
which were sold to a customer who did not provide his CNIC or NTN details. These
goods were purchased from a registered supplier for Rs. 275,000 during August 2021.
(iii) Following fixed assets were purchased during the month of August 2021:
Fixed assets Purchase cost (Rs.) Usage
To ensure quality standards of
Machine A 2,000,000
packing for exports
To manufacture taxable (local)
Machine B 3,000,000
as well as exempt (local) goods
Furniture and fittings 1,000,000 To use in office premises
(iv) Electricity bill of Rs. 959,450 was paid in cash. The bill was inclusive of sales tax of
Rs. 154, 250.
(v) Sales tax credit brought forward from last month amounted to Rs. 1,137,580.
(vi) Input tax of Rs. 186,000 pertaining to purchase made on 1 February 2021 was
inadvertently remain unclaimed.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Sales
tax is payable at the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to MA and input tax to be
carried forward, if any, for the tax period August 2021. (Show all relevant exemptions,
Q.8 (a) State one objective of tax laws in each of the following independent cases:
(i) High tax rate on import of goods

(ii) Zero rating under the Sales Tax Act, 1990
(iii) Decrease in sales tax rate
(iv) Tax on cash deposit/withdrawal by non-filer
(v) Introduction of tax holiday period for construction related industries
(vi) High tax rate on interest income
(vii) Decrease in tax rate for online sales
(viii) Tax credit to persons employing fresh graduates
(ix) High tax rates on luxury items
(x) Allow expenditure on research and development (05)
(b) List the fundamental principles of ethics for tax practitioners. Also describe any one
of the principles. (03)
(THE END)


2.
Rs. 600,000 Rs. 400,000
Where taxable income exceeds Rs. 600,000 but does not exceed Rs. 10,000 plus 10% of the
3.
Rs. 1,200,000 amount exceeding Rs. 600,000
Where taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 70,000 plus 15% of the
4.
Rs. 2,400,000 amount exceeding Rs. 1,200,000
5.
6.
7.
Rs. 1,220,000 plus 35% of the
amount exceeding Rs. 6,000,000
Initial allowance
The rate of initial allowance u/s 23 shall be 25% for plant and machinery.
Depreciation rates
2. Computer and IT products 30%
3. Motor vehicles 15%
Tax on capital gains on disposal of securities

The rate of tax to be paid under section 37A shall be 15%.
Tax on capital gain on disposal of immovable property

2. Where the gain exceeds Rs. 5 million but does not exceeds Rs. 10 million 5%
3. Where the gain exceeds Rs. 10 million but does not exceeds Rs. 15 million 7.5%
PRINCIPLES OF TAXATION
Suggested Answers
A.1 Mr. Nauman

For tax year 2021
Rupees
Income from salary
Basic salary [120,000×12] 1,440,000
Medical allowance [240,000(20,000×12) –144,000(1,440,000×10%)] 96,000
House rent allowance (60,000×12) 720,000
Company maintained car for both official and personal use (1,400,000×5%) 70,000
Purchase of car on book value (1,000,000 – 450,000) 550,000
Employer’s contribution to provident fund [18,000×12=216,000–
144,000(1,440,000×10%) (Allowed limit is 1/10 of the
basic salary OR 150,000 whichever is lower) 72,000
Interest on provident fund [540,000–480,000{higher of: interest @ 16%
i.e. 480,000 (540,000÷18%)×16% OR 480,000(1/3rd of basic salary i.e.
(1,440,000÷3)}] 60,000
Relocation allowance – exempt -
Bonus – [not taxable in TY2021 as it is received in July 2021) -
Loan obtained on concession rate [5,000,000×4%(10%-6%)×(3÷12)] 50,000
Legal expenses – Not deductible being no deduction shall be allowed for expenses
incurred in earning salary income -

Rent income 800,000(1,200,000‒400,000)×9/12 600,000
Less: Repair allowance (600,000÷5) (120,000)
Insurance premium (50,000)
Administration and collection charges to the extent of 4% of chargeable rent
600,000×4% (24,000)
406,000
Interest income (510,000÷0.85)+200,000 800,000
Income from utility, cleaning and security 400,000
Less: Expenditure (250,000)
150,000
950,000
Total income from all sources 4,414,000

Less: Separate block of income (interest income) (800,000)
3,614,000
Less: Deductible allowances
Zakat (200,000)
Profit on debt (5,000,000×10%×3÷12) (125,000)
Taxable income under NTR 3,289,000
Page 1 of 8
A.2 (a) Treatment in wealth statement Treatment in wealth reconciliation
(i) Investment in AOP is shown as Rs. Share of profit in AOP of Rs. 1,400,000 is
6,700,000 (5,300 + 1,400). reflected as inflow.
However, car being provided by AOP is
not shown in wealth statement.
(ii) 10 tola gold at value of Rs. 500,000 is No effect
shown. Current market value is ignored
in wealth statement.
(iii) Cash and bank balance of Rs. 1,876,000 Gain on sale of Rs. 176,000 (1,876,000–
being sale proceeds are shown. 1,700,000) is reflected as inflow.
(iv) Loan outstanding at 30 June 2021 of Rs. No effect
400,000 (1,000,000–600,000) is shown
as liability.
(b) Nature of loss Rs. in million Set off Carried forward

Loss from speculation (4.5) It cannot be set off It can be carried
business against any other head forward against future
of income. speculation gain upto
OR next 6 tax years
It can only be set off following the tax year
against any other gain in which the loss
from speculation occurred.
business.
Loss on sale of shares (3.6) This is a capital loss The loss of Rs. 1.1m
of private company and it can be set off (3.6–2.5) can be
against capital gain on carried forward only
sale of jewellery of against future capital
Rs. 2.5m. gain upto 6 tax years
next following the tax
year in which the loss
occurred.
Loss on sale of (1.6) This loss shall not be recognized. So no question
antique of set off or carried forward of this loss arises.
Loss on sale of listed (6.0) This is a capital loss The loss of Rs. 2m(6–4)
securities and it can only be set can be carried forward
off against capital gain only against future
on sale of listed capital gain on disposal
securities of Rs. 4m. of securities under
section 37A upto 3
subsequent tax years.
Loss from agriculture (8.0) Since agriculture income is exempt from tax, this
loss cannot be adjusted against any other income.
Loss from other (19) It can be set off with The loss of Rs. 4m (19–
sources income from normal 15) cannot be carried
(other than forward.
speculation) business
of Rs. 15m but cannot
be set off with income
from property.
A.3 (a) (i) A person may apply in writing to the Commissioner for change in tax year from
special to normal. The Commissioner grants permission only if he is satisfied
that it has a compelling need to use normal tax year. While giving the
permission, the Commissioner may impose conditions as he may deem fit. An
order of the Commissioner for change of tax year shall take effect from such
Suggested Answers
date, being the first day of the normal tax year as may be specified in the order.
(ii) A person may apply in writing for a change in the person’s method of
accounting to the Commissioner. The Commissioner may, by notice in writing,
approve such an application but only if satisfied that the change is necessary to
clearly reflect the person’s income chargeable to tax under the head “Income
from Business”. If a person’s method of accounting has changed, the person
shall make adjustments to items of income, deduction, or credit, or to any other
items affected by the change so that no item is omitted, and no item is taken
into account more than once.
(b) Aoun has to comply with the following conditions in order to submit a valid revised
return:
▪ The revised return should be accompanied by the revised accounts.

▪ The reasons for revision of return, in writing duly signed by the taxpayer,
should be filed with the return.
▪ Permission of the Commissioner in writing for revision of return should be
obtained. However this condition shall not apply if revised return is filed within
60 days of filing of return.
▪ Taxable profit declared is not less than profit determined by an order or loss
declared is not more than loss determined by an order.
▪ Approval required from Commissioner shall be deemed to have been granted
by the Commissioner if:
– The Commissioner has not made an order of approval in writing for
revision of return, before the expiration of 60 days from the date when the
revision of return was sought; or
– Taxable income declared is more than or the loss declared is less than the
income or loss, as the case may be determined under Assessments.
A.4 KE Enterprises
For tax year 2021
Rupees
Accounting depreciation 1,200,000
Salary paid in cash 40,000
Cost related to scientific research incurred in Pakistan -
Expenditure paid to Chinese company for research work 700,000
Instalment of industrial plot being capital payment in nature 650,000
Purchase of goats for Eid-ul-Azha 225,000
Donation to approved NPO 1,000,000
Health insurance premium 200,000
4,015,000
Less: Admissible expenses and inadmissible / FTR income
Tax refund received from Income tax department (720,000)
Tax depreciation (W-1) (1,590,015)
Loss on disposal of motor vehicle (W-2) (28,000)
Capital gain not to be taxed under business income (430,000+250,000) (680,000)
(3,018,015)
Income from business 13,703,985
Page 3 of 8
Capital gain
Capital gain on sale of securities (430,000+250,000) 680,000

Additional payment received on delayed tax refund 80,000
Total income for the year from all sources 14,463,985
Less:
25% of Capital gain on disposal of investment in Manzil Limited is exempt due
to holding period is greater than one year (430,000×25%) (107,500)
Capital gain on disposal of investment in Himmat Limited as separate block of
income (250,000)
Donation to NPO listed in Second Schedule (1,000,000×40%) *(400,000)
Tax liability
Tax on Rs. 6,000,000 1,220,000
On balance (13,706,485–6,000,000)×35%) 2,697,270
Tax liability under normal tax regime 3,917,270
Tax credit on:
donations (3,917,270÷13,706,485×*600,000) (171,478)
health insurance premium (3,917,270÷13,706,485×150,000) (42,870)
3,702,922
Capital gain under section 37A 250,000×15% 37,500
Tax payable by Abbas 3,740,422
*being donation amount is less than 30% of taxable income.
W-1: Tax depreciation: Rupees

Opening balances:
Plant and machinery (6,860,000×15%) 1,029,000
Computer and related products (800,000×30%) 240,000
Motor vehicles 2,222,000[3,000,000–778,000(W-2)]×15%×80% 266,640
1,535,640
New computer:
Initial allowance (150,000×25%) 37,500
Normal depreciation (150,000×75%×30%×50%) 16,875
1,590,015
W-2: Computation of tax loss on sale of motor vehicle Rupees

Cost 1,000,000
Depreciation TY 2019 (1,000,000×15%) (150,000)
TY 2020 (850,000×15%) (127,500)
TY 2021 -
(277,500)
Tax WDV 722,500
Disallowed depreciation (277,500×20%) 55,500
778,000
Sale proceeds 750,000
Loss on disposal 28,000
Suggested Answers
A.5 Kamkaj & Co.

Computation of Taxable Income
Tax Year 2020 Tax Year 2021
----------- Rupees -----------
Income from Business (18,000,000) 25,000,000
Add: Commission to SPL 7,000,000 7,000,000
(11,000,000) 32,000,000
Dividend income - 4,000,000
Total income (11,000,000) 36,000,000
Less: FTR income - (4,000,000)
Taxable income (11,000,000) 32,000,000
B/F loss (11,000,000)
Less: SPL’s share of 50% (10,500,000)
Taxable income of AOP after deducting SPL’s share 10,500,000
Tax liability of AOP: Rupees

Upto 6,000,000 1,220,000
On balance @ 35% 1,575,000
2,795,000
Computation of taxable income and tax liability of Baqir:

----------- Rupees -----------
Capital gain on sale of property (5,200,000÷4) (Separate
block of income) - 1,300,000
Tax liability on capital gain related to sale of immoveable property

[1,300,000×2.5%] 32,500
Computation of taxable income and tax liability of Omer:

----------- Rupees -----------
Income from Business 6,000,000 2,500,000
Taxable income 6,000,000 2,500,000

Share of profit of AOP - 5,823,000
9,705,000[12,500,000(25,000,000×50%)–2,795,000]×60%
Taxable income for rate purpose 6,000,000 8,323,000
On 6,000,000 1,220,000 1,220,000

On balance @ 35% - 813,050
1,220,000 2,033,050
Tax rate to be charged 24.43%
(2,033,050÷8,323,000)
Tax liability of Omer 1,220,000 610,750
(2,500,000×24.43%
)
Page 5 of 8
A.6 (a) (i) As this is covered under the definition of supply, this is subject to sales tax by
applying tax % on open market price of these goods.
(ii) The free replacement of defective parts is considered as original supply and not
a separate supply. Therefore, such replacement is not chargeable to tax.
(iii) Payment must be verifiable from the business bank accounts of both the buyer
and the seller. In given matter, company will not be able to obtain input tax on
its payment due to non-verifiability of the said payment from the business bank
account of the company.
(iv) Value of supply in this case should be open market price so value of supply does
not include the mark up.
(v) Time of supply is the earlier of delivery of goods or the time when payment is
received so the advance received is subject to sales tax in this month.
(vi) These are exempt from sales tax.
(vii) Input tax paid on purchase of construction material for office building is not
admissible.
(viii Input tax paid on purchase of electronic cash register is admissible and
registered person shall be entitled to deduct this input tax from output tax.
(b) Temporary registration

▪ Where a person files application for sales tax registration as a manufacturer
without having installed machinery, for the purpose of import of machinery to
be installed by him, temporary registration as manufacturer shall be allowed to
him for a period of sixty days subject to furnishing of the complete list of
machinery to be imported along with Bill of Lading or Goods Declaration.
▪ The temporary registration shall be issued by the computerized system within
seventy-two hours of filing of the complete application.
▪ After receiving temporary registration, the person shall be allowed to import
plant, machinery and raw materials, etc. as a manufacturer, subject to
submission to the customs authorities of a post-dated cheque equal to the
difference in duties and taxes to be availed as a manufacturer.
▪ In case the list of machinery is not provided within sixty days of issuance of the
temporary registration, such temporary registration shall be disabled and the
post-dated cheques submitted shall be encashed.
▪ A person holding temporary registration shall file monthly return, but shall not
issue a sales tax invoice and if such invoice is issued, no input tax credit shall be
admissible against such invoice.
▪ No sales tax refund shall be paid to the person during the period of temporary
registration and the amount of input tax may be carried forward to his returns
for subsequent tax periods.
Suggested Answers
A.7 Mehrban Associates

Computation of Sales Tax Payable/Refundable
For the tax period August 2021
Taxable amount Sales tax @ 17%
-------- Rupees --------
Sales tax credits - Input Tax
Taxable goods from registered persons 4,960,000 843,200
Materials exclusively used for exempt supplies (296,000) (50,320)
Materials exclusively used for zero rated (675,000) (114,750)
Goods purchased on cash (150,000) (25,500)
500 kg of tea covered under Third Schedule to be taxed at retail price
[450,000(500×900)−360,000] 90,000 15,300
Goods sold to unregistered who have not provided their CNIC or NTN (275,000) (46,750)
3,654,000 621,180
Taxable goods from unregistered persons 1,400,000 -
Exempt goods from unregistered persons 520,000 -
Sales tax paid on electricity bill 959,450 154,250
Input tax related to purchase made in February 2021 (It may be
claimed in August return being input tax can be claimed in six
succeeding tax periods) 186,000
961,430
Fixed asset purchase – Machine A 2,000,000 340,000
– Machine B 3,000,000 510,000
Furniture and fittings (inadmissible) 1,000,000 -
Total input tax 1,811,430
Less: Unadjusted/inadmissible input tax (W-1) (726,870)
Input tax for the month 1,084,560
Add: Input tax b/f from previous month 1,137,580
Accumulated credit 2,222,140
Sales tax debits - Output Tax

Local taxable goods to registered persons 8,650,000 1,470,500
Taxable goods to unregistered persons 1,560,000 265,200
300 kg of tea covered under third schedule to be taxed at retail price
[300×(900‒790)] 33,000 5,610
Taxable supplies local 10,243,000 1,741,310
Export of taxable goods to UAE (zero rated supplies) 1,300,000 -
Export of exempt goods to UAE (zero rated supplies) 1,900,000 -
Total taxable supplies / output tax 13,443,000 1,741,310
Exempt goods to local unregistered persons 1,740,000 -
Total supplies / output tax for the month 15,183,000 1,741,310
Admissible credit (90% of output tax i.e. Rs. 1,567,179 (1,741,310×90%) or input tax
excluding fixed assets i.e. Rs. 1,786,195 [2,222,140‒435,945(W-1)], whichever is lower. (1,567,179)
Sales tax payable 174,131
Less: Input tax on fixed assets – Machine B (Taxable supplies portion only) (W-1) (435,945)
Sales tax to be carried forward (fixed asset portion only) 261,814
Sales tax to be carried forward (2,222,140‒1,567,179‒435,945) 219,016
Total sales tax to be carried forward 480,830
Further tax payable on supplied to unregistered persons
(1,560,000‒ 237,000(300×790))×3% 39,690
Sales tax refundable on zero rated supplies:

Input tax on material exclusively used for export items (675,000×17%) 114,750
Input tax computed in working 1 542,633
657,383
Page 7 of 8
Fixed assets
Supplies Total
A B
---------------------------- Rupees ----------------------------
Residual input tax 961,430 340,000 510,000
Zero rate supplies (1,300,000+1,900,000) 3,200,000 3,200,000 -

Exempt supplies (Local) 1,740,000 1,740,000
Taxable supplies (Local) 10,243,000 10,243,000
Total supplies 15,183,000 3,200,000 11,983,000
Unadjusted/refundable (for zero rated

supplies) 202,633 340,000 - 542,633
Inadmissible (for exempt supplies) 110,182 - 74,055 184,237
Total unadjusted/inadmissible 312,815 340,000 74,055 726,870
Admissible input tax on local taxable
goods 648,615 - 435,945 1,084,560
A.8 (a) (i) To protect local industries against foreign competition.

(ii) To promote exports of the country.
(iii) To counter the effects of inflation.
(iv) To document the economy.
(v) To bring the investments in construction related sectors.
(vi) To discourage savings in bank account.
(vii) To promote online businesses
(viii) To increase employment rate in the country
(ix) To remove inequality in distribution of wealth
(x) To promote science and innovation
(b) (i) Integrity

(ii) Objectivity
(iii) Professional competence and due care
(iv) Confidentiality
(v) Professional behaviour
Integrity:
Tax practitioners should be straightforward and honest in all professional and
business relationships. Integrity implies not just honesty but also fair dealing and
truthfulness.
(The End)

Q.1 (a) On 31 December 20X1, Dr. Jamal resigned from his employment with General
Hospital Limited. In January 20X2, he received following amounts in final
settlement:
▪ Rs. 600,000 as leave encashment.
▪ Rs. 8,510,000 from recognised provident fund.
▪ Rs. 1,300,000 and Rs. 1,700,000 as salary arrears relating to tax year 20W9 and
20X0 respectively.
Dr. Jamal had received a monthly salary of Rs. 500,000 from July 20X1 to
December 20X1. His taxable income and tax liability during the preceding four tax
years were as under:
Tax year 20W8 20W9 20X0 20X1
Total taxable income (Rs.) 2,800,000 3,200,000 3,800,000 4,800,000
Total tax paid (Rs.) 359,500 404,500 300,000 630,000
Required:
As a tax consultant, advise Dr. Jamal about the amount of income tax payable by
him for the tax year 20X2, under the Income Tax Ordinance, 2001. (07)
(Tax rates are given on the last page)
(b) Dr. Jamal is planning to establish a hospital as a non-profit organization.
Required:
Discuss the conditions that should be complied with by Dr. Jamal, under the Income
Tax Ordinance, 2001. (03)
Q.2 (a) What do you understand by the term ‘Turnover’ as provided in section 113 of the
Income Tax Ordinance, 2001? List the persons who are required to pay minimum tax
on the basis of turnover. (08)
(b) Gillani and Company (GC), a sole proprietor, is dealing in various consumer
products in Pakistan. During the year ended 30 June 20X2, GC’s taxable income for
the year was Rs. 1.6 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the amount of net
income tax payable by GC and amount of income tax to be carried forward, if any,
for the tax year 20X2, in each of the following situations:
(i) GC’s sales were Rs. 12,500,000 inclusive of sales tax.
(ii) GC’s sales were Rs. 11,000,000 inclusive of sales tax. (05)
Q.3 Muhammad Asghar owns an industrial undertaking under the name and style of Asghar &
Company (AC) which is engaged in the business of manufacturing pharmaceutical
products. Following information is available for the year ended 31 December 20X1:
Rs. in '000
Turnover 324,850
Cost of goods sold (217,197)
Gross profit 107,653
Administrative and distribution expenses (88,980)
Marketing expenses (19,765)
Other income 3,560
Profit before tax 2,468
(i) Cost of goods sold includes:
▪ raw materials of Rs. 7,800,000. No withholding tax was deducted at the time of
payment.
▪ accounting depreciation of Rs. 2,100,000 on plant and machinery.
▪ provision for slow moving inventory of Rs. 1,800,000.
(ii) Administrative and distribution expenses include:

▪ Rs. 676,500 paid to a local hotel for holding annual Eid-Milan party for the
employees and their families.
▪ Rs. 1,235,000 paid as penalty to a customer in settlement of his claim for
damages under a contract for the supply of a batch of vaccines. Laboratory tests
and in-house investigations revealed that the level of impurities in the vaccines
exceeded the acceptable level as agreed in the contract.
▪ Rs. 2,300,000 paid as donation to a hospital established by the local government.
(iii) Marketing expenses include a reward of Rs 500,000. The reward was paid in cash to
one of the salesmen for exceeding his sales target.
(iv) Other income includes:
▪ dividend of Rs. 174,000. This amount was received from a listed company after
deduction of income tax at the rate of 15% and Zakat of Rs. 30,000 deducted
under the Zakat and Usher Ordinance, 1980.
▪ gain of Rs. 660,000 on sale of shares in Akash (Pvt) Limited (APL) in
November 20X1. 60% of the shares in APL are owned by the Federal
Government. AC purchased these shares in June 20X0.
Other information:
(i) A second hand plant was imported from France at a cost of Rs. 2,500,000.
Withholding tax of Rs. 150,000 was deducted at import stage. The plant was
installed in the month of September 20X1. AC incurred Rs. 375,000 on the
installation of plant which is included in administrative and distribution expenses.
(ii) Pre-commencement expenditures of Rs. 3,400,000 were charged to accounting profit
and loss for the year ended 31 December 20X0. However, for tax purposes, it has to
be amortized over the period of five years.
(iii) Tax depreciation other than imported plant amounted to Rs. 1,900,000.
(iv) Income tax deducted by the customers u/s 153 and advance income tax paid u/s 147
during the year amounted to Rs. 1,400,000 and Rs. 200,000 respectively.
Required:
compute total income, taxable income and net income tax payable by or refundable to AC
for the tax year 20X2. (19)
Note: ▪ Your computation should commence with profit before tax figure of Rs. 2,468K.
▪ Tax rates are given on the last page.
Q.4 (a) On 1 July 20X1, Mrs. Ahmed separated from her spouse and decided to live apart
with her six years old son. Below are the extracts of clauses from the agreement to
live apart:
(i) Mr. Ahmed will pay Rs. 50,000 in cash every month to his spouse.
(ii) Mr. Ahmed will continue to pay his son’s monthly school fee of Rs. 10,000.
(iii) Mr. Ahmed will transfer the ownership of a shop in her spouse’s name. The
shop was already in use by a tenant at a monthly rent of Rs. 88,000.
Mrs. Ahmed will be entitled to receive the rent from the date of transfer of
ownership in her name.
On 1 September 20X1, the ownership of the shop was transferred in her name.
Required:
Under the provision of the Income Tax Ordinance, 2001 briefly explain the tax
treatment of the above arrangement in the income tax return of Mrs. Ahmed for the
tax year 20X2. Also specify the head of income under which each of the above
receipts will be classified. (04)
(Computation is not required)
(b) Briefly explain the provisions of the Income Tax Ordinance, 2001 and Rules made
thereunder relating to:
(i) interest free loan provided by an employer to its employee for marriage of
his/her daughter. (02)
(ii) requirement of books of account to be maintained by a manufacturer having
turnover exceeding Rs. 2.5 million. (04)
(iii) order of application of various tax credits if a taxpayer is allowed more than
one tax credit for a tax year. (03)
Q.5 Star Garments Limited (SGL) had filed its tax return for the tax year 2015 on
30 September 2015.
On 25 February 2021, the Commissioner of Income Tax, on the basis of definite

information, issued a notice u/s 122 (5) to SGL for the audit of books of account for the tax
year 2015.
The accountant informed the chief executive officer that tax audit for the tax year 2015 had
already been conducted in 2019 and an amended assessment order u/s 122(5A) was issued
by the Commissioner on 24 February 2020.
Required:
Under the provisions of the Income Tax Ordinance, 2001:
(a) explain the term ‘Definite information’. (02)
(b) discuss whether the Commissioner is empowered to make further amendment in the
assessment order issued on 24 February 2020. (07)
Q.6 Hadi Associates (HA), a sole proprietor business, is registered under the Sales Tax Act,
1990 as manufacturer cum importer and is engaged in the manufacturing and supply of
consumer products. Following information has been extracted from HA’s records for the
month of February 2021:
Rupees
Supplies
Taxable goods to registered customers 2,750,000
Taxable goods to un-registered customers 1,050,000
Exports of taxable goods to Saudi Arabia 1,500,000
Purchases
Taxable goods from registered suppliers 1,890,000
Taxable goods from un-registered suppliers 1,000,000
Packing material from un-registered suppliers 445,000
(i) Supplies of taxable goods to registered customers include:
▪ goods worth Rs. 225,000 (net of special discount of Rs. 75,000). These goods
were sold to an associated undertaking. The special discount was not reflected
on the invoice.
▪ goods worth Rs. 120,000 supplied to a customer in Multan. HA had received
full payment against the goods in November 2020.
(ii) Supplies of taxable goods to unregistered customers include sales of Rs. 130,000 to
end consumers.
(iii) Purchases from registered suppliers include:
▪ goods worth Rs. 100,000 purchased from Haq Enterprises on 5 February 2021.
On 20 February 2021, Haq Enterprises informed HA that with effect from
1 February 2021, its registration has been suspended by the Commissioner
Inland Revenue.
▪ goods worth Rs. 85,000 purchased in cash.
▪ goods worth Rs. 50,000 purchased from AB Traders. The supplier did not
declare the sale of these goods in its tax return for the month of February 2021.
(iv) Taxable goods worth Rs. 150,000 were used in the business meeting held for the
promotion of HA’s business.
(v) A machine costing Rs.2,500,000 was acquired and commissioned into operation in
February 2021. The machine was used for both taxable and zero rated supplies.
(vi) Electricity bill of Rs. 90,000 for the month of September 2020 was paid in
October 2020. However, related input tax of Rs. 13,000 has still inadvertently
remained unclaimed.
(vii) The auditors have proposed to make a provision of 50% against obsolete and expired
stock of Rs. 350,000. The goods are lying in warehouse since July 2017. Input tax
relating to this stock was claimed in July 2017.
(viii) Sales tax credit of Rs. 415,000 has been brought forward from previous tax period.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Sales
Required:
compute the amount of sales tax payable by or refundable to HA and input tax to be carried
forward, if any, for the tax period February 2021. (16)
Q.7 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly
explain the following:
(i) how and under what situations the Inland Revenue Department may recover
the amount of sales tax from a person without issuing him a show cause notice. (04)
(ii) extra tax and capacity tax. (05)
(b) On 4 February 2021, it was revealed to Fahad that he inadvertently reported an

output sales tax of Rs 27,000 in a tax invoice, issued on 5 July 2020, to a customer
instead of Rs. 72,000 in his sales tax return for July 2020.
Required:
In the light of the Sales Tax Act, 1990 and Rules made thereunder, advise how
Fahad can rectify this error after the expiry of 180 days. (03)
Q.8 (a) Taxes are primary revenue yielding tools of the Government of modern ages. State
any five ways by which taxes can be used for the development of the country. (05)
(b) List six types of taxes which are covered within the legislative powers of Provinces. (03)
(THE END)

4. Where taxable income exceeds Rs. 1,800,000 but does not exceed Rs. 90,000 plus 15% of the
5. Where taxable income exceeds Rs. 2,500,000 but does not exceed Rs. 195,000 plus 17.5% of the
6. Where taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 370,000 plus 20% of the
7. Where taxable income exceeds Rs. 5,000,000 but does not exceed Rs. 670,000 plus 22.5% of the
8. Where taxable income exceeds Rs. 8,000,000 but does not exceed Rs. 1,345,000 plus 25% of the
9. Where taxable income exceeds Rs. 12,000,000 but does not exceed Rs. 2,345,000 plus 27.5% of the

2.
Rs. 600,000 Rs. 400,000
3. Rs. 1,200,000 amount exceeding Rs. 600,000
4.
5.
6.
7.
Rs. 1,220,000 plus 35% of the
8. Where taxable income exceeds Rs. 6,000,000 amount exceeding Rs. 6,000,000

The rate of tax to be paid under section 37A shall be 15%.

The minimum tax as percentage of the person’s turnover for the year is 1.5%.
Depreciation rates under Third Schedule

The depreciation plant and machinery is 15%
Initial allowance
Suggested Answers
A.1 (a) Following options are available to Jamal (Salaried individual):

Option 1: By applying applicable tax rate to total taxable income
Rupees
Salary (500,0006) 3,000,000
Arrear for 20W9 & 20X0 3,000,000
Total taxable income 6,600,000
Tax computations:
On Rs. 5,000,000 670,000
On balance [(6,600,000 – 5,000,000)  22.5%] 360,000
Tax liability under option 1 1,030,000
Option 2
Rupees
Salary (500,0006) 3,000,000
3,600,000
Tax computation – Salary
On (Rs. 3,500,000) 370,000
On balance [(3,600,000 – 3,500,000)  20%] 20,000
390,000
Tax on amount received in arrear for the tax year 20W9
Received in 20W9 3,200,000
Received in 20X2 1,300,000
4,500,000
Tax on Rs. 3,500,000 370,000

On balance Rs. 1,000,000 @ 20% 200,000
570,000
Already paid (404,500)
165,500
Tax on amount received in arrear for the tax year 20X0
5,500,000
Tax on Rs. 5,000,000 670,000

On balance Rs. 500,000 @ 22.5% 112,500
782,500
Already paid (300,000)
482,500
Tax payable for arrears (165,500+482,500) 648,000

Total tax payable (390,000+648,000) 1,038,000
Tax saving (1,030,000-1,038,000) 8,000
Note: Since Provident fund is recognized, it is fully exempt.
Conclusion:
Jamal should select option 1 as it would result in tax saving of Rs. 8,000 (1,038,000 –
1,030,000).
Page 1 of 8
(b) Under the ITO-2001, an individual cannot form a non-profit organization.
However, Dr. Jamal can run his clinic as a non-profit organization if:
(i) it is established for charitable purposes only;
(ii) he gets his clinic registered as a company or association of persons under
any law;
(iii) he gets approval of the Commission for specified period; and
(iv) none of the assets of his clinic are available for private benefit to any other
person.
A.2 (a) For the purpose of minimum tax liability, turnover is defined as:
(i) The gross sales/gross receipts, exclusive of sales tax and federal excise duty or
any trade discounts shown on invoices or bills, derived from the sale of goods
and also excluding any income taken as deemed.
(ii) The gross fees for the rendering of services, including commissions.
(iii) The gross receipts from the execution of contracts.
(iv) The company’s share of the above stated amounts of an association of persons of
which the company is a member.
In case of (i), (ii) and (iii) above, it does not include any amount covered by final
discharge of tax liability for which tax is separately paid or payable.
Following persons are required to pay minimum tax:

(i) a resident company
(ii) an individual having turnover of Rs. 10 million or above in the tax year 2017
or in any subsequent tax year
(iii) an association of persons having turnover of Rs. 10 million or above in the tax
year 2017 or in any subsequent tax year
(b) Computation of tax liability of Gillani & Co.

For the tax year 20X1
Situation 1 Situation 2
--------- Rupees ---------
Income tax payable under normal tax regime
Taxable income 1,600,000 1,600,000
Income tax
On Rs. 1,200,000 70,000 70,000
On balance Rs. 400,000 @ 15% 60,000 60,000
A 130,000 130,000
Income tax payable under minimum tax

Gross sales 12,500,000 11,000,000
Less: Sales tax (17/117) (1,816,239) 1,598,291
10,683,761 9,401,709
Turnover tax u/s 113 @ 1.50% B 160,256 *N/A
Tax liability of GC (Higher of A and B) 160,256 130,000
Carried forward of excess tax 30,256 -

*Because turnover is less than Rs. 10 million.
Suggested Answers
A.3 Muhammad Asghar

For tax year 2021 Rs.
Raw material and finished goods disallowed 20% 7,800,000×20% 1,560,000
Provision for slow moving inventory 1,800,000
Expenditure on Eid-Milan party -
Penalty paid to a customer -
Donation paid to hospital established by local government 2,300,000
Installation charges of imported plant 375,000
Reward paid in cash to salesmen 500,000
8,635,000
Less: Admissible expenses / inadmissible income
Amortization of pre-commencement expenditure 3,400,000×20% (680,000)
Tax depreciation (1,900,000)
Initial allowance of imported plant (2,500,000+375,000)×25% (718,750)
Depreciation of imported plant (2,500,000+375,000–718,750)×15%×50% (161,719)
Dividend received from a listed company (174,000)
Gain on sale of shares in APL (660,000)
(4,294,469)
Dividend received - FTR income (174,000+30,000=204,000/0.85) 240,000
Capital gain
Gain on disposal of APL (Treated as a public company because 60% shares of APL are held
by Fed Govt.) 660,000

Dividend received - FTR income 240,000
Gain on disposal of public company 660,000
900,000
6,808,530
Less: Deductible allowance
Zakat paid/deducted (30,000)
Tax liability
Tax on Rs. 6,000,000 1,220,000
On balance 272,486
Tax liability under normal tax regime 1,492,486
Less: Tax credit on donation
Lesser of 2,300,000 or 30% of the taxable income i.e. Rs. 2,033,559 (1,492,486/
6,778,530×2,033,559) (447,746)
1,044,740
Dividend income: Tax at the rate of 15% - FTR 36,000
Gain on sale of shares of public company 99,000
Total tax payable 1,179,740
Less: Advance tax paid (200,000)
Withholding tax deducted (1,400,000)
Withholding tax deducted (Dividend) (36,000)
Tax collected at import stage (150,000)
Tax refundable 606,260
Page 3 of 8
A.4 (a) (i&ii) Monthly cash allowance and payment of school fees
Any income received by a spouse as support payment under an agreement to live
apart shall be exempt from income tax. Hence, under the provision of law, monthly
cash amount of Rs. 50,000 and school fees of Rs. 10,000 paid by Ahmed would be
considered as support payment.
Both amount will be shown as exempt income under the head 'Income from other
sources' in Mrs. Ahmed's income tax return.
(iii) Rent received from the property
Since the ownership of the shop was transferred to Mrs. Ahmed, the rental income
from the shop will not be considered as support payment. Rental income of Rs.
880,000 (88,000×10) will be chargeable to tax under the head 'Income from
property in Mrs. Ahmed's income tax return.
(b) (i) ▪ Where a loan is given to an employee then the amount will be included in
salary income of the employee in the following manner:
− If no interest is payable by the employee - the amount of interest
computed at the benchmark rate (i.e. 10%).
− If interest is payable at less than benchmark rate - the interest amount
computed at the benchmark rate less the actual amount of interest paid
by the employee.
▪ The interest for loan amount would be chargeable to tax only for amount
exceeding Rs. 1,000,000.
▪ If interest free loan is extended by the employer due to waiver of interest by
such employee on his accounts maintained with the employer (e.g. Provident
Fund), no amount of interest would be charged.
(ii) The following books of account are required to be maintained by a manufacturer
having turnover exceeding Rs. 2.5 million:
▪ Serially numbered and dated cash-memo / invoice /receipt for each
transaction of sale or receipt containing the following:
− taxpayer’s name or the name of his business address, national tax
number or CNIC and sales tax registration number, if any
− the description, quantity and, value of goods sold
− where a single transaction exceeds Rs. 10,000 with the name and
address of the customer
▪ Cash book and/or bank book
▪ Sales day book and sales ledger (where applicable)
▪ Purchases day book and purchase ledger (where applicable)
▪ General ledger
▪ Vouchers of purchases and expenses and where a single transaction exceeds
Rs. 10,000 with the name and address of the payee;
▪ Stock register of stock-in-trade (major raw materials and finished goods)
supported by gate in-ward and outward records and quarterly inventory of
all items of stock-in-trade including work-in-process showing description,
quantity and value.
(iii) Application of tax credits while computing the tax liability of the taxpayer:
If a taxpayer is allowed more than one tax credit for a year, the credits shall be
applied in the following order:
(i) Any foreign tax credit; then
(ii) Any tax credit allowed under Part X of Chapter III; such as
▪ Charitable donations
▪ Investment in shares and insurance
▪ Contribution to an approved pension fund
Suggested Answers
▪ Tax credit for employment generation by manufacturer u/s 64B

(iii) Second schedule credits (e.g. reduction in tax liability due to full time
teacher allowance.)
(iv) Any tax credit allowed for quarterly advance tax paid u/s 147 and for tax
collected / deducted at source u/s 168
A.5 (a) Definite information includes information on sales or purchases of any goods made by
the taxpayer, receipts of the taxpayer from services rendered or other receipts
chargeable to tax under the Ordinance on the acquisition / possession / disposal of any
money / asset / valuable article, or investment made or expenditure incurred by the
taxpayer.
(b) ▪ Commissioner is empowered to amend further the original assessment order as

many times as may be necessary on the basis of audit or definite information that:
− any taxable income has escaped assessment;
− total income has been under assessed or assessed at too low tax rate or has
been the subject of excessive relief or refund; or
− any amount under a head of income has been misclassified.
The Commissioner may also amend the original assessment order if he considers
that the assessment order is erroneous in so far as it is prejudicial to the interest of
revenue.
However, the Commissioner can make amendment in the original assessment
order within the later of:
− five years from the end of the financial year in which the original assessment
order is issued or treated as issued by the Commissioner; or
– one year from the end of the financial year in which the amended assessment
order is issued or is treated as issued.
▪ Considering the above provisions of law, SGL’s position is as follows:
– Five year period will be completed on 30-06-2021 as the original assessment
order was filed on 30-09-2015 (financial year 30-06-2016)
– One year would be completed on 30-06-2021 as the amended assessment
order was issued on 24 February 2020 (financial year 30-06-2020).
Therefore, the Commissioner still have time to further amend the assessment order.
However, no further amendment can be made by the Commissioner unless the SGL has
been provided with an opportunity of being heard.
Page 5 of 8
Ans.6 Hadi Associate
Computation of Sales Tax Payable / Refundable
Taxable Sales tax
amount @ 17%
SALES TAX CREDITS (INPUT TAX) -------- Rupees --------
Taxable goods from registered customers 1,890,000
Less: Goods purchased from Haq Enterprises - Suspended (100,000)
Goods purchased in cash (85,000)
Goods purchased from AB traders, not declared in its return (50,000)
1,655,000 281,350
Taxable goods from un-registered customers 1,000,000 -
Packing material from un-registered person 445,000 -
Sales tax paid on electricity bill - September 2020 90,000 13,000
294,350
Fixed assets purchased 2,500,000 425,000
Total input tax 719,350
Add: Credit brought forward from previous month 415,000
Less: Inadmissible / un-adjustable input tax (W-1) (199,634)
934,716
SALES TAX DEBITS (OUTPUT TAX)
Add: Discount given to associated undertaking 75,000
Less: Goods against which payment was received in Nov 20 (120,000)
2,705,000 459,850
Taxable goods to un-registered customers 1,050,000 178,500
Export - taxable goods (Zero rated) 1,500,000
Taxable supplies goods used for business promotion 150,000 25,500
Total supplies / output tax for the month 5,405,000 663,850
Admissible credit (90% of output tax i.e. Rs. 597,465 or input tax excluding fixed
assets (627,662) whichever is lower. (597,465)
Less: Input tax on fixed assets – machine [Taxable supplies portion only(W-1)] (307,054)
Sales tax to be carried forward – fixed assets 240,669
Sales tax to be carried forward – taxable supplies (627,662–597,465) 30,197
270,866
Further tax payable on sale to un-registered person (1,050,000–130,000=920,000×3%) 27,600
Sales tax refundable [117,946+81,688(W-1)] 199,634
No adjustment would be made in the sales tax return on account of slow moving stocks

Total supplies relating to
Fixed assets Taxable supplies
-------------------- Rs. --------------------
Local taxable goods 3,905,000 307,054 212,662
Export - goods 1,500,000 117,946 81,688
5,405,000 425,000 294,350
Suggested Answers
A.7 (a) (i) Short paid amounts recoverable without notice:

Where a registered person pays the amount of tax less than the tax due as
indicated in his return, the short paid amount of tax along with default
surcharge shall be recovered from such person by stopping removal of any
goods from his business premises and through attachment of his business bank
accounts, without giving him a show cause notice and without prejudice to any
other action prescribed under section 48 of this Sales Tax Act or the rules made
thereunder:
(ii) Extra tax

The Federal Government is empowered to levy and collect tax at such extra
rate or amount not exceeding 17% in addition to the amount of sales tax or
retail tax, levied under Sales Tax Act, 1990. This tax shall be levied on the value
of such goods or class of goods, on such persons or class of persons, in such
mode, manner and at time and subject to such conditions and limitations as
may be prescribed.
Capacity tax
On the goods specified in the Tenth Schedule, in lieu of levying and collecting
tax on taxable supplies, the tax shall be levied and collected, in the mode and
manner specified therein on-:
▪ production capacity of plants, machinery, undertaking, establishments or
installations producing or manufacturing such goods; or
▪ fixed basis, as it may deem fit, from any person who is in a position to
collect such tax due to the nature of the business.
(b) Since Fahad has already accounted for the output tax in the sales tax return for the
supplies, it can issue a debit note in the month of February 2021 when the error was
detected, and increase the amount of output tax in the return for February 2021 by
Rs. 45,000.
Time limitation of 180 days shall not apply in the given case as it is applicable only in the
case of decrease in output tax and increase in input tax. The above increase of output tax
may be declared without any time limitations.
Page 7 of 8
A.8 (a) Following are the different ways by which taxes can be used for the development of
country:
▪ The Government can declare some areas as free zone, industrial zone, and economic
zone and provide tax incentives to such areas. Such incentives could attract
businessman/industrialist who may opt to establish business concerns/industrial
units that would bring employment, opportunities and overall prosperity in these
under developed areas.
▪ Taxing the rich at higher rates while taxing the low income groups at lower tax
rates.
▪ Imposition of high custom duty rates on luxury items or items which are also
manufactured in Pakistan. This promotes local manufacturers and industry.
▪ Tax credits on charity/donations to promote welfare activities.
▪ Tax exemptions to charity organization /educational institutions to promote these
activities.
(b) Powers of the Provinces to legislate on taxes

Following taxes are covered in the scope of legislation of Provinces
▪ Agriculture income tax
▪ Sales tax on services
▪ Taxes on transfer of immovable property
▪ Professional tax
▪ Tax on luxury houses
▪ Tax on registration of luxury vehicles
(The End)

Q.1 Sageer, a resident individual, is working as a full time professor at Knowledge Institute (KI)
which is a non-profit education and research institution and is duly recognized by Higher
Education Commission. KI is entirely owned and funded by Zinger Limited (ZL), a
company listed on the Pakistan Stock Exchange.
Details of his monthly remuneration during the year ended 30 June 2020 are given below:
Rupees
Fair market rent of accommodation 100,000
In addition to the above, he was also provided the following:

▪ Health insurance for Sageer and his dependents as per the terms of employment. For
this purpose, KI is paying annual insurance premium of Rs. 40,000.
▪ Provident fund contribution of Rs. 15,000 per month to a recognized provident fund.
An equal amount was also contributed by Sageer to the fund.
Additional information
(i) On 1 July 2019, Sageer was granted an option to acquire 10,000 shares in ZL at a price
of Rs. 105 per share under an employee share scheme. Sageer bought the option on the
same date by paying Rs. 175,000 to KI when the fair market value of the option was
Rs. 200,000. He exercised the option on 30 September 2019 when the fair market value
was Rs. 130 per share.
As per the scheme, he was not allowed to sell or transfer the shares before
31 December 2019. On 31 December 2019, the fair market value of ZL’s shares was
Rs. 142. On 30 May 2020, he sold 5,000 of these shares at Rs. 135 per share.
(ii) On 1 July 2019, Sageer obtained an interest free loan of Rs. 1,500,000 from KI in
exchange for which he agreed to waive the interest receivable on his provident fund
balance maintained with KI. Interest provided on provident fund balance for the year
was 8%. The prescribed benchmark rate is 10%.
(iii) On 31 August 2019, he received leave encashment of Rs. 100,000 relating to previous
year.
(iv) During the year, tax of Rs. 160,000 was deducted at source by KI.
Other information relevant to tax year 2020:

(i) On 15 January 2020, he sold a shop situated in Karachi for Rs. 15,000,000. He had
purchased this shop in 2018 for Rs. 19,000,000 out of which Rs. 5,000,000 was paid in
cash.
(ii) On 1 March 2020, he sold a residential plot situated in Faisalabad for Rs. 18,000,000.
The plot was inherited from his father in 2014. Fair market value of the plot at the time
of inheritance was Rs. 7,000,000.
(iii) In June 2020, Sageer independently developed learning courses for sale through a web
based marketplace managed by a company situated outside Pakistan. On
25 June 2020, he received USD 4,260 into his dollar account from sale of these
courses. Withholding income tax @ 8% was deducted from the receipt as per the
income tax laws of the foreign country.
Relevant exchange rates were as follows:
25 June 2020 USD 1 = PKR 168
30 June 2020 USD 1 = PKR 169
Average exchange rate for June 2020 USD 1 = PKR 168.5
(iv) On 1 June 2020, Sageer paid Rs. 2,500,000 as donation to a non-profit organization
listed in the Second Schedule of the Income Tax Ordinance, 2001.
Required:
compute the taxable income and net tax payable by or refundable to Sageer for the year
ended 30 June 2020. Show all relevant exemptions, exclusions and disallowances. (19)
Q.2 Libas & Co. is an association of persons (AOP) with three members, Saba, Junaid and
Akram, sharing profit and loss in the ratio of 1:1:2 respectively.
During the year, AOP earned profit before tax of Rs. 8,500,000 from its principal business
i.e. trading of garments. In addition, AOP is also involved in purchase and sale of following
securities listed on the Pakistan Stock Exchange:
Details of purchase Details of sale
Name of investee
No. of Price per No. of Price per
company Date Date
shares share (Rs.) shares share (Rs.)
XOK Limited 1 Oct 2016 200,000 200 29 June 2020 [Note A] 200,000 225
18 Aug 2017 55,000 145
PBB Limited 20 Dec 2019 100,000 180
10 Jan 2018 100,000 150
OOI Limited 15 Feb 2020 [Note B] 150,000 86 15 March 2020 150,000 78
Note A: Sale proceed from disposal of these shares was credited to the AOP’s bank account
on 2 July 2020.
Note B: Due to shortage of funds for making this purchase, AOP borrowed Rs. 5,000,000 in
cash from Imran, who is in the business of lending money at 15% per annum.
Other information related to Saba:
(i) During the year, she earned Rs. 1,500,000 by working as a freelance photographer.
(ii) On 1 April 2020, Saba received Rs. 1,100,000 from Zafar in full settlement of a loan.
The loan was provided on 1 April 2019 at 10% per annum interest through proper
banking channel.
Required:
Under the provisions of the Income Tax Ordinance, 2001, compute taxable income and tax
liability of AOP and Saba for the tax year 2020. (13)
Q.3 (a) On 2 July 2019, Rubina received a show cause notice u/s 122 from the Commissioner
Inland Revenue (CIR) for amendment of the assessment order for tax year 2018. Due
to lack of knowledge about tax matters, she did not respond to it.
On 1 August 2019, she received a demand notice under which she was required to pay
Rs. 610,000 within 30 days on account of undeclared income and an amended
assessment order for tax year 2018 under section 122 from the CIR.
Rubina is dissatisfied with the order issued by the CIR and wants to file an appeal to
the Commissioner (Appeals) because payment of this amount will cause hardship to
her.
Required:
(i) state the time period within which an appeal may be filed by Rubina to the
Commissioner (Appeals). (01)
(ii) discuss different types of orders that the Commissioner (Appeals) may make for
disposing of an appeal. (02)
(iii) explain what action(s) the Commissioner (Appeals) may take for ensuring that no
undue hardship will be caused to Rubina because of the payment of this demand. (03)
(iv) discuss the option(s) available to Rubina for defending her case, if the
Commissioner (Appeals) issues an order confirming the amended assessment
order issued by the CIR. (02)
(b) Differentiate between deductible allowances and admissible deductions. Give three
examples of each. (06)
Q.4 (a) Farheen is a resident filer and has provided following information pertaining to tax
year 2020:
(i) She owns a bungalow situated in Multan which was given on rent to Abbas
under a rental agreement of five years which expired on 31 March 2020. Details
of payments received as per the rent agreement are given below.
Rent Rs. 175,000 per month

Security guards’ salaries Rs. 50,000 per month
Non-adjustable security deposit Rs. 2,500,000
On expiry of the rental agreement, Farheen refunded the security deposit to

Abbas and rented out the bungalow to a new tenant Zafar on the same terms
and conditions.
Farheen pays Rs. 40,000 per month to a security services company which
provides security guards at the bungalow.
(ii) She owns a residential plot in Karachi. On 1 March 2020, she decided to sell the
plot to Mehreen for Rs. 2,200,000 and received a deposit of Rs. 220,000. On
1 June 2020, she forfeited the deposit on refusal of Mehreen to purchase the
plot.
(iii) On 1 December 2017, she had acquired a furnished office on monthly rent of
Rs. 5,000 for her own use and had paid a non-refundable amount of
Rs. 2,000,000 to the previous tenant for vacating the office. During the year, she
received an offer of Rs. 2,400,000 from Shehroz to vacate this office which she
accepted and received the amount on 1 March 2020.
(iv) On 1 October 2019, she inherited a factory with plant and machinery from her
father and let it out on 1 December 2019 at a monthly rent of Rs. 500,000.
(v) Legal and professional charges of Rs. 40,000 were paid for preparation of rental
agreements.
(vi) On 15 November 2019, she received income tax refund of Rs. 180,000 related to
tax year 2017. This amount included Rs. 30,000 being additional payment on
delayed refund.
Required:
compute the total income of Farheen under appropriate heads of income for the tax
year 2020. (07)
(b) Ahmed has completed his MBA from a university in USA. He had been living there
since August 2013 for his education and came to Pakistan only once in 2017 i.e. from
10 March 2017 to 30 September 2017 and then went back to USA to complete his
MBA. Along with his studies, he was also doing a part time job at a restaurant in USA
till November 2019. He returned to Pakistan on 1 December 2019 and commenced a
trading business from 1 January 2020.
Below is the computation for taxable income/loss for the tax year 2020:
Pakistan source Foreign source
Total
income income
Income from Salary ------------------- Rupees -------------------
Salary from restaurant in USA 840,000 840,000

Revenue 4,000,000 4,000,000
Less: Deductions
Cost of goods sold (2,200,000) (2,200,000)
Selling and administrative expenses [Note A] (2,820,000) (2,820,000)
Donation [Note B] (600,000) (250,000) (850,000)
Taxable income/(loss) (1,620,000) 590,000 (1,030,000)
Note A: Selling and administrative expenses include the following:

(i) Salaries of Rs. 840,000 paid to two employees equally in cash.
Withholding income tax was deducted as required under Income Tax
Ordinance, 2001.
(ii) Rs. 600,000 in respect of the feasibility study which was conducted
before commencement of the business.
Note B: Donation of Rs. 600,000 was paid to a charitable hospital in Pakistan and
Rs. 250,000 was paid to a non-profit organization in USA.
Required:
comment on the above tax computation for tax year 2020. Give suggestion(s) wherever
required. (08)
Note: Revised computation is not required.
Q.5 Sun Associates (SA) has recently been registered with the Inland Revenue Department under
the Sales Tax Act, 1990.
Required:
Under the Sales Tax Act, 1990 and Rules made thereunder,
(a) identify the documents which SA may require for claiming/adjusting the input tax
relating to the following activities:
(i) supply of taxable goods (01)
(ii) import of goods into Pakistan (02)
(iii) goods purchased in an auction (02)
(b) state the requirements relating to retention of records and documents that SA should
comply with. (02)
Q.6 Rapid Associates (RA) has been registered under the Sales Tax Act, 1990 since 2014. During
the month of June 2020, RA issued fake sales tax invoices amounting to Rs. 5 million to one
of its customers. Apart from this, RA has always been in compliance with all the regulations
of the Sales Tax Act, 1990.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss the
consequences which RA may have to face due to issuance of fake invoices. (06)
Q.7 JF Associates (JFA) is registered under the Sales Tax Act, 1990 as a manufacturer.
Following information has been provided by JFA for the month of August 2020:
Rupees
Supplies
Exempt goods to unregistered persons 1,000,000
Exports to Saudi Arabia 500,000
Purchases
Fixed assets (machines) from a registered supplier 2,500,000
(i) Supplies of taxable goods to registered persons include:
▪ goods worth Rs. 560,000 sold to a new customer at discount of 20%. JFA normally
allows discount of 10% to its customers.
▪ an invoice issued to Qasim erroneously for Rs. 590,000 whereas the correct
amount of invoice was Rs. 950,000.
(ii) Supplies of taxable goods to unregistered persons include sales of Rs. 28,500 to
end consumers.
(iii) Exempt supplies of Rs. 50,000 were returned by the unregistered customers during the
period.
(iv) Two machines A and B costing Rs. 1,500,000 and Rs. 1,000,000 respectively were
acquired and commissioned into operation in August 2020. Machine A has been used
for the manufacture of taxable (local) as well as exempt supplies whereas Machine B
has been used only for manufacture of export supplies.
(v) Input tax on an invoice of Rs. 1,200,000 was paid on 15 March 2020 but inadvertently
it could not be claimed in the return for March 2020 and thereafter.
(vi) Electricity bill of Rs. 859,950 was paid in cash. The bill was inclusive of sales tax of
Rs. 124,950.
(vii) Sales tax credit brought forward from previous month amounted to Rs. 425,000.
Except where otherwise specified, all figures are exclusive of sales tax. Rate of sales tax is
17%. Proper debit/credit notes were issued within the specified time wherever required.
Required:
compute the amount of sales tax payable by or refundable to JFA and input tax to be carried
forward, if any, for tax period August 2020. (18)
Q.8 (a) Identify any four powers of the Federal Board of Revenue (FBR) with respect to
collection of tax. What consequences may be faced by taxpayer if such powers are
misused by any officer(s) of FBR? (03)
(b) Briefly explain any two pillars of tax administration which may be helpful in
safeguarding the interest of taxpayers and avoiding the abuse of powers by the tax
administration. (02)
(c) List any six ethical issues which may be faced by tax administration authorities while
discharging their duties under the four pillars of tax administration. (03)
(THE END)

3.
4.
Where taxable income exceeds Rs. 2,500,000 but does not exceed Rs. 195,000 plus 17.5% of the
5.
6.
Where taxable income exceeds Rs. 5,000,000 but does not exceed Rs. 670,000 plus 22.5% of the
7.
Where taxable income exceeds Rs. 8,000,000 but does not exceed Rs. 1,345,000 plus 25% of the
8.

2.
Rs. 600,000 Rs. 400,000
3.
4.
5.
6.
7. Rs. 6,000,000 amount exceeding Rs. 4,000,000
Rs. 1,220,000 plus 35% of the
Capital gains on disposal of immovable property

1. Where the gain does not exceed Rs. 5 million 5%

Securities Securities
S. No. Period acquired before acquired after
1 July 2016 1 July 2016
2. Less than 12 months 15%
3. Equal or more than 12 months but less than 24 months 12.5% 15%
Equal or more than 24 months but less than 48 months
4. 7.5%
acquired on or after July 01, 2013
Suggested Answers
Ans.1 Sageer
For tax year 2020
Rs.
Income from salary
Basic salary [200,000×12] 2,400,000
Medical allowance [20,000×12] 240,000
Rent free accommodation 1,200,000
Insurance premium - Exempt -
Employer's contribution to provident fund (W-1) 30,000
Employee share scheme [(142×10,000)–(105×10,000)–175,000] 195,000
Concessional loan -
Leave encashment [chargeable on receipt basis] 100,000
Income from business - foreign source income

Online teaching (4,260×168) 715,680
Add: Withholding tax [4,260×(8/92)×168] 62,233
Total income from business 777,913
Capital gain
Gain on sale of shop [15,000,000–(19,000,000–5,000,000)]×3/4] 750,000
Gain on sale of inherited property [(18,000,000–7,000,000)×3/4] 8,250,000
9,000,000
Capital gain from sale of securities

Loss on disposal of shares (W-2) -

Less: Separate block of income - Capital gain from sale of immovable property (9,000,000)
Less: Donation to non-profit organization covered under 2nd Sch.
[Lower of 2,500,000 or 30% of taxable income i.e. Rs. 1,140,672] (1,140,672)
Net taxable income 3,802,241
Since salary income is more than 75% of the taxable income, the slab applicable to salaried individuals shall be
applied.
Tax liability
On Rs. 3,500,000 370,000
On remaining Rs. 302,241 @ 20% 60,448
Tax on gain on sale of immoveable property [9,000,000×10%] 900,000
Less: Reduction in tax liability because of full time professor (W-3) (125,750)
1,204,698
Less: Foreign tax credit (W-4) (62,233)
Less: Withholding tax (160,000)
Total tax payable 982,465
Page 1 of 8
W-1: Rs.
Employer's contribution [15,000×12] 180,000
In excess of lower of:
- 1/10th salary 240,000
- 150,000 150,000 (150,000)
Taxable under income from salary 30,000
W-2: Rs.
Cost of 5,000 shares of ZL:
Consideration paid for shares [105×5,000] 525,000
Consideration paid to acquire option [175,000×(5,000/10,000)] 87,500
Taxable amount included in salary income [195,000×(5,000/10,000)] 97,500
710,000
Consideration received for disposal 675,000
Loss on disposal (35,000)
W-3: Rs.
Tax payable on salary Rs. 4,165,000:
On Rs. 3,500,000 370,000
On remaining Rs. 665,000 133,000
503,000
Tax reduction because of employment as full time professor @ 25% 125,750
W-4: Rs.
Foreign tax credit lower of;
- foreign tax paid 62,233
- Pakistan tax payable [777,913×{1,204,698/(3,802,241+9,000,000)}] 73,202 62,233
Suggested Answers
Ans.2 Libas & Co.

Computation of taxable income and tax liability of AOP
Rupees
Business profit for the year 8,500,000
Income from capital gain

Gain from sale of shares of XOK Limited [200,000×(225-200)] 5,000,000
Gain from sale of shares PBB Limited [55,000×(180–145)] 1,925,000
Gain from sale of shares PBB Limited [45,000×(180–150)] 1,350,000
Loss from sale of shares of OOI Limited [150,000×(78–86)] (1,200,000)
Total capital gain 7,075,000

Loan received in cash 5,000,000

Less: Separate block of income - income from sale of securities (7,075,000)
Taxable income of AOP under NTR 13,500,000
Tax liability
On Rs. 6,000,000 1,220,000
On remaining Rs. 7,500,000 @ 35% 2,625,000
3,845,000
Tax on capital gain - separate block of income [7,075,000×15%] 1,061,250
Saba
Computation of taxable income and tax liability of Saba
Rupees
Profit on debt at 10% [1,100,000×(10/110)] 100,000
Freelance income 1,500,000
Share of profit from AoP (13,500,000×1/4) 3,375,000
Taxable income for rate purpose 4,975,000
Tax rate applicable on Saba

Tax on 4,000,000 620,000
Tax on remaining 975,000 @ 30% 292,500
Total tax liability 912,500
Tax rate to be charged (912,500/4,975,000) 18.34%
Tax liability of Saba (1,600,000×18.34%) 293,440
Page 3 of 8
Ans.3 (a) (i) Rubina can file an appeal with Commissioner (Appeals) within 30 days from the
date of service of notice of demand which is 31 August 2019.
(ii) In disposing of an appeal, the Commissioner (Appeals) may:
▪ make an order to confirm, modify or annul/set aside the assessment order,
after examining such evidence as required by him respecting the matters
arising in appeal or causing such further enquires to be made as he deems
fit; or
▪ in any other case, make such order as the Commissioner (Appeals) thinks fit.
(iii) If the Commissioner (Appeals) is also of the opinion that payment of this amount
will cause undue hardship to Rubina he may, after affording an opportunity of
being heard to the Commissioner against whose order appeal has been made,
stay the recovery of such tax for a period not exceeding thirty days in aggregate.
The Commissioner (Appeals), after affording opportunity of being heard to the
Commissioner against whose order appeal has been made, may stay the recovery
of such tax for a further period of thirty days, provided that the order on appeal
shall be passed within the said period of thirty days.
(iv) Rubina may appeal to the Appellate Tribunal (AT) against the order issued by the
Commissioner (Appeals) within sixty days of the date of service of order of
Commissioner (Appeals).
(b) An admissible deduction is specific to a particular head of income and is deducted from
income under that head. If admissible deductions are greater than the income derived
under a particular head it will create a loss which may be set off against income under
any other head or may carried forward to a subsequent year. Some examples of
admissible deductions are:
▪ Depreciation expense
▪ Rent expense
▪ Salary expense
A deductible allowance is deducted from the total income and if it is higher than the
total income it will be restricted to the amount of total income. Any deductible
allowance in excess of the total income cannot be carried forward to a subsequent tax
year. Examples of deductible allowance are:
▪ Zakat
▪ Workers welfare fund
▪ Workers participation fund
Suggested Answers
Ans.4 (a) Farheen

For tax year 2020
Rupees
Rent from Bungalow - Abbas [175,000×9] 1,575,000
Rent from Bungalow - Zafar [175,000×3] 525,000
Non-adjustable security deposit - Zafar (W-1) 150,000
Forfeiture of deposit for sale of building 220,000
Less: Legal charges for preparation of agreement -
Total income from property 2,470,000

Security guard's salary - [50,000×12] 600,000
Deposit for vacating the office [(2,400,000–2,000,000)/10] 40,000
Rentals from lease of factory with machinery [500,000×7] 3,500,000
Additional payment of delayed refund [S.39(cc)] 30,000
Less: Payment for security services [40,000×12] (480,000)
Total income from other sources 3,690,000
W-1: Rupees
Non-adjustable security deposit received from Zafar 2,500,000
Less: Amount charged to tax till tax year 2019 [(2,500,000/10)×4] (1,000,000)
1,500,000
Amount chargeable to tax this year [1,500,000/10] 150,000
(b) (i) Ahmed is a returning expatriate because he was not a resident in any of the preceding
four tax years. Therefore, his foreign source income for the year from the restaurant is
exempt.
(ii) Salary exceeding Rs. 15,000 per month should be paid through cheque or direct transfer
to the employees’ bank account after deduction of tax (if any), to claim it as a deduction
from income from business. In this case, although Ahmed had deducted tax at source from
salaries, he paid the monthly salary Rs. 70,000 to each employee in cash. Therefore, this
expense will be disallowed.
(iii) Cost of feasibility study conducted before commencement of the business falls under the
definition of pre-commencement expenditure which is subject to 20% amortization on
straight line bases. Therefore, the full amount of this cost will be disallowed and Ahmed
will only be allowed a deduction of Rs. 120,000 (600,000×20%) as amortization.
(iv) ▪ No tax credit will be allowed for donation paid to the non-profit organization in USA
because it does not fall under the definition of non-profit organization as per the
income tax ordinance, 2001.
▪ Donation expense paid to local organization will be a deductible allowance only
when it is paid to an institution named under clause 61 of 2nd schedule.
▪ Otherwise, Ahmed can avail a tax credit under section 61 on the donation paid to the
government hospital on average rate of tax.
Page 5 of 8
Ans.5 (a) Documents required for the deduction of input tax:
(i) A taxable supply of goods

Tax invoice bearing his name and registration number.
(ii) Goods imported into Pakistan

Bill of entry or a goods declaration showing his name and registration number,
duly cleared by the Custom authorities.
(iii) Goods purchased in an auction

Treasury receipt showing his name, registration number and the payment of
sales tax.
(b) Retention of record and documents for six years

A person shall retain the record and documents for a period of six years after the end of
the tax period to which such record or documents relate or till the final decision in any
proceedings.
Ans.6 (i) The Commissioner Inland Revenue, having jurisdiction, may suspend the registration
through the system, without prior notice, pending further inquiry.
(ii) The suspension of registration shall take place through a written order of the
Commissioner concerned, giving reasons for suspension.
(iii) No input tax adjustment/refund shall be admissible to RA during the currency of
suspension. Similarly, no input tax adjustment/refund shall be allowed to any other
registered persons on the strength of invoices issued by RA (whether issued prior to or
after such suspension), during the currency of suspension;
(iv) The Commissioner shall, within seven days of issuance of order of suspension, issue a
show cause notice (through registered post or courier service) to RA to afford an
opportunity of hearing within fifteen days of the issuance of such notice clearly
indicating that he will be blacklisted, in case–
▪ there is no response to the notice;
▪ he has not provided the required record;
▪ he has not allowed access to his business record or premises; and
▪ any other reason specified by the Commissioner;
Suggested Answers
Ans.7 Taxable Sales tax

amount @ 17%
-------- Rupees --------
Purchases taxable goods from registered suppliers 7,400,000 1,258,000
Purchases taxable goods from un-registered suppliers 1,100,000 -
Un-claimed invoice for 15 Mar 2020 (6 months not expired) 1,200,000 204,000
Cash payment of electricity bill 735,000 124,950
1,586,950
Fixed assets (Machine-A) - used for taxable as well as exempt supplies 1,500,000 255,000
Fixed assets (Machine-B) - used solely for taxable supplies only (export) 1,000,000 170,000
Total input tax 12,935,000 2,011,950
Less: Inadmissible/unadjusted input tax (W-1) (409,253)
Add: Input tax brought forward from previous month 425,000

Local taxable supplies - registered persons
(7,500,000–560,000 –590,000) 6,350,000 1,079,500
Local taxable supplies - r.persons at discount
(560,000/0.8×0.9) 630,000 107,100
Local taxable supplies - r.persons at discount - wrongly
recorded 950,000 161,500
Local taxable supplies - unreg. persons 1,300,000 221,000
Export to Saudi Arabia 500,000 -
9,730,000
Exempt Supplies to un-registered persons 1,000,000 -
Output tax for the month 10,730,000 1,569,100
Sales return - Exempt supplies (50,000) -
Total supplies / Output tax for the month 10,680,000 1,569,100
Admissible credit (90% of output tax i.e. Rs. 1,412,190 (1,569,100×0.9) or input tax
excluding Fixed Assets (2,027,697–231,203=1,796,494) whichever is lower. (1,412,190)
156,910
Less: Input tax on fixed assets - Machine "A" only (255,000–23,797) (W-1) (231,203)
Sales tax to be carried forward (fixed assets portion only) (74,293)
Further tax payable on supplies to unregistered persons [(1,300,000–28,500)×3%] 38,145
Sales tax to be carried forward (2,027,697–1,412,190–231,203) (384,304)
Sales tax refundable (export) (W-1) (74,295+170,000) (244,295)
W-1: Apportionment of input tax Fixed assets

Supplies Total
A B
Residual input tax 1,586,950 255,000 170,000
Taxable supplies (Local) 9,230,000 9,230,000

Zero rate supplies 500,000 500,000
Exempt supplies (1,000,000–50,000) 950,000 950,000
Total supplies 10,680,000 10,180,000 500,000
Inadmissible 141,161 23,797 - 164,958

Unadjusted and refundable 74,295 - 170,000 244,295
Total 215,457 23,797 170,000 409,253
Page 7 of 8
Ans.8 (a) Federal Board of Revenue has the following powers under the law to monitor, assess,
levy and collect tax:
▪ Assess taxes (including best judgment);
▪ Collect Revenue;
▪ Seize Property;
▪ Attach bank accounts;
A misuse of power by FBR may result in the following against the tax payer:
▪ Loss of property and income;
▪ Imprisonment
(b) Pillars of tax administration

Pillars of tax administration which safeguard the interest of taxpayers and avoid abuse
of powers by the tax administration are as follows:
(i) Fairness
Strive to be impartial, fair, neutral and consistent in administering the law
without regard to race, social or economic circumstances.
(ii) Transparency
All proceedings must be transparent and must be seen as transparent.
(c) Ethical issues facing tax administration in the discharge of their duties are:
(i) Acceptance of gifts

(ii) Conflict of interest
(iii) Selective application of the law/ or inconsistency in applying the law
(iv) Political influence
(v) Confidentiality/secrecy
(vi) Discretion
(THE END)

Shahid is engaged in the business of manufacturing and supplying of auto parts. Following
is the extract of his profit or loss statement for the tax year 2020:
Rs. in '000
Sales 29,058
Gross profit 10,334
Operating expenses (3,137)
Financial charges (2,030)
Other income 1,260
(i) The above accounts have been prepared on cash basis and stock-in-trade has been
valued on prime cost method. However, Shahid wants to change the method of
accounting from cash basis to accrual basis. In this respect, following information has
been gathered:
Opening balances Closing balances

--------- Rs. in '000 ---------
Stock-in-trade using prime cost method 1,800 2,800
Stock-in-trade using absorption cost method 2,300 3,200
(ii) Cost of goods sold includes:

▪ purchase of packing material of Rs. 440,000 from Nasir Traders. No withholding
tax was deducted at the time of payment.
▪ freight charges of Rs. 85,000. These were paid in cash for transporting goods from
suppliers.
(iii) Operating expenses include:

▪ salary of Rs. 80,000 per month paid to Shahid’s brother who handles
administrative matters of the business.
▪ expenditure of Rs. 950,000 incurred on the development of a product which is
expected to generate revenue for five years.
▪ penalty of Rs. 15,000 for late filing of income tax return.
(iv) Financial charges include profit on debt of Rs. 450,000 earned on fixed deposit
account maintained with a bank. The bank withheld income tax and Zakat amounting
to Rs. 45,000 and Rs. 93,750 respectively.
(v) Other income includes:
▪ capital gain of Rs. 45,000 received, net of withholding tax of Rs. 6,750, on sale of
20,000 shares in Metal Limited (ML) in November 2019. ML is listed on PSX.
On 1 January 2018, Shahid purchased these shares for Rs. 200,000 at initial public
offering. He had claimed a tax credit of Rs. 15,000 on such investment in
tax year 2018.
▪ rent of Rs. 980,000 received from an agriculture land in Badin. No withholding
tax was deducted at the time of receipt.
(vi) Tax depreciation for the year amounts to Rs. 680,000.

(vii) Tax deducted at source by customers amounts to Rs. 875,000.
(viii) The unabsorbed tax depreciation brought forward from tax year 2019 amounts to
Rs. 568,000.
Required:
compute total income, taxable income and net tax payable by or refundable to Shahid for
the tax year 2020. (Use accrual basis of accounting) (18)
Note: ▪ Your computation should commence with profit before tax figure.
Q.2 Farhan, Kamran and Rehan are members of an association of persons (AOP) and share its
profit and loss in the ratio of 2:2:1 respectively.
Following information is available with regard to AOP and its members for the
tax year 2020:
(i) During the year, AOP earned a profit before tax of Rs. 2,000,000 after making
following payment to its members:
Farhan Kamran Rehan

------------------ Rupees ------------------
Salary 1,000,000 800,000 600,000
Interest on capital 500,000 400,000 300,000
(ii) Kamran is running a business as a sole proprietor from which he earned Rs. 800,000.
Kamran is also a member of another AOP where his share of profit or loss is 60%.
During the year, the other AOP incurred a loss after tax of Rs. 350,000 and paid
Rs. 150,000 on account of income tax.
(iii) Rehan received net dividend of Rs. 102,000 from a listed company after deduction of
withholding tax @ 15%.
(iv) Farhan has no other source of income.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute taxable income and tax
liability of AOP and each of its members for the tax year 2020. (11)
Q.3 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
discuss:
(a) the prescribed limits/conditions for the deduction of entertainment expenditure. (06)
(b) who is required to file the foreign income and assets statement? Also state the
particulars to be included in such statement. (05)
(c) the concept of ‘Concealed asset’ and state the powers of the Commissioner relating to
concealed asset of any person when it is impounded by the Federal Government. (05)
Q.4 Respond to the following independent situations, under the provisions of the Income Tax
Ordinance, 2001:
(a) During the tax year 2020, Sadiq received a flat as gift from his uncle, Mumtaz Alvi.
The flat was located in posh area of Lahore and its fair market value at the time of gift
was Rs. 4.5 million. Discuss the tax treatment of the flat received by Sadiq. (02)
(b) On 1 July 2014, Ahmed purchased two sculptures for Rs. 410,000 and Rs. 475,000
respectively. On 30 November 2019, during the shifting of his house, he lost both the
sculptures. On 15 January 2020, he received insurance claim of Rs. 940,000 in a single
transaction against the loss of two sculptures. The fair market value of both the
sculptures at the time of loss was estimated at Rs. 360,000 and Rs. 540,000
respectively. Compute Ahmed’s taxable income or loss for the above transaction. (04)
Q.5 (a) Following are the incomes of three resident individuals A, B and C during the tax
year 2020:
A B C
Head of income
------------------ Rupees ------------------
Income from property 200,000 150,000 4,100,000
Income from business - 360,000 160,000
Required:
Discuss the tax treatment of income from property of each of the above individuals
while computing the taxable income under the Income Tax Ordinance, 2001. (05)
(b) Sajid retired from Sun Chemicals Limited (SCL) as a marketing manager with effect
from 31 December 2019. He received the following amounts in final settlement from
SCL:
(i) Leave encashment of Rs. 600,000.
(ii) Rs. 4,000,000 from unapproved provident fund. 50% of this amount was
contributed by Sajid.
(iii) Un-approved gratuity of Rs. 2,500,000.
He also acquired the vehicle, provided to him by SCL, at accounting written down
value of Rs. 500,000. The market value of the vehicle at the time of retirement was
Rs. 2,000,000.
Required:
Under the Income Tax Ordinance, 2001 and Rules made thereunder, discuss the tax
treatment of the above benefits received by Sajid on retirement. (04)
Q.6 Following information has been extracted from the records of two different persons
registered under the Sales Tax Act, 1990 for the month of February 2020:
Registered persons
Taha Shan
--------- Rupees ---------
Purchases
Taxable supplies from registered persons - 11,000,000
Taxable supplies from unregistered persons 3,500,000 -
Exempt goods - 3,000,000
Fixed assets (machinery) from a registered supplier (Note A) 5,000,000 6,000,000
Supplies
Taxable supplies to registered persons - 10,000,000
Taxable supplies to unregistered persons 2,000,000 -
Exempt supplies to registered persons 3,800,000 5,500,000
Zero rated supplies 2,500,000 -
Note A:
▪ In case of Taha, the machinery has been used for exempt as well as zero rated supplies.
▪ In case of Shan, the machinery has been used for taxable supplies only.
All the above figures are exclusive of sales tax. Sales tax is payable at the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to each of the above registered
persons and input tax to be carried forward, if any, for the tax period February 2020. (13)
Q.7 (a) Raheel, an unregistered person, runs a garment shop in the posh area of Karachi. He
has received a notice from the Commissioner Inland Revenue requiring him to
register with the sales tax authorities within 30 days.
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise
Raheel regarding the following:
(i) Whether the Commissioner is justified in issuing the notice to him. (03)
(ii) Would it be necessary for him to respond to the notice. (04)
(b) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, discuss
the following:
(i) Difference between zero rated supplies and exempt supplies. (04)
(ii) How and under what circumstances the Inland Revenue Department may
recover the amount of sales tax from a person without issuing him a show cause
notice. (04)
(iii) Concept of provisional and final adjustments in relation to ‘Apportionment of
input tax’. (02)
Q.8 (a) List any seven responsibilities of tax administrators arising from best ethical practices. (07)
(b) State any six ethical issues which the administrators may face while discharging their
duties. (03)
(THE END)


2.
Rs. 600,000 Rs. 400,000
3.
4.
5.
6.
7.
Rs. 1,220,000 plus 35% of the
Capital Gains on Disposal of Securities

Securities Securities
S. No. Period acquired before acquired after
1 July 2016 1 July 2016
2. Less than 12 months 15%
3. Equal or more than 12 months but less than 24 months 12.5%
15%
Equal or more than 24 months but less than 48 months
4. 7.5%
acquired on or after July 01, 2013
Rate for Profit on Debt

S. No. Profit on Debt Rate of tax
1. Where profit on debt does not exceed Rs. 5,000,000 15%
Where profit on debt exceeds Rs. 5,000,000 but does not exceed 17.5%
2.
Rs. 25,000,000
Where profit on debt exceeds Rs. 25,000,000 but does not exceed 20%
3.
Rs. 36,000,000
Suggested Answers
Ans.1 Shahid
For tax year 2020
Rupees
Computation of profit under accrual basis of accounting
Profit as given in the question - on cash basis 6,427,000
Adjustment on account of:
- closing stock under absorption cost method 3,200,000
- closing stock under prime cost method (2,800,000)
400,000
Profit under accrual basis of accounting 6,827,000

Profit before taxation 6,827,000
Add: Inadmissible expenses/admissible income
Purchases of packing material (440,000×20%) 88,000
Freight charges on goods - allowed expenditure -
Salary allowed as paid for business activities (brother) -
Penalty for late filing of income tax return 15,000
Expenditure on promotion of a product 950,000
1,053,000
Less: Admissible expenses/inadmissible income
Expenditure made for promotion of a product = 950,000/5 (190,000)
Tax depreciation (680,000)
Gain on sale of shares (45,000)
Agriculture income - Exempt income (980,000)
Profit on debt (450,000)
(2,345,000)
5,535,000
Less:
Unabsorbed tax depreciation - brought forward (568,000)
Total business income for the year 4,967,000
Capital gain
Gain on the sale of 20,000 shares 51,750

Profit on fixed deposit account (FTR income) 450,000
Exempt income
Rent received for the agriculture land 980,000
Less:
Capital gain on sale of shares (Separate block of income) 51,750
Profit on fixed deposit account (FTR) 450,000
Rent received for the agriculture income (Exempt) 980,000
1,481,750
4,967,000
Zakat paid / deducted 93,750
Taxable income for the year 4,873,250
Page 1 of 7
Tax liability
Tax on Rs. 4,000,000 620,000
Tax on amount exceeding Rs. 4,000,000@ 30% 261,975
Reversal of tax credit on purchase of shares / securities 15,000
Tax on capital gain @ 15% (Rs. 51,750 @ 0.15) 7,763
Tax on fixed deposit account @15% on Rs. 450,000 67,500
972,238
Less: Tax deducted

by customers 875,000
on capital gain 6,750
on fixed deposit account 45,000
926,750
Net tax payable 45,488
Ans.2 M/S Farhan , Kamran and Rehan

Computation of Taxable Income and Tax Liability of AOP
Income from business Rupees

Business profit for the year 2,000,000
Add: Inadmissible expenses

Salary to Farhan 1,000,000
Salary to Kamran 800,000
Salary to Rehan 600,000
Interest to Farhan 500,000
Interest to Kamran 400,000
Interest to Rehan 300,000
3,600,000
Tax liability
Tax on Rs. 4,000,000 620,000
@ 30% on amount exceeding Rs. 4,000,000 480,000
1,100,000
Amount available for distribution among the members of AOP 4,500,000
Computation of Taxable Income and Tax Liability of each Member

Farhan Kamran Rehan
------------------- Rupees -------------------
Incomeunder NTR
Salary 1,000,000 800,000 600,000
Interest 500,000 400,000 300,000
Share of profit
(900,000÷5=180,000×2:2:1) 360,000 360,000 180,000
Share of profit from FKR 1,860,000 1,560,000 1,080,000
Share of loss from another AOP(Not allowed) - - -
Income from sole proprietorship businesses - 800,000 -
Taxable income 1,860,000 2,360,000 1,080,000
Income for rate purposes 1,860,000 2,360,000 1,080,000

Suggested Answers
Tax liability of Kamran on income from other business

Tax on Rs. 1,200,000 - 70,000 -
@ 15% on amount exceeding Rs. 1,200,000 - 174,000 -
Total tax payable - 244,000 -
Tax rate to be charged 0% 10.34% 0%

Tax liability of Kamran - 82,712 -
Income under FTR

Dividend income (Rs.102,000 /0.85) 120,000
Tax on dividend income (Rs. 120,000×15%) 18,000

Tax deducted at source (18,000)
Tax liability of Rehan -
Ans.3 (a) Entertainment expenditure:

The prescribed limits / conditions for the deduction of entertainment expenditure are as
under:
The expenditure should be incurred in deriving income from business chargeable to tax and
should be limited to expenditure incurred which satisfies the following conditions:
▪ expenditure incurred outside Pakistan on entertainment in connection with business
transactions or is allocated as head office expenditure;
▪ expenditure incurred in Pakistan on entertainment of foreign customers and suppliers;
▪ expenditure incurred on entertainment of customers and clients at the person’s business
premises;
▪ expenditure incurred on entertainment at a meeting of shareholders, agents, directors or
employees; or
▪ expenditure incurred on entertainment at the opening of branches.
A deduction shall only be allowed for expenditure incurred on the entertainment of persons
related directly to person’s business.
(b) Foreign Income and Assets Statement:

Every resident taxpayer being an individual having foreign income of not less than ten
thousand United States dollars or having foreign assets with a value of not less than one
hundred thousand United States dollars shall furnish a statement, hereinafter referred to as
the foreign income and assets statement, in the prescribed form and verified in the
prescribed manner giving particulars of:
(i) the person’s total foreign assets and liabilities as on the last day of the tax year;
(ii) any foreign assets transferred by the person to any other person during the tax year
and the consideration for the said transfer; and
(iii) complete particulars of foreign income, the expenditure derived during the tax year
and the expenditure wholly and necessarily for the purposes of deriving the said
income.
The Commissioner may by a notice in writing require any person being an individual who, in
the opinion of the Commissioner on the basis of reasons to be recorded in writing, was
required to furnish a foreign income and assets statement but who has failed to do so to
furnish the foreign income and assets statement on the date specified in the notice.”
Page 3 of 7
(c) Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner, an asset is
acquired from any income chargeable to tax but could not be charged to tax, it is considered
to be a concealed asset.
The Commissioner may at any time before issuing any assessment order under section 121
(best assessment order) or 122 (amended assessment order) issue to the person a
provisional assessment order or provisional amended assessment order as the case may be.
While issuing the assessment order the Commissioner, shall take into account the
computation of taxable income and tax payable for the last completed tax year of the person
during which the concealed asset was accounted for.
The Commissioner shall finalize the provisional order or provisional amended assessment
order as soon as possible.
Ans.4 (a) Any amount or fair market value of any property received as gift, other than gift received
from grandparents, parents, spouse, brother, sister, son or a daughter shall be chargeable to
tax under the head ‘Income from other sources’.
The flat received by Sadiq from his uncle will be chargeable to tax.
(b) Gain/ Loss on disposal of sculpture

Sculpture I Sculpture II
Fair market value of sculpture when they lost 360,000 540,000
Consideration allocation ratio (360/900, 540/900)
based on fair market value 40% 60%
Consideration on the basis of allocation ratio 376,000 564,000
Less: Cost of acquisition (410,000) (475,000)
(Loss)/Gain on disposal of sculpture *(34,000) 89,000
Less: 25% gain exempt due to holding for more than
1 year 22,250
Taxable income - 66,750
*The loss shall not be recognised on the disposal of sculpture
Ans.5 (a) In the case of A

Since A’s total income from property is less than Rs. 200,000 and he has no other source of
income, his income from property will not be chargeable to tax.
In the case of B
Although B’s income from property is less than Rs. 200,000, his income would be chargeable
to tax as he has other source income.
In the case of C
Since C’s income from property is more than Rs. 4 million, he has the following options:
(i) Chargeable to tax under fixed tax regime. However, in this case, he will not be allowed
to claim any expenditure incurred against the income from the property.
(ii) Chargeable to tax under NTR where he would be taxed at the rate applicable on
non-salaried individuals.However, in this option, he is allowed to claim expenditure
incurred on property.
Suggested Answers
(b) The benefit received by Sajid on his retirement would be treated as follows:
(i) Leave encashment comes under the definition of salary and therefore it would be fully
taxable.
(ii) Since the amount was received from unapproved PF, the employer’s contribution and
interest on accumulated balance would be taxable in the year of receipt.
(iii) In the case of unapproved gratuity, exemption is available up to Rs. 75,000or 50% of
the amount receivable whichever is lower. Therefore, the amount to be included in
Sajid’s taxable income would be Rs. 2,425,000 (2,500,000‒75,000).
(iv) Since the market value of the vehicle was more than cost of acquisition the difference
i.e. 1,500,000 would be included in his taxable income.

amount @ 17%
-------- Rupees --------
Registered person (Taha)
Input tax
Supplies from unregistered persons 3,500,000 -
Purchase of machine 5,000,000 850,000
Less: Inadmissible input tax / unadjustable input tax (850,000)
Input tax for the month -
Output tax
Taxable supplies to unregistered persons 2,000,000 340,000
Exempt supplies to registered persons 3,800,000 -
Zero rate supplies 2,500,000 -
Output tax for the month 340,000
Further tax on supplies to unregistered persons (2,000,000×3%) 60,000
Sales tax refundable [Input tax paid on machines relating to zero
rated supplies (850,000×2,500÷6,300)] 337,302
Registered person (Shan)

Input tax
Supplies from registered persons 11,000,000 1,870,000
Exempt goods 3,000,000 -
Machine for taxable supplies 6,000,000 1,020,000
2,890,000
Output tax
Taxable supplies to registered persons 10,000,000 1,700,000
Exempt supplies to registered persons 5,500,000 -
Output tax for the month 1,700,000
90% of output tax (1,700,000×0.9=1,530,000)(excluding tax on

fixed assets)(2,890,000–1,020,000 = 1,870,000)OR actual input tax
whichever is lower. 1,530,000
170,000
Input tax on machine 1,020,000
Excess of input tax over output tax (850,000)
Sales tax to be carried forward

[340,000 (1,870,000–1,530,000)+850,000] 1,190,000
Page 5 of 7
Ans.7 (a) (i) Yes, the Commissioner is justified in issuing the notice to Raheel. According to STR 2006
if the Commissioner Inland Revenue or any other officer, as may be authorized by the
Board, after such inquiry as deemed appropriate, is satisfied that a person is required to
be registered, but does not apply for registration. He may issue a notice to such person.
(ii) Under the STR 2006, Raheel may submit his response within the specified time,
contesting his liability to be registered. Based on his response, the Commissioner shall
grant him opportunity of personal hearing, if so desired by him, and shall there after
pass an order whether or not such person is liable to be registered compulsorily. He
shall cause the said person to be registered through computerized system.
However, if Raheel fails to respond within the time specified in the notice, the
Commissioner shall cause to compulsorily register him through computerized system.
(b) (i) Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’:
Distinction points Zero Rated Supply Exempt Supply
Definition “Zero rated supply means a “Exempt Supply means a
taxable supply which is supply which is exempt
charged to tax at the rate of from tax.
zero per cent.
Products covered Goods exported or listed in Goods specified by Federal
the Fifth Schedule are Government in the Sixth
charged to sales tax at the Schedule are exempt
rate of zero per cent. supplies.
Invoicing Requirements Invoice shall be raised for No sales tax invoice be
the goods supplied but issued.
sales tax shall be charged at
the rate of zero per cent
Registration A person engaged in zero A person engaged
rated supplies has to be exclusively in the exempt
registered with the Sales supplies is not liable to be
tax department. registered.
Input tax credit Input tax paid related to Input tax paid related to
zero rated supplies is exempt supplies is
refundable. inadmissible, therefore,
neither adjustable nor
refundable.
(ii) Short paid amounts recoverable without notice:

Where a registered person pays the amount of tax less than the tax due as indicated in
his return, the short paid amount of tax along with default surcharge shall be recovered
from such person by stopping removal of any goods from his business premises and
through attachment of his business bank accounts, without giving him a show cause
notice and without prejudice to any other action prescribed under section 48 of this
Sales Tax Act or the rules made thereunder:
(iii) Provisional and final adjustment:

Monthly adjustment of input tax claimed by a registered person is treated as a
provisional adjustment, whereas at the end of each financial year, an adjustment is made
on the basis of taxable and exempt supplies made during the course of that year. This is
termed as final adjustment.
Suggested Answers
Ans.8 (a) Responsibilities of the tax implementing authorities:

A concise code which can enlist responsibilities of Tax Administrators can be as under:
(i) Obey all laws relating to taxation and grant no exemptions, credit or advantage to any
taxpayer that is not provided by the law;
(ii) Be dedicated to the highest ideals of honesty and integrity in all matters in order to
maintain the respect and confidence of the government and taxpayers;
(iii) Strive to be impartial, fair, neutral and consistent in administering the law without
regard to race, social status or economic circumstances;
(iv) Provide prompt, efficient and quality service to all stakeholders in an effort to exceed
their expectations;
(v) Refrain from actively participating in partisan political activities;
(vi) Accurately record proceedings and maintain taxpayer information in the strictest
confidence and highest level of security;
(vii) Refrain from soliciting gifts for actions and non-actions;
(b) Ethical issues facing tax administration in the discharge of their duties are:
(iii) Selective application of the law
(v) Confidentiality
(vi) Discretion
(THE END)
Page 7 of 7
Q.1 Saeed, a citizen of Pakistan, was working on a foreign vessel belonging to Delta Shipping
Company (DSL) based in Spain for the past three years. His monthly salary was
USD 15,000 which was remitted to his Pakistani bank account through normal banking
channel. The amount received during the tax year 20X9 was converted to Pak Rupees at an
average exchange rate of USD 1 = PKR 131.
On 1 October 20X8, he resigned from DSL and joined Haris Pharma Limited (HPL) in
Pakistan as a General Manager. He was offered following monthly salary and allowance in
HPL:
Rupees
In addition to the above, he was also provided the following:

(i) Bonus equal to two monthly basic salaries. However, bonus amount was adjusted in
proportion to the duration of his stay in the company. The bonus amount was paid to
him on 5 July 20X9.
(ii) Two company maintained cars. Both cars were purchased on 1 October 20X8. The car
costing Rs. 3,500,000 was used for official purposes whereas the car costing
Rs. 1,900,000 was used for personal purposes.
(iii) Free lunch from the restaurant owned by one of HPL’s directors. The fair market
value of food provided to him during the year was Rs. 125,000.
(iv) A special allowance of Rs. 20,000 per month to meet expenses wholly and necessarily
incurred in the performance of his official duties. Actual expenses incurred by him
during the year were Rs. 150,000.
(v) Provident fund contribution of Rs. 60,000 per month. An equal amount per month
was also contributed by Saeed to the fund.
Other information relevant to tax year 20X9 is as under:

(i) On 1 December 20X8, Saeed obtained a loan of Rs. 25 million from a scheduled bank
at 15% mark-up per annum to acquire a residential house.
(ii) During the year, he received dividends of Rs. 575,000 from a listed company. The
amount was net of withholding income tax at the rate of 15% and Zakat of Rs. 62,500
deducted under the Zakat and Usher Ordinance, 1980.
(iii) Withholding tax deducted by HPL from Saeed’s salary during the tax year 20X9
amounted to Rs. 1,300,000.
Required:
compute under the appropriate head of income, the total income, taxable income and net
tax payable by or refundable to Saeed for the tax year 20X9. (17)
Q.2 (a) Explain the term ‘Rent’ with relation to ‘Income from property’. (02)
(b) During the tax year 20X9, Amjad carried out the following transactions in respect of
his properties:
(i) On 1 July 20X8, Amjad purchased a factory building in Sukkur along with the
installed machinery at the price of Rs. 9 million and Rs. 3 million respectively.
To manage the shortage of funds of Rs. 2,000,000, he borrowed the same on
1 July 20X8 from his friend Shamshad through a crossed cheque. The loan
carries interest at the rate of 18% per annum.
On 1 January 20X9, he let out this building along with the machinery to Basit
at a monthly rent of Rs. 500,000 payable in advance.
(ii) On 1 July 20X8, Amjad let out his residential property situated in DHA
Karachi to Mirza Limited at a monthly rent of Rs. 300,000. Rent for the
two years was received in advance on 1 August 20X8.
(iii) On 1 July 20X8, Amjad also entered into an agreement with Zeeshan for the
sale of his plot situated in Quetta for Rs. 50 million. The plot had been
purchased for Rs. 40 million in 20X4. Under the terms of sale agreement, he
received Rs. 5 million at the time of signing the agreement and the balance was
to be received on 30 September 20X8. However, due to financial difficulties,
Zeeshan failed to pay the balance amount on the due date and consequently,
Amjad forfeited the advance in accordance with the terms of the agreement.
On 10 April 20X9, he finally sold the plot to Jamshed for Rs. 65 million.
(iv) Following expenditures were incurred by Amjad in respect of his properties in

Sukkur and Karachi:
Property situated in
Details of expenditures
Sukkur Karachi
Repair & maintenance - building 270,000 70,000
- machinery 50,000 -
Ground rent 50,000 10,000
Insurance - building 150,000 20,000
Total 520,000 100,000
Required:
In view of the provisions of the Income Tax Ordinance, 2001 compute under
appropriate head of income, taxable income of Amjad for the tax year 20X9. (10)
Q.3 Respond to the following independent scenarios, under the provisions of the Income Tax
Ordinance, 2001:
(a) Jean Francois, a French designer, often visits to Pakistan for promotion of his
products. During his last visit he stayed in Pakistan from 10 July 20X8 to
25 February 20X9. Determine the residential status of Jean Francois for tax year 20X9,
assuming that the Commissioner has granted him permission to use calendar year as special
tax year. (02)
(b) Haris sold two of his personal vehicles during the current year and earned profit of
Rs. 550,000. Discuss the taxability of profit earned by Haris in the context of capital
gain/loss. (02)
(c) Sikandar has revalued his factory building in accordance with International Financial
Reporting Standards and consequently charged depreciation on the revalued amount.
Explain the tax implication of the revaluation. (02)
(d) Shahbaz has acquired machinery for his new factory against a loan repayable in USD.
Discuss what would be the cost of machinery for the purpose of depreciation deduction. (02)
(e) Farhan and Imran jointly own a building in Quetta. The building has been rented out
to a company. Discuss the tax treatment of income from such property. (02)
Q.4 Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
briefly explain the following:
(a) Requirement of books of account to be maintained by a taxpayer who has business
income upto Rs. 500,000. (04)
(b) General provisions/rules which may apply to income subject to Final Tax Regime. (06)
(c) Provisions regarding Special Audit Panel. (05)
Q.5 (a) Identify any three situations in which the fair market value of the assets shall be
treated to be the cost of the asset. (03)
(b) During the tax year 20X9, Salman Shahid sold the following assets:
(i) A vehicle used by manager-in-charge of his garment factory for Rs. 2.8 million.
The vehicle was purchased for Rs. 3.1 million in tax year 20X6. (03)
(ii) A machine for Rs. 350,000 on 1 June 20X9, which he had imported from
Malaysia for Rs. 1,900,000 on 1 May 20X9, to start a new business. The
machine was badly damaged during the shipment from Malaysia, rendering it
unfit for use. He received insurance claim of Rs. 1,840,000 as damages on
15 May 20X9. Charges incurred in connection with the submission of claim
with insurance company were Rs. 38,000. (03)
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute under the appropriate
head of income, the amount to be included in the taxable income of Salman Shahid for the
tax year 20X9.
Q.6 (a) Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly
describe the treatment of the following:
(i) Recording of partial payments received in advance during a tax period in
respect of both taxable and exempt supplies. (02)
(ii) Change in rate of tax during a tax period . (04)
(b) There are certain goods returned by the customer as they are unfit for consumption
and the seller has no option but to destroy them.
Specify the procedure which must be followed by a registered person under the
Sales Tax Rules, 2006 for the destruction of such goods. (02)
(c) Who is required to file the following sales tax returns? Also mention the due date of
filing of these returns.
(i) Monthly return (ii) Special return
(iii) Final return (iv) Annual return (04)
Q.7 MH Associates (MHA) is registered under the Sales Tax Act, 1990 as a manufacturer,
distributor and retailer. Following information has been provided by MHA for the month of
August 20X9:
Rupees
Supplies
Taxable goods to unregistered persons 815,000
Exempt goods to unregistered persons 800,000
Purchases
Exempt goods from registered persons 1,500,000
(i) Supplies of taxable goods to registered persons include an invoice erroneously issued
to Rasheed for Rs. 270,000 whereas the correct amount of invoice was Rs. 720,000.
(ii) Supplies of taxable goods to unregistered persons include sale of Rs. 365,000 to end
consumers.
(iii) Purchases from registered suppliers of taxable goods include:

▪ an amount of Rs. 1,800,000 paid for purchase of raw material. However, only
40% of the goods were supplied during August 20X9.
▪ goods worth Rs. 1,200,000 against which a discrepancy has been indicated by the
CREST.
(iv) Two machines A and B costing Rs. 900,000 and Rs. 1,200,000 respectively were
acquired and commissioned into operation on 15 August 20X9. Machine A has been
used for taxable supplies only whereas Machine B has been used for exempt supplies
only.
(v) Input tax amounting to Rs. 120,000 was paid on 15 March 20X9 but inadvertently it
could not be claimed in the return for March 20X9 and thereafter.
(vi) An electricity bill of Rs. 670,000 was paid in cash which included sales tax
amounting to Rs. 95,000.
(vii) Taxable supplies of Rs. 90,000 were returned by the registered customers during the
period. Proper debit/credit notes were issued within the specified time.
(viii) Sales tax credit brought forward from previous month amounted to Rs. 255,000.
17%.
Required:
compute the amount of sales tax payable by or refundable to MHA and input tax to be carry
forward, if any, for tax period August 20X9. (16)
Q.8 (a) Briefly discuss three broad principles for levy of taxes. (04)
(b) Briefly explain any three indirect taxes applicable in Pakistan. (05)
(THE END)

Tax Rate for Every Individual
Where the taxable income exceeds Rs. 400,000 but does not exceed
2. Rs. 1,000
Rs. 800,000
3. Rs. 2,000
Rs. 1,200,000
Where the taxable income exceeds Rs. 1,200,000 but does not 5% of the amount exceeding
4.
exceed Rs. 2,400,000 Rs. 1,200,000
Where the taxable income exceeds Rs. 2,400,000 but does not Rs. 60,000 + 10% of the amount
5.
exceed Rs. 4,800,000 exceeding Rs. 2,400,000
Rs. 300,000 + 15% of the amount
6. Where the taxable income exceeds Rs. 4,800,000
Depreciation Rates under Third Schedule

3. Building (all types) 10%
4. Plant and machinery, Vehicles (all types) 15%
Initial Allowance and First Year Allowance

The rate of initial allowance shall be 25% for plant and machinery and 15% for building.
Capital Gains on Disposal of Immovable Property

6. Where holding period of immovable property is up to three years 5%
Where holding period of immovable property is more than three
7. 0%
years
Suggested Answers
Ans.1 (a) Saeed

For tax year 20X9
Rupees
Income from salary
Received from HPL
Basic salary (Rs. 600,000 × 9 months) 5,400,000
Medical allowance (Rs. 66,000×9 = 594,000 – 5,400,000×10%) 54,000
Bonus (Received after year end) -
Company maintained car for:
- office use only -
- personal use only (1,900,000×10%×9/12) 142,500
Free food provided in lunch 125,000
Special allowance (Rs. 20,000×9=180,000–150,000) -
Provident fund contribution [60,000×9=540,000–150,000] (Allowed
limit is 1/10 of the basic salary or 150,000 whichever is lower) 390,000
6,111,500
Exempt income
Salary received from DSL (From July 18 to September 18)
(US $ 15,000×3 = 45,000 @ Rs.131) 5,895,000
FTR income (Separate block of income)
Dividend income from a listed company
(575,000+62,500=637,500+112,500 for withholding tax) 750,000
Less:
Exempt income: Salary from DSL (5,895,000)
FTR – Dividend income (750,000)
(6,645,000)
6,111,500
Zakat paid/deducted (62,500)
Mark-up paid to sch. bank Rs. 25×15%×7÷12 = 2,187,500
Allowed limit: 50% of the taxable income i.e. Rs. 3,024,250 or Rs. 2 million
whichever is lower (2,000,000)
Tax liability
Tax on Rs. 2,400,000 60,000
Tax on amount exceeding 2,400,000 [(4,049,000–2,400,000)×10%] 164,900
224,900
Tax under final tax regime
Tax on dividend received 112,500
Less: Tax already deducted

Tax on dividend income 112,500
Tax withheld from salary 1,300,000
(1,412,500)
Net tax refundable (1,075,100)
Page 1 of 7
Ans.2 (a) ‘Rent’ means any amount received or receivable by the owner of land or a building as
consideration for the use or occupation of, or the right to use or occupy, the land or building,
and includes any forfeited deposit paid under a contract for the sale of land or a building.
Where the owner of a building receives from a tenant an amount which is not adjustable
against the rent payable by the tenant, the amount shall be treated as rent.
(b) Mr. Amjad

Computation of taxable income
For tax year 20X9
Rupees
(i) Residential property at DHA – Karachi (W-1) 3,600,000
(ii) Amount forfeited from Zeeshan 5,000,000

(i) Factory building at Sukkur – Basit (W-1) 1,625,000

(i) Sale of plot in Quetta – Jamshed -
Since the plot was bought in 20X4, therefore no tax is payable unde
the law.
Total Taxable income 10,225,000
W-1: Income from Income other

property sources
DHA - Karachi Sukkur - Factory
Rental Income (300,000×12), (500,000×6) 3,600,000 3,000,000
Less: Admissible expenses
Repair to building (allowed upto 1/5 of the rental
amount) - 270,000
Repair to machinery - 50,000
Ground rent - 50,000
Insurance – Building - 150,000
Depreciation: Building – Normal [Rs. 9m @ 10%×6/12] - 450,000
Plant – Normal [Rs. 3m @ 15%×6/12] - 225,000
Interest on loan from Shamshad
Rs. 2 million @ 18% for 6 months - 180,000
- 1,375,000
Net income 3,600,000 1,625,000
Ans.3 (a) In view of the permission granted by Commissioner-IR to Jean Francois to use special tax
year, the number of days he spent in Pakistan beyond 31 December 20X8 would fall under
tax year 20Y0. As a result, John is a non-resident person because his total stay in tax year
20X9 is 175 days (i.e. from 10 July 20X8 to 31 December 20X8) which is less than 183 days.
(b) Under the ITO-2001, any movable property held for personal use are excluded from the
definition of capital assets. Therefore, income from sale of personal vehicles are not taxable
Suggested Answers
under the head Capital Gains.
(c) Accounting revaluation of factory building has no bearing on tax written down value.
Consequently, depreciation will be allowed on tax written down values of building without
taking into account the effect of revaluation.
(d) Since Shahbaz has purchased the machinery with a loan repayable in USD and before full and
final repayment of the loan, if there is an increase or decrease in the loan liability, in terms of
rupee, due to exchange rate fluctuation, the amount by which the liability is increased or
reduced shall be added to or reduced from the cost of the asset, as the case may be.
However, difference if any, on account of foreign currency fluctuation, shall be taken into
account in the year of occurrence for the purposes of depreciation.
(e) If the respective shares of Farhan and Imran as a partner in that property are not definite
and ascertainable, they shall be assessed as an association of persons. The share of each in
the income from the said property shall be included in the respective total income of each
partner for rate purposes only.
Ans.4 (a) The books of accounts required to be maintained by a taxpayer who has business income
(only) up to Rs. 500,000 are as follows:
▪ Serially numbered and dated cash-memo / invoice / receipt for each transaction of sale
or receipt containing the following:
− taxpayer’s name or the name of his business, address, national tax number or
CNIC and sales tax registration number, if any
− the description, quantity and value of goods sold or services rendered;
▪ Where each transaction does not exceed Rs. 100, one or more cash-memos per day for
all such transactions may be maintained
▪ Daily record of receipts, sales, payments, purchases and expenses a single entry in
respect of daily receipts, sales, purchases and different heads of expenses will suffice;
and
▪ Vouchers of purchases and expenses.
(b) Following rules are applicable on the income subject to FTR:
(i) Such income is not chargeable to tax under any head of income in computing the
taxable income;
(ii) No deduction is allowed for any expenditure incurred in deriving the income
(iii) The amount of the income is not reduced by
▪ Any deductible allowance; or

▪ The set off of any loss
(iv) The tax deducted is not reduced by any tax credit

(v) There is no refund of the non-adjustable tax collected or deducted at source unless
such tax is in excess of the amount of final tax for which the taxpayer is chargeable
and
(vi) An assessment is treated to have been made and the person is not required to furnish
a return of income in respect such income.
Page 3 of 7
(c) Provisions regarding Special Audit Panel
The Board may appoint as many special audit panels as may be necessary, to conduct an
audit, including a forensic audit, of the income tax affairs of any person or classes of persons
and the scope of such audit shall be as determined by the Board or the Commissioner on a
case to case basis.
Relevant provisions in this regard are summarized below:

▪ The panel shall comprise of any two or more members from:
− an officer of Inland Revenue;

− a firm of chartered accountants;
− a firm of cost and management accountants; or
− any other person as directed by the Board.
▪ The Panel shall be headed by a Chairman who shall be an officer of Inland Revenue;
▪ Powers for conducting an audit shall only be exercised by officer(s) of Inland Revenue
who are member(s) of the panel, and authorized by the Commissioner;
▪ Where a person fails to produce any accounts, documents and records, required to be
maintained or any other relevant document, electronically kept record, electronic
machine or any other evidence that may be required by the Commissioner or the panel
for the purpose of audit or determination of income and tax due thereon, the
Commissioner may proceed to make best judgment assessment and the assessment
treated to have been made on the basis of return or revised return filed by the taxpayer
shall be of no legal effect.
▪ If any member of the panel, not being the Chairman, is absent from conducting an
audit, the proceedings may continue and the audit conducted by the special audit panel
shall not be invalid or be called into question merely on account of such absence;
▪ Functions performed by the officer or officers of Inland Revenue as members of the
special audit panel to conduct audit, shall be treated as having been performed by the
special audit panel;
▪ The Board may prescribe the mode and manner of constitution, procedure and
working of the special audit panel.
Ans.5 (a) The fair market value of the assets shall be treated as cost of the assets when received:
▪ under a gift from a relative, bequest or will;

▪ by succession, inheritance or devolution;
▪ on a distribution of assets on dissolution of an association of person; or
▪ on a distribution of assets on liquidation of a company
The cost of a personal assets treated as acquired by the business shall be the fair market
value of the asset determined at the date it is applied to business use.
(b) (i) Loss on disposal of a vehicle used by manager Rupees

Consideration received on disposal of passenger transport vehicle not
plying for hire A×B/C Where (2.8×2.5/3.1) 2,258,065
(A is the amount received on disposal of the vehicle; B is the amount
allowed as per law i.e. Rs. 2.5 million; and C is the actual cost of
acquiring the vehicle.)
Written down value of vehicle (2.5×85%×85%×85%) (1,535,313)
Income from business 722,752
Suggested Answers
(ii) Disposal of machine

The capital gain is determined as follows: Rupees
Insurance claim received from the shipping company 1,840,000
Scrap value of the machine 350,000
2,190,000
Less: Purchase price of the machine (1,900,000)
Less: Documentation charges incurred (38,000)
Income from capital gain 252,000
Ans.6 (a) (i) Where any part payment is received in a tax period in respect of a:
▪ taxable supply, it shall be accounted for in the return for that tax period; and
▪ exempt supply, it shall be accounted for in the return for the tax period during
which the exemption is withdrawn from such supply.
(ii) Change in the rate of tax

If there is a change in the rate of tax,
▪ a taxable supply made by a registered person shall be charged to tax at such rate
as in force at the time of supply.
▪ imported goods shall be charged to tax at such rate as is in force -
- in case the goods are entered for home consumption, on the date on which a
goods declaration is presented.
- in case the goods are cleared from warehouse, on the date on which a goods
declaration for clearance of such goods is presented.
▪ where a goods declaration is presented in advance of the arrival of the conveyance

by which the goods are imported, the tax shall be charged as is in force on the date
on which the manifest of the conveyance is delivered.
▪ where the tax is not paid within seven days of the presenting of the goods
declaration the tax shall be charged at the rate as is in force on the date on which
tax is actually paid.
If there is a change in the rate of tax during a tax period, a separate return has to be
furnished in respect of each portion of the tax period showing the application of
different rates.
(b) Destruction of goods

In order to destroy the goods, the following conditions must be fulfilled:
(i) Prior permission from the Collector of Sales Tax having jurisdiction.
(ii) Goods should be destroyed under the supervision of an inland revenue officer of Sales
Tax not below the rank of an Assistant Collector as may be deputed by the Collector
for the purpose.
(c) Nature of return Filer Due date

(i) Monthly return Registered person 15th of next month following any
tax period (Electronic filing –
18th of next month, where sales
tax payable with the return paid
till 15th day as specified above.)
(ii) Special return Registered or Unregistered On the date specified by the
persons Commissioner in its notice
Page 5 of 7
calling for such return.
(iii) Final return Person applied for On the date specified by the
deregistration Commissioner.
(iv) Annual return Every private or public 30th of September following the
limited company year end.
Ans.7 MH Associates
Computation of sales tax payable/refundable
Taxable Sales Tax
Sales Tax
Value Rate
------------------- Rupees -------------------
Purchases taxable goods from registered suppliers
[5,400,000–1,200,000] 4,200,000 17% 714,000
No adjustment will be made for Rs. 1.8 million -
Purchases taxable goods from unregistered suppliers 1,100,000 -
Purchases exempt goods from registered suppliers 1,500,000 -
Un-claimed invoice for 15 Mar 2019 (6 month not
expired) 120,000
Cash payment of electricity bill 95,000
929,000
Fixed assets (Machinery) – used solely for taxable
supplies 900,000 17% 153,000
Fixed assets (Machinery) – used solely for exempt
supplies 1,200,000 17% 204,000
Total input tax 8,900,000 1,286,000
Less: inadmissible / unadjusted input tax (W-1) (279,644)
Sales tax debits – Output tax

Local taxable supplies – registered suppliers
(7,850,000–270,000+720,000) 8,300,000 17% 1,411,000
Local taxable supplies – unregistered persons
(450,000+365,000) 815,000 17% 138,550
9,115,000
Exempt supplies to unregistered persons 800,000 -
Less: Sales return – taxable supplies (90,000) 17% (15,300)
Admissible credit (90% of output tax i.e.

Rs. 1,380,825 (1,534,250×0.9) or input tax excluding
fixed assets (1,261,356–153,000=1,108,356) whichever (1,108,356
is lower )
425,894
Input tax on fixed assets – for taxable supplies only 153,000 (153,000)
272,894
Suggested Answers
Further tax on supplies to unregistered persons 450,000 3% 13,500

Sales tax to be carried forward (1,261,356–1,108,356–

153,000) 0
W-1: Appointment of input tax

Residual input tax 929,000
Exempt sales 800,000
Total supplies 9,825,000
Inadmissible input tax – [(800,000/9,825,000)×929,000] 75,644
Add: fixed assets (machinery) used for exempt supplies 204,000
279,644
Ans.8 (a) Following are some broad principles for levy of taxes:
(i) The Benefit Principle

This principle holds that the individuals should be taxed in proportion to the benefits
they receive from the governments and that taxes should be paid by those people who
receive the direct benefit of government programs and projects out of the taxes paid.
(ii) The Ability-to-Pay Principle

This principle holds that taxes should relate with the person’s income or the ability to
pay, that is, those with greater income or wealth who can afford to pay should be
taxed. Similarly, even rate of tax could increase with higher income.
(iii) The Equal-Distribution Principle

Income, wealth and transaction may be taxed at a fixed percentage; that is, people
who earn more and spend more should pay more taxes, but not pay a higher rate of
tax.
(b) Following are the indirect taxes under the Pakistani Taxation System.
(a) Custom Duty

Goods imported and exported from Pakistan are liable to rates of customs duties as
prescribed in Pakistan Custom Tariff.
(b) Federal Excise Duty

Generally, federal excise duty is charged on the basis of excise value or retail price.
However, some items are chargeable to duty on the basis of weight or quantity. All
exports are liable to Zero per cent Federal Excise Duty.
(c) Sales Tax

Sales tax is levied on:
▪ Import of goods into Pakistan, payable by the importers;
▪ Supplies made in Pakistan by a registered person in the course of furtherance of
any business carried on by him;
A registered person can make adjustment of tax paid at earlier stages against the tax
payable by him on his supplies. For most of the goods sales tax is payable @ 17%.
(THE END)
Page 7 of 7
Q.1 (a) Mustafa, Ali and Zain are partners of a resident firm in Pakistan, under the name and
style MAZ Enterprises (MAZE) which is engaged in manufacturing and local supply
of auto spare parts. All partners have equal share of profits and losses in the firm.
Following information has been extracted from accounting records of MAZE for the
tax year 20X9:
Sales
140,400
Gross profit 49,140
(21,430)
Administrative and selling expenses
(15,740)
Financial charges
(37,170)
Other income 1,900
(i) The above accounts have been prepared on cash basis and stock-in-trade has
been valued on the prime-cost method. However, the partners want to change
the method of accounting from cash basis to accrual basis. In this respect,
following information has been gathered:
Stock-in-trade using prime-cost method 5,200 7,500

Stock-in-trade using absorption-cost method 5,900 8,800
(ii) Cost of goods sold includes cost of used machinery imported from China on
31 July 20X8 amounting to Rs. 2,110,000. The cost includes payment of custom
duty of Rs. 90,000 and income tax of Rs. 110,000 to the Collector of Customs.
(iii) Administrative and selling expenses include:

▪ payment of Rs. 380,000 to a local hotel for holding annual eid-milan party
for the employees, key customers and their families.
▪ payment of a fixed monthly remuneration of Rs. 150,000 to each partner.
▪ payment of Rs. 180,000 for purchase of accounting software on
1 January 20X9. The software is expected to be used for fifteen years.
(iv) Financial charges are net of interest income of Rs. 360,000 (net of tax @ 10%
deducted by the bank), earned by the firm on its savings accounts.
Required:
Under the provisions of Income Tax Ordinance, 2001 and Rules made thereunder,
compute the total income, taxable income and tax payable by MAZE using accrual
basis of accounting. (10)
Note: ▪ Show all the relevant exemptions, exclusions and disallowances.
(b) Besides the share of income from MAZE, Zain has received the following amounts
from his employment with Hasan Pakistan Limited (HPL) during the tax year 20X9:
(i) A monthly salary of Rs. 200,000.
(ii) Reimbursement of Rs. 350,000 for actual cost of medical services for him and
his dependents, from an insurance company, under the health insurance policy.
On 31 March 20X9, he purchased a car from HPL for Rs. 110,800. The market value
of this car on 31 March 20X9 was Rs. 250,000.
Required:
Compute the total income, taxable income and tax liability of Zain for the
tax year 20X9. (Tax rates are given on the last page) (07)
Q.2 (a) Haider, a filer, was carrying on business as a cloth trader. On 28 October 20X7 there
was a fire in his shop and the entire stock of clothes costing Rs. 1,550,000 was
destroyed. The insurance company refused to pay the claim. Consequently, Haider
ceased his business on 31 January 20X8.
After cessation of business, Haider filed an appeal against the insurance company and
was able to recover Rs. 1,300,000 as full and final settlement from the insurance
company in tax year 20X9.
Required:
Under the Income Tax Ordinance, 2001:
(i) state the requirements that Haider should comply with, on cessation of his
business on 31 January 20X8. (03)
(ii) briefly discuss the treatment of the recovered amount in the tax year 20X9. (02)
(b) Mohsin has been working at the head office of Lewis Consulting, Inc. (LCI) situated
in New York, USA. On 1 January 20X8, LCI had established its branch office in
Pakistan and had sent Mohsin for two years as Country Manager for looking after the
Pakistan operations.
During the tax year 20X9, apart from salary income, Mohsin earned/received the
following amounts:
▪ On 15 December 20X8, he conducted a seminar in USA for a fee of

USD 18,000. On his request, the event manager transferred the amount (net of
tax) directly to his personal bank account in Islamabad on 10 January 20X9.
▪ On 31 May 20X9, he earned income from his business established in USA and
brought 40% of the income to Pakistan.
Required:
Under the Income Tax Ordinance, 2001:
(i) state the residential status of Mohsin for the tax year 20X8. (01)
(ii) discuss the taxability of his foreign source incomes for the tax year 20X9. (04)
Q.3 (a) Imran, a resident person, is filing the return of his business income for the first time.
He has been informed by his friend that he will also be required to file a wealth
statement. In this respect, he seeks your advice about the particulars which he should
disclose in his wealth statement. (04)
(b) Following transactions pertain to Salam Limited (SL) which took place during the
tax year 20X9:
(i) A machine costing Rs. 1,800,000, being used in SL’s Karachi factory was
transferred to its subsidiary in Ghana. The fair market value and tax written
down value of the machine on the date of transfer were Rs. 2,500,000 and
Rs. 600,000 respectively. (02)
(ii) On 1 January 20X9, SL entered into a forward contract for the purchase of raw
materials to be used in its business to guard against loss through price
fluctuations. On the date of maturity of the forward contract, SL did not take the
delivery of the raw materials but the contract was settled by making a payment
of Rs. 500,000. (03)
Required:
Explain the taxability of the above transactions.
(c) On 1 July 20X8, Zahid rented out his properties as follows:
(i) An apartment was rented to Abdul Qadir at a monthly rent of Rs. 40,000. Zahid
received a non-adjustable security deposit of Rs. 300,000 which was partly used
to repay the non-adjustable security deposit amounting to Rs. 175,000 received
from the previous tenant in July 20X3. He also spent Rs. 20,000 on repairs of
the apartment in February 20X9.
(ii) A bungalow was rented to a bank. Zahid and his younger brother are joint
owners of the bungalow in the ratio of 60:40 respectively. The annual rent
agreed with the bank was Rs. 6,000,000 which is inclusive of Rs. 100,000
per month for utilities, cleaning and security. Zahid paid Rs. 35,000 per month
for providing these services.
Required:
Under the provisions of Income Tax Ordinance, 2001 compute total and taxable
income of Zahid for the tax year 20X9 under appropriate heads of income. (07)
Q.4 (a) Under the Income Tax Ordinance, 2001 identify four situations under which an
appeal may be filed with the Commissioner (Appeals). (04)
(b) Sadiq Ali has received an ex-parte assessment order from the income tax department
under which he is required to pay Rs. 5.2 million on account of tax not withheld from
certain payments. He does not agree with the contention of the income tax department
and would like to file an appeal to the Commissioner (Appeals).
Required:
State the procedure that he should follow for filing of appeal to the Commissioner
(Appeals). (03)
(c) Abid is the legal representative of his grandfather since his death on 10 July 20X7 and
manages his estate worth Rs. 28 million. On 22 January 20X9, he received a notice
from the Income Tax Department requiring him to make payment of Rs. 0.8 million
against his grandfather’s income for the tax year 20X7. The notice also required him
to submit details of his grandfather’s income for the tax year 20X8.
Required:
Advise Abid about his obligations relating to the tax assessment proceedings
pending/arising against his grandfather. (05)
Q.5 (a) Briefly discuss the difference between a public company and a private company,
within the meaning of Income Tax Ordinance, 2001. (04)
(b) Certain types of payments by a private company to its shareholders can be treated as
‘dividend’ under the Income Tax Ordinance, 2001. State the conditions necessary for
the application of this rule and the exceptions to such rule. (05)
Q.6 (a) Briefly discuss the situations under which the following are required to be registered
under the Sales Tax Act, 1990 and Rules made thereunder:
(i) Cottage industry (02)
(ii) Retailer (01)
(b) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, identify the
circumstances in which a registered person may be liable for deregistration. (03)
(c) Bashir (Private) Limited (BPL) was incorporated on 1 January 2019 and registered
with sales tax department on 1 February 2019. BPL is in process of submitting its first
sales tax return for the month ended 28 February 2019. The finance department has
identified following transactions which took place before registration:
(i) Goods costing Rs. 5 million were purchased from a registered supplier. 80% of
the goods remained unsold as at 1 February 2019. The supplier charged sales tax
at the rate of 17%. (03)
(ii) Advance payment of Rs. 2.5 million was received on 15 January 2019 for the
supply of taxable goods to a registered person. The goods were delivered in
February 2019. (02)
Required:
Advise the finance department about the sales tax implications of the above
transactions on BPL’s first sales tax return.
Q.7 Following information has been extracted from the records of four registered persons for the
month of February 2019:
-------------------- Rupees --------------------

Purchases
Taxable supplies from registered persons 1,500,000 1,500,000 - -
Taxable supplies from un-registered persons - - 1,500,000 1,500,000
Fixed assets (machinery) from a registered supplier - - - 2,500,000
Supplies
Taxable supplies to registered persons 1,200,000 - 1,000,000 1,000,000
Exempt supplies to registered persons 300,000 - - 800,000
Taxable supplies to un-registered persons - - 800,000 -
Zero rated supplies 300,000 1,800,000 - -
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at
the rate of 17%.
Required:
compute the amount of sales tax payable by or refundable to each of the above registered
persons and input tax to be carry forward, if any, for the tax period February 2019. (15)
Q.8 (a) National Finance Commission has the duty to make recommendations to the
President with regard to finance related matters. You are required to list such
recommendations. (04)
(b) State the taxes and duties which may be raised under the authority of Parliament.
Also state four types of taxes which are covered:
(i) under the scope of legislation of the Federation
(ii) under the scope of legislation of the Provinces. (06)
(THE END)

Tax Rate for Every Individual
2. Rs. 1,000
Rs. 800,000
3. Rs. 2,000
Rs. 1,200,000
Where the taxable income exceeds Rs. 1,200,000 but does not 5% of the amount exceeding
4. exceed Rs. 2,400,000 Rs. 1,200,000
5.
Tax Rate for Association of Persons

5% of the amount exceeding
2. Where the tax able income exceeds Rs. 400,000 but does not exceed
Rs. 400,000
3.
4.
5. exceed Rs. 4,800,000 exceeding Rs. 3,600,000
6.
Depreciation Rates under Third Schedule


Suggested Answers
Ans.1 (a) MAZ Enterprises

For tax year 20X9
Rupees
Profit before taxation (W-1) 15,170,000

Cost of machinery included in the cost 2,110,000
Payment for holding annual eid-milan party -
Remuneration to each partner (150,000×3×12) 5,400,000
Cost of accounting software 180,000
Interest income - separate block of income (360,000÷0.9) 400,000
8,090,000

Cost of machinery as per books 2,110,000
Less: Income tax paid at import stage (110,000)
Depreciable value of machinery 2,000,000
Depreciation - Initial allowance (2,000,000×25%) 500,000
- Normal [(2,000,000–500,000)×15%] 225,000
Amortization of the Computer software

[From 1 January 20X9 to 30 June 20X9 (180,000/10×182/365)] 8,975
Increase in financial charges
(To reserve the impact of netting off of interest income) 360,000
1,093,975
Less: Interest income - separate block of income (400,000)
Tax liability
Tax on 6,000,000 880,000
@ 30% on amount exceeding 6,000,000 4,729,807
Tax on interest income (10%) 40,000
5,649,807
Less :Withholding tax on import of machinery (110,000)
Less :Tax deducted by the bank (40,000)
5,499,807
W-1: Computation of profit under accrual basis of accounting Rupees

Profit as given in the question - on cash basis 13,870,000
Adjustment on account of:
- Closing Stock under Absorption Cost Method 8,800,000
- Closing Stock under Prime Cost Method (7,500,000)
1,300,000
Profit under accrual basis of accounting 15,170,000
(b) MAZ Enterprises
Computation of the taxable income of Zain
For tax year 20X9
Rupees
Salary (200,000×12) 2,400,000
Reimbursement for actual cost of medical services -
Purchase of car at less than market value (250,000 – 110,800) 139,200
Taxable income without share of AOP 2,539,200
Share of profit from AOP (W-1) 5,385,406
Taxable income including share of AOP 7,924,606
Tax liability for Zain

Tax on Rs. 4,800,000 300,000
15% on amount exceeding Rs. 4,800,000 468,691
Tax liability 768,691
Tax rate to be charged (768,691÷7,924,606) 9.70%
Tax liability of Zain (2,539,200×9.70%) 246,302
W-1: Determination of Zain's share of profit from MAZE Rupees

Partners divisible income (21,766,025–5,609,807) 16,156,218
1/3 share of Zain (5,385,406–1,800,000) 3,585,406

Monthly remuneration received from MAZE (150,000×12) 1,800,000
5,385,406
Ans.2 (a) (i) ▪ Haider should give to the Commissioner a notice in writing regarding
the discontinuance of business within fifteen days of the discontinuance
i-e by 15 February 20X8.
▪ He is also required to furnish the return of income under the provisions
of the ITO 2001 or on being required by the Commissioner by notice in
writing.
▪ The return should cover the period commencing from 1 July 20X7 to
31 January 20X8.
(ii) Under the ITO-2001, if there is any income that has been derived by a person
in a tax year from a business that has ceased before the commencement of
that year and if that income would have been taxable had there been no
cessation, then the provision of the tax statute would apply as if there was no
cessation.
In the light of above provision, the receipt of Rs. 1,300,000 shall be included
in his income from business for the tax year 20X9, provided that the write off
has been claimed/allowed in the previous year(s).
Suggested Answers
(b) (i) Mohsin is not a resident individual as he spent less than 183 days in Pakistan
during the tax year 20X8.
(ii) Under the ITO-2001 the foreign-source income of a short term resident
individual shall be exempt from tax if he/she is:
▪ a resident individual solely by reason of the individual’s employment;

and
▪ present in Pakistan for a period or periods not exceeding three years.
However, the above rule is not applicable to any foreign-source income

brought into or received in Pakistan.
Mohsin is a short term resident individual as he is in Pakistan for

employment and his stay is less than three years. Based on the above rule:
▪ Receipt of US$ 18,000 in equivalent Pak Rupees for conduction the

seminar session in USA shall be taxable as it has been received in
Pakistan. However, he can claim the foreign tax credit of the amount
paid as income tax in USA.
▪ 40% of his foreign source income which he brought into Pakistan is
taxable whereas 60% of his foreign source income which he kept
outside Pakistan is exempt from tax.
Ans.3 (a) Particulars to be disclosed in the wealth statement:

Imran would be required to disclose following particulars in his wealth statement:
▪ Total assets and liabilities as on 30 June;
▪ Total assets and liabilities of his spouse, minor children, and other
dependents as on 30 June;
▪ Any assets transferred by him to any other person during the tax year 20X9
and the consideration for the transfer;
▪ Total expenditure incurred by him, his spouse, minor children and other
dependents during the tax year and the details of such expenditure; and
▪ The wealth reconciliation statement.
(b) (i) Rs.in 000

Consideration received (equal to the cost of the asset) 1,800
WDV at the time of disposal 600
Gain on disposal 1,200
(ii) The forward contract entered into by SL for the purchase of raw materials is
in the nature of a hedging contract which was entered into to guard against
loss from future price fluctuations. Such contracts have specifically been
excluded from the definition of speculative business. Therefore, Rs. 500,000
paid to settle the forward contract is an expenditure incurred in the normal
course of business and is a deductible expenditure.
(c) Income from property Rupees
Rental income (40,000 × 12) 480,000
Rental income from joint property (4,800,000 (W-1) × 60%) 2,880,000
Less: Repair charges -
Add: Un-adjustable security deposits (Rs. 212,500 (W-2) × 1/10) 21,250
3,381,250
Income from utilites, cleaning and security
[(1,200,000 − 420,000)×60%] 468,000
Less: Income from property – separate block of income (3,381,750)
Taxable income 468,000
W-1: Determination of Income from joint property (bungalow) Rupees

Total rental income 6,000,000
Less: Amount relating to utilities, cleaning and security (1,200,000)
Income from property 4,800,000
W-2: Computation of unadjustable security deposit Rupees

Received from new tenant 300,000
Less: Amount charged to tax in July 2013 to June 2018
(175,000 × 5/10) (87,500)
212,500
Ans.4 (a) An appeal may be filed with the Commissioner if a person is dissatisfied with the
order passed as follows:
(i) A best judgment assessment (ex-parte assessment) based on any available

information or material to the best of the Taxation Officer’s / Commissioner’s
judgment.
(ii) An amendment of assessment issued by the Commissioner
(iii) An order holding an individual personally liable to pay the amount of tax,
which was required to be collected or deducted by him/her or because of
failure to pay the collected or deducted amount as required by the law.
(iv) An order declaring or treating a person as a representative of a non-resident
person.
(b) Sadiq Ali shall file the appeal in the prescribed form, verified in the prescribed
manner, be accompanied by the prescribed fee and shall precisely state the
grounds upon which the appeal is made.
The appeal should be filed within 30 days of the service of intimation of the order.
However, Commissioner (Appeals) may condone the delay in filing of an appeal
upon application in writing by the appellant.
(c) As a legal representative, any proceedings pending against Abid’s grandfather shall
continue against Abid from the stage at which it stood on the date of his
grandfather death. Further, any proceedings which could have been initiated
against the deceased if he had survived, may now be initiated against Abid.
Abid is also liable for any tax, which would have been payable by his deceased
grandfather. However, such liability is limited to the extent of Rs. 28 million i.e.
Suggested Answers
value of his deceased grandfather’s estate.
Ans.5 (a) “Public Company” means

▪ a Company in which not less than fifty percent of the shares are held by the
Federal Government or Provincial Government;
▪ a Company in which not less than fifty percent of the shares are held by a
foreign Government, or a foreign Company owned by a foreign Government;
▪ a Company whose shares were traded on registered stock exchange in
Pakistan at any time in the tax year and which remained listed on that
exchange at the end of that year; or
▪ a unit trust whose units are widely available to the public and any other trust
as defined in the Trusts Act, 1882 (II of 1882).
‘Private company’ means a company that is not a public company.
(b) The following type of payments made by a private company may be treated as
“dividend” under the ITO 2001, to the extent to which the company possesses
accumulated profits:
▪ payment by way of advance or loan to a shareholder, or

▪ any payment for the individual benefit of any shareholder
EXCEPTIONS:
▪ any distribution made to any shareholder in respect of liquidation or
reduction in capital or redemption of debentures.
▪ any advance or loan made to a shareholder in the ordinary course of the
business, where lending of money is a substantial part of the business of the
company.
▪ any dividend paid which is set off by the company against any amount
previously paid and treated as dividend to the extent to which it is set off.
Ans.6 (a) (i) Cottage industries are required to be registered when their:
▪ annual turnover from taxable supplies made in any tax period during the
last twelve months ending any tax period does exceed Rs. 10 million or
▪ annual utility bills for the same period exceed Rs. 800,000.
(ii) Those retailers are required to register under the Sales Tax Act who are
liable to pay sales tax except such retailers who are required to pay sales tax
through their electricity bill.
(b) A registered person may be liable for deregistration due to any of the following
reasons:
(i) He ceases to carry on his business;
(ii) His supplies become exempt from tax;
(iii) He transfers or sells his business;
(iv) Merger with another person; or
(v) Failure to file tax return for six consecutive months.
(c) (i) The tax paid on goods purchased by a person who is subsequently
registered under this Act or the rules made thereunder, shall be treated as
input tax, provided that such goods were purchased by him from a registered
person against a tax invoice issued under section 23 during a period of thirty
days before making the application for registration and constitute his
verifiable unsold stock on the date of application for registration.
Considering the above, BPL can claim input tax subject to availability of tax
invoice and verifiability of unsold stock.
(ii) Under the STA-1990, time of supply in relation to supply of goods means the
time at which the goods are delivered or made available to the recipient of
the supply or the time when any payment is received by the supplier in
respect of that supply, whichever is earlier.
However, in respect of exempt supply , it shall be accounted for in the return

for the tax period during which the exemption is withdrawn from such
supply.
Considering the above, BPL has to include advance payment of Rs. 2.5
million received from a registered person in its sales tax return for the
month ended February 2019.

amount @ 17%
-------- Rupees --------
Registered person (A)
Input tax
Supplies from registered persons 1,500,000 255,000
Less: Inadmissible input tax/adjustable input tax
(255,000×600,000/1,800,000) (85,000)
Input tax for the month 170,000
Output tax
Taxable supplies to registered persons 1,200,000 204,000
Exempt supplies to registered persons 300,000 -
Zero rate supplies 300,000 -
Admissible credit [Lower of 170,000 or 183,600 (90% of 204,000)] 170,000

Sales tax payable (204,000 – 170,000) 34,000
Sales tax refundable (300,000/1,800,000×255,000) 42,500
Registered person (B)

Since all supplies are zero rated and all purchases are made from registered suppliers, the
registered person can claim the refund of all input tax i.e. 255,000 (1,500,000×17%).
Registered person (C)

Input tax
Supplies from un-registered persons 1,500,000 -
Output tax
Taxable supplies to un-registered persons 800,000 136,000
Further tax on supplies to unregistered persons (800,000×3%) 24,000

Sales tax payable [306,000+24,000] 330,000
Registered person (D)

Input tax
Suggested Answers
Supplies from un-registered persons 1,500,000 -

Fixed assets (machinery) 2,500,000 425,000
Inadmissible input tax (800,000÷1,800,000×425,000) (188,889)
236,111
Output tax
Taxable exempt supplies 800,000 -
Less: Input tax on fixed assets (236,111)
Sales tax refundable/carry forward 66,111
Ans.8 (a) The duties of the National Finance Commission to make recommendations to the
President with regard to finance related matters include:
(i) the distribution between the Federation and the Provinces of the net
proceeds of the taxes.
(ii) the making of grants-in-aid by the Federal government to the Provincial
Governments.
(iii) the exercise by the Federal Government and the Provincial Governments of
the borrowing powers conferred by the Constitution;
(iv) any other matter relating to finance, referred to the Commission by the
President.
(b) Following taxes may be raised under the authority of the Parliament:
(i) taxes on income, including corporation tax, but not including taxes on
income consisting of remuneration paid out of the Federal Consolidated
Fund;
(ii) taxes on the sales and purchases of goods imported, exported, produced,
manufactured or consumed;
(iii) export duties on cotton, and such other export duties as may be specified by
the President;
(iv) such excise duties as may be specified by the President; and
(v) such other taxes as may be specified by the President.
(i) Taxes which can be imposed by the Federation:

Following are the types of taxes which can be imposed by the Federation as
provided in the Federal legislative list under the Constitution of Pakistan:
▪ Duties of customs, including export duties.

▪ Duties of excise, including salt, but not including alcoholic liquors,
opium or other narcotics;
▪ Taxes on income other than agricultural income;
▪ Taxes on corporations.
(ii) Taxes which can be imposed by the Provinces:

Following taxes are covered in the scope of legislation of Provinces:

▪ Taxes on transfer of immoveable property
(The End)
Q.1 Ahmer Ghazi has been working as director production in Delta Pakistan Limited (DPL) for
last three years. He received following monthly emoluments from DPL during the year ended
30 June 20X8:
Rupees
In addition to the above, the employer also provided following to Ahmer Ghazi:
(i) Health insurance for him and his family members. The amount of annual premium paid
by DPL was Rs. 50,000.
(ii) Return air ticket for Dubai worth Rs. 180,000 for him and his family as a reward for
achieving the production target.
(iii) Loan of Rs. 5 million was given to him on 1 August 20X7 at 6% per annum.
(iv) Withholding tax of Rs. 1,500,000 deducted from his salary was reimbursed to him.
Other information relevant to the tax year 20X8 is as under:
(i) Under an employee share scheme 10,000 shares of DPL were allotted to Ahmer Ghazi
on 1 January 20X6. According to the scheme, he was not allowed to sell/transfer the
shares up to 31 December 20X6. On 1 April 20X8, he sold 6,000 shares of DPL for
Rs. 33 per share. The face value of each share is Rs. 10. Fair market values of each share
on different dates were as follows:
▪ Rs. 20 per share on 1 January 20X6
▪ Rs. 23 per share on 1 January 20X7
▪ Rs. 29 per share on 30 June 20X8
(ii) On 30 October 20X7 Ahmer Ghazi let out his apartment at a monthly rent of Rs. 30,000
to his friend. The fair market rent of the apartment is Rs. 40,000 per month.
(iii) He is a part time singer and earned Rs. 225,000 by allowing a private TV channel to use
his song in a TV drama.
(iv) He purchased Sukuks of a listed company amounting to Rs. 1,400,000 as an original
allottee, on 30 June 20X8.
Required:
compute the following for the year ended 30 June 20X8:
(a) Total income (10)
(b) Taxable income (01)
(c) Net tax payable or refundable (05)

▪ Show all the relevant exemptions, exclusions and disallowances.
Q.2 Kaleem Limited (KL) is a listed company and its accounting year ends on 30 June. KL is now
considering to change its accounting year from 30 June to 30 September.
(a) briefly describe normal , special and transitional tax year. (06)
(b) state the requirements regarding change in tax year from normal to special. (02)
(c) state the tax year corresponding to the income year ended 30 September 20X8 and the
due date for filing the return of income. (02)
Q.3 (a) Hirani & Company (HC), a resident AOP, is engaged in the manufacturing of various
consumer products and is assessed under normal tax regime. During the year ended
30 June 20X8, HC’s sales was Rs. 14,000,000. It includes sales tax of Rs. 1,000,000 and
excise duty of Rs. 500,000. The taxable income for the year is Rs. 1,170,000.
Compute HC’s tax liability for tax year 20X8, under the provisions of the Income Tax
Ordinance, 2001. (Tax rates are given on the last page) (03)
(b) The accounting profit before tax of Bashir Associates (BA) for the year ended
30 June 20X8 is Rs. 1,200,000.
Last year, BA had written off balances outstanding from two of its debtors namely Pulse
International (PI) and Hussain Global (HG) which were partly allowed by the tax
authorities. Details are as follows:
Amounts written off 1,150,000 925,000

Allowed by tax authorities 825,000 240,000
During the current tax year, BA received Rs. 652,000 from PI and Rs. 346,000 from HG,
in full settlement of their debts.
In the light of the Income Tax Ordinance, 2001 compute BA’s taxable income for the tax
year 20X8. (05)
(c) Jamil and Company (JC) is the sole trader of a branded tea in Pakistan. In addition to
the trading business, JC is also engaged in forward purchasing and selling of tea to reap
the benefits of price fluctuation in local and international markets. Following
information has been extracted from the records of JC for the year ended 30 June 20X8:
(i) Detail of trading and speculation businesses (forward purchase and sale) were as
follows:
Speculatio
n
Gross revenue 400 200

Gross profit 20 10
(ii) Total administrative and general expenses for the year amounted to
Rs. 7.2 million. This amount includes a penalty of Rs. 0.4 million paid to the
custom authorities.
(iii) Assessed carried forward losses from previous years are as follows:
Rs. in million
Losses from trading business 12.8
Losses from speculation business 9.6
Capital losses (incurred in 20X2) 2.0
Under the Income Tax Ordinance, 2001 and Rules made thereunder, compute JC’s
taxable income / (loss) and the amount of loss to be carried forward, if any, for the tax
year 20X8. (06)
Q.4 (a) On 25 August 20X8, the Officer of Inland Revenue has issued a notice to Rahat Foods
(Private) Limited (RFPL) to deposit withholding income tax of Rs. 1,950,000 in respect
of loan amounting to Rs. 13,000,000 given to Nadeem Ahmad, a shareholder of RFPL,
by treating the amount of loan as dividend. The notice was served to the company on
30 August 20X8.
According to RFPL’s records, the loan was given to Nadeem Ahmad on 25 May 20X7
when accumulated profit of the company was Rs. 12,000,000.
In the light of the provisions of the Income Tax Ordinance, 2001 explain whether you
agree with the notice issued to RFPL by the Officer of Inland Revenue. (03)
(b) Specify the circumstances under which the Commissioner of Income Tax has powers to
issue notice demanding a return of income from certain person(s) for a period of less
than twelve months. Also state the powers of the Commissioner if such person fails to
furnish the return as required, within the specified time. (06)
Q.5 Saleem is a resident taxpayer and runs a fitness centre in DHA Karachi. He files his return of
income regularly. Following information pertains to his business for the tax year 20X8:
(i) Accounting profit before tax amounted to Rs. 2,350,000.

(ii) Administrative expenses include annual rent of the premises used for fitness centre
amounting to Rs. 1,560,000. Withholding tax of Rs. 144,000 was deducted from the rent
payment but was not deposited in the government treasury.
(iii) A passenger transport vehicle used for pick and drop of employees of fitness centre was
disposed of for Rs. 3,500,000. The vehicle was purchased for Rs. 4,500,000 in tax year
20X7. No accounting depreciation was provided during the year 20X8. Accounting gain
of Rs. 200,000 has been recorded in the profit or loss account.
(iv) On 1 July 20X7, a car was acquired on finance lease for Rs. 3,000,000. Advance tax paid
at the time of acquisition and registration of vehicle aggregated Rs. 85,000. The vehicle
has been used 70% for business purposes and 30% for Saleem’s personal use.
Accounting depreciation of Rs. 600,000 and financial charges of Rs. 462,000 were
recorded in the profit or loss account. Lease rentals paid during the year amounted to
Rs. 857,000.
(v) During the year, Saleem recorded gain of Rs. 50,000 on disposal of shares. Details are as
under:
Purchased Gain/(loss) on
Name of investee company Sold on
on disposal (Rs.)
Sun (Private) Limited 1 Aug 20X7 1 Sep 20X3 500,000
Moon Limited - a listed company 15 Sep 20X7 1 Jan 20X5 (700,000)
Planet Limited - a listed company 1 Feb 20X8 1 Jan 20X6 250,000
50,000
Required:
Compute Saleem’s taxable income under appropriate head of income and tax liability for the
tax year 20X8. (Tax rates are given on the last page) (12)
Q.6 (a) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe:
(i) temporary sales tax registration and rights, obligations and responsibilities of a
person holding temporary registration. (05)
(ii) differences between rules applicable to exempt and zero rated supplies. (04)
(iii) the provisions related to excess/additional amount of sales tax collected by a
registered person. (03)
Suggested Answers
(b) Where a Commissioner of Inland Revenue, having jurisdiction, is

satisfied that a registered person has issued fake invoices, evaded
tax or committed tax fraud, he may suspend the registration of
such person without prior notice, pending further inquiry.
Under the Sales Tax Act, 1990 and Rules made thereunder, state any
four basis of such satisfaction which allow the Commissioner to
suspend the registration as described above. (03
Q.7 (a) Briefly explain indirect taxes applicable in Pakistan. (04
(b) State one objective of tax laws in each of the following cases:
(i) High tax rate on high income

(ii) Higher taxes on import of luxury goods
(iii) Tax credit on donations to approved institutions
(iv) Tax credit on investments
(v) Creation of tax free zones
(vi) Tax on income of individuals and companies
(vii) Tax on transactions not made through normal banking channel
(viii) Zero rating under the Sales Tax Act, 1990 (06
Q.8 Abid Khan is registered for sales tax purposes and is engaged in the
manufacturing of electrical appliances in Multan. His sales and purchases
for the month of August 20X8 are summarized below:
Supplies
Exports 5,000,000
Exempt supplies 4,500,000
Purchases
Taxable goods from registered suppliers - for taxable supplies 25,000,000
- for exempt supplies 1,500,000
Packing materials from un-registered suppliers 9,500,000
(i) Supplies of taxable goods to registered customers include:
▪ an amount of Rs. 4,225,000 against sale of electric toasters at
a trade discount of 35%. As per normal business practice, he
allows a discount of 10% only.
▪ goods supplied against which advance payment of Rs.
2,500,000 had been received in June 20X8.
(ii) Taxable supplies returned by different registered customers
amounted to Rs. 900,000. Proper debit and credit notes were
raised within the specified time.
(iii) A plant costing Rs. 2,700,000 was commissioned into operation
on 15 August 20X8. The plant is being used for taxable supplies
only.
(iv) An electricity bill of Rs. 2,600,000 was paid in cash which includes
sales tax amounting to Rs. 350,000.
(v) Input tax brought forward from July 20X8 is Rs. 595,000.
All the above figures are exclusive of sales tax, wherever applicable. Sales
Required:
Compute sales tax payable by or refundable to Abid Khan along with input tax to be
carried forward/refundable, if any, in the sales tax return for the month of August
20X8.
Note : Show all relevant exemptions, exclusions and disallowances. (14
Rates of Tax for Salaried Individuals

Where the taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 472,000 + 25% of the amoun
10. Rs. 4,000,000 exceeding Rs. 3,500,000
Where the taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 597,000 + 27.5% of the amoun
11. Rs. 7,000,000 exceeding Rs. 4,000,000
Rs. 1,422,000 + 30% of the amoun
12. Where the taxable income exceeds Rs. 7,000,000 exceeding Rs. 7,000,000
Tax Rates for Every Individual and Association of Person Except

for Salaried Taxpayer

Rs. 32,000 + 15% of the amoun
4. Exceeds Rs. 750,000 but does not exceed Rs. 1,500,000
exceeding Rs. 750,000
5. Exceeds Rs. 1,500,000 but does not exceed Rs. 2,500,000
Rs. 1,319,500 + 35% of the amount
8. Exceeds Rs. 6,000,000
Tax Rates for Income from Property

1. Where the gross amount of rent does not exceed Rs. 200,000. Nil
Where the gross amount of rent exceeds Rs. 200,000 but does not 5% of the gross amount exceeding
2.
exceed Rs. 600,000. Rs. 200,000.
Where the gross amount of rent exceeds Rs. 600,000 but does not Rs. 20,000 plus 10% of the gross
3.
exceed Rs. 1,000,000. amount exceeding Rs. 600,000.
Where the gross amount of rent exceeds Rs. 1,000,000 but does not Rs. 60,000 plus 15% of the gross
4.
exceed Rs. 2,000,000. amount exceeding Rs. 1,000,000.
Rs. 210,000 plus 20% of the gross
5. Where the gross amount of rent exceeds Rs. 2,000,000.
amount exceeding Rs. 2,000,000.
Tax Rates for Capital Gains on Disposal of Listed Securities

Tax year Tax year Tax year Tax year
S. No. Period
20X5 20X6 20X7 20X8
Where holding period of a security is twelve months or more
3. 10% 12.5% 12.5% 12.5%
but less than twenty-four months.
Where holding period of a security is twenty-four months or
4. 0% 7.5% 7.5% 7.5%
more but the security was acquired on or after 1st July 20X3.
Suggested Answers

Minimum Tax as percentage of the
S. No. Person(s)
person’s turnover for the year
3. In all other cases. 1.25%
Depreciation Rates Under Third Schedule

3. Motor vehicles (all types)
Note:
The suggested answers are provided for the guidance of the students. However, there are
alternative solution(s) to the questions which are also considered by the Examination
Department while marking the answer scripts.
Ans.1 Mr. Ahmer Ghazi

Computation of income tax liability
Rupees
Income from Salary
Basic Salary (650,000×12) 7,800,000
House rent Allowance (95,000×12) 1,140,000
Medical allowance (70,000×12) 840,000
Health insurance -
Award for meeting sales target 180,000
Grant of concessional loan by DPL [Rs. 5 million @ 4% (10–6)] *183,334
Tax of Ghazi paid by DPL 1,500,000
11,643,334
Rent of apartment (40,000×8) 320,000

Sale of 6,000 shares @ Rs.33–23 =10 60,000

Amount received for his song (Royalty) 225,000

Property income 320,000
Capital gain 60,000
380,000
Tax liability under

Normal tax regime
on 7,000,000 1,422,000
exceeding 7,000,000 at the rate of 30% 1,442,500
2,864,500
Separate block – Income
Property income tax @ 5% 6,000
Capital gain tax @ 7.5% 4,500
Less: Tax credit for investment in Sukuks (2,864,500/11,808,334×1,400,000) (339,616)
2,535,271
Less: Tax paid by DPL (1,500,000)
Income tax payable 1,035,271
Suggested Answers
Ans.2 (a) Normal tax year

Normal tax year is a period of twelve months ending on the 30th day of June and is
denoted by the calendar year in which the said date falls.
Special tax year

Where a person’s income year is different from the normal tax year, or where, by an
order, a person has been allowed by the Commissioner to use a twelve months’
period different from normal tax year, such income year or such period shall be that
person’s special tax year and shall be denoted by the calendar year relevant to the
normal tax year in which the closing date of the special tax year falls.
Transitional tax year

Where the tax year of a person changes as a result of an order by the Commissioner
of Income tax either from the normal tax year to special tax year or vice versa, the
period between the end of the last tax year prior to change and the date on which the
changed tax year commences shall be treated as transitional tax year. (Also called
separate tax year)
(b) Change of tax year from normal to special

▪ A person shall apply in writing to the Commissioner for change in tax year from
normal to special.
▪ The Commissioner should grant permission only if he is satisfied that the
company has a compelling need to use special tax year.
▪ While giving the permission, the Commissioner may impose such conditions as
he may deem fit.
(c) ▪ Tax year is 20X9.

▪ Due date for filing of return is 30 September 20X9.
Ans.3 (a) Rupees

Income tax payable under normal tax regime
Taxable income A 1,170,000
Income tax (Rs. 32,000 + 15% of 420,000) 95,000
Income Tax payable under minimum tax regime

Gross sales (14,000,000–1,000,000–500,000) 12,500,000
Turnover tax u/s 113 @ 1.25% on Rs. 12,500,000 B 156,250
Tax liability of HC (higher of A and B) 156,250

(b) Rupees
Accounting profit before adjustments 1,200,000
Less: Amount received from Pulse International (652,000)
Less: Amount received from Hussain Global (346,000)
Bad debts amount previously allowed but recovered by PI 327,000
Bad debts short allowed (339,000)
Taxable income 190,000
Pulse
International (PI)
Amount received 652,000
Bad debts claimed 1,150,000
Less: Bad debts allowed as deduction 825,000
325,000
Excess income to be added in the income for the tax year 2018 327,000
Hussain Global
(HG)
Amount received 346,000
Bad debts claimed 925,000
Less: Bad debts allowed as deduction 240,000
685,000
Amount short received to be allowed as deduction for the TY 20X8 (339,000)
(c) Trading Speculation

Total
Particulars business business
-------- Rs. in million --------
Gross revenue 400.00 200.00 600.00
Gross profit 20.00 10.00 30.00
Administrative and general expenses [7.2m–
0.4m×400m÷600m] 4.53 2.27 6.80
Net income 15.47 7.73 22.80
brought forward losses 12.80 9.60
Taxable income/(loss) carried forward for the year 2.67 *(1.87)
*Loss carried forward to next year
Capital loss of Rs. 2 million cannot be carried forward to next year as the period of six years
lapsed in tax year 20X8.
Ans.4 (a) Under the Income Tax Ordinance, 2001 the definition of dividend includes any
payment by a private company by way of advance or loan to a shareholder or any
payment by any such company on behalf, or for the individual benefit, of any such
shareholder, to the extent to which the company, possesses accumulated profit.
Considering the above definition of dividend, the tax officer is correct to the extent
of treating the loan payment as dividend. However, he made error in treating the
entire amount of Rs. 13 million as dividend because the amount of accumulated
profit was Rs. 12 million on that date. Therefore, only Rs. 12 million can be treated
as dividend.
(b) The Commissioner may, by notice in writing, require the following persons or their
representatives to furnish a return of income for a period of less than twelve months:
▪ a person who has died;
▪ a person who has become bankrupt or gone into liquidation;
▪ a person who is about to leave Pakistan permanently;
▪ where the Commissioner otherwise considers it appropriate to require such a
return to be furnished.
Suggested Answers
If a person fails to furnish the return, the Commissioner may, based on any available
information or material and to the best of his judgment, make an assessment of the
taxable income of the person and the tax due thereon. Under such a case, the
assessment, if any, treated to have been made on the basis of return or revised return
filed by the taxpayer shall be of no legal effect.
Ans.5 Saleem
Computation of taxable income for the year 20X8
Rupees
Accounting profit before adjustment 2,350,000

Rental charges - withholding tax deducted but not deposited 1,560,000
Depreciation on leased assets 600,000
Financial charges on leased assets 462,000
2,622,000
4,972,000
Accounting profit on sale of vehicle 200,000
Lease rental (857,000×70%) 599,900
Accounting gain on the sale of shares 50,000
Loss on disposal of a passenger transport vehicle (Note 1) 180,556
1,030,456
3,941,544
Gain on the sale of share of Sun (Private) Limited
(Holding period is more than 12 months and therefore only 3/4 is taxable 500,000×3/4) 375,000
Gain on the sale of securities

Moon Limited (700,000)
Planet Limited 250,000
(450,000)
Add: Loss on sale of shares of listed companies - Separate block of income 450,000
Computation of tax liability

Tax on 4,000,000 719,500
Tax on income exceeding 4,000,000 @ 30% (316,544×30%) 94,963
Tax payable under NTR 814,463
Advance tax collected at the time of vehicle purchased (85,000)
Income tax payable 729,463
Note 1: Loss on disposal of a passenger transport vehicle

Consideration received on disposal of passenger transport vehicle not
plying for hire A×B/C Where (3.5×2.5/4.5) 1,944,444
(A is the amount received on disposal of the vehicle Rs. 3.50 million; B is the amount referred to in clause
(a) of sub-section (13) Rs. 2.5 million; and C is the actual cost of acquiring the vehicle Rs. 4.5 million.)
Written down value of vehicle (2.5×85%) (2,125,000)
Loss on disposal (180,556)
Ans.6 (a) (i) Where a person files application for sales tax registration as a manufacturer
prior to installation of machinery, for the purpose of import of machinery to be
installed by him, temporary registration as manufacturer shall be allowed to
him for a period of sixty days.
After receiving temporary registration, the person shall be allowed to import

plant, machinery and raw materials, etc. as a manufacturer, subject to
submission to the customs authorities of a post-dated cheque equal to the
difference in duties and taxes to be availed as a manufacturer.
In case the list of machinery is not provided within sixty days of issuance of the
temporary registration, such temporary registration shall be disabled and the
post-dated cheques submitted shall be encashed.
A person holding temporary registration shall file monthly return, but shall not
issue a sales tax invoice and if such invoice is issued, no input tax credit shall
be admissible against such invoice.
No sales tax refund shall be paid to the person during the period of temporary
registration, however, the amount of input tax may be carried forward to his
returns for subsequent tax periods.
(ii) Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’:
Distinction points Zero Rated Supply Exempt Supply

Taxability Zero rated supply is Exempt Supply means a
charged to tax at the rate supply which is exempt
of zero per cent. from tax.
Products covered Goods exported as Goods specified by Federal
notified by FBR or listed Government and FBR and
in the Fifth Schedule are goods listed in Sixth
charged to sales tax at the Schedule are exempt
rate of zero per cent. supplies.
Invoicing Sales Invoice has to be raised No sales tax invoice shall be
Tax Requirements for the goods supplied raised.
Registration A person engaged in zero A person engaged
rated supplies has to be exclusively in supply of
registered with the Sales exempt goods is not liable to
tax department. be registered.
Input tax credit Input tax paid related to Input tax paid related to
zero rated supplies is exempt supplies is
refundable. inadmissible, therefore, it is
neither adjustable nor
refundable.
(iii) Collection of excess sales tax

▪ Any person who has collected or collects any tax or charge which was not
payable as tax or charge or which is in excess of the tax or charge actually
payable and the incidence of which has been passed on to the consumer,
shall pay the amount of tax or charge so collected to the Federal
Government.
▪ Any amount payable to the Federal Government shall be deemed to be an
arrear of tax or charge payable under this Act and shall be recoverable
accordingly and no claim for refund in respect of such amount shall be
admissible.
Suggested Answers
▪ The burden of proof that the incidence of tax or charge has been or has not
been passed to the consumer shall be on the person collecting the tax or
charge.
(b) The basis for such satisfaction may inter alia include the following:
(i) non-availability of the registered person at the given address;
(ii) refusal to allow access to business premises or refusal to furnish records to an
authorized Inland Revenue Officer;
(iii) abnormal tax profile, such as taking excessive input tax adjustments,
continuous carry-forwards, or sudden increase in turnover;
(iv) making substantial purchases from or making supplies to other blacklisted or
suspended person;
(v) non-filing of sales tax returns;
(vi) on recommendation of a commissioner of any other jurisdiction;
(vii) any other reason to be specified by the Commissioner;
Ans.7 (a) Following are the indirect taxes under the Pakistani Taxation System.
(i) Custom Duty

Goods imported and exported from Pakistan are liable to custom duties as
prescribed in Pakistan Custom Tariff.
(ii) Federal Excise Duty

Generally, federal excise duty is charged on the basis of excise value or retail
price. However, some items are chargeable to duty on the basis of weight or
quantity. All exports are liable to Zero per cent Federal Excise Duty.
(iii) Sales Tax

Sales tax is levied on
▪ Import of goods into Pakistan, payable by the importers;
▪ Taxable supplies made in Pakistan by a registered person in the course of
furtherance of any business carried on by him;
A registered person can make adjustment of tax paid at earlier stages against
the tax payable by him on his supplies. For most of the goods sales tax is
payable @ 17%.
(b) Objectives of tax laws in each case are specified below:

(i) Fair distribution of wealth
(ii) Reduction in imports of unnecessary goods and balance of trade.
(iii) To promote culture of payment of donation to only organised and regulated
institutions
(iv) Promote investment in listed companies
(v) To give incentives to underdeveloped areas.
(vi) Revenue collection
(vii) Documentation of economy
(viii) Promotion of Exports
Ans.8 Mr. Khan
Computation of sales Tax payable / Refundable
For the tax period August 20X8
Taxable Sales Tax

Value Rate Sales Tax
----------------- Rupees -----------------
Sales tax credits - input tax
Purchases from registered suppliers 25,000,000 4,250,000
Purchases from unregistered suppliers - packing material 9,500,000 inadmissible -
Purchases goods used exclusively for making exempt
supplies 1,500,000 inadmissible -
Cash payment of electricity bill inclusive of sales tax - 350,000
Fixed assets (Machinery) 2,700,000 459,000
Total input tax 38,700,000 5,059,000

Less: Inadmissible/unadjusted input tax (Note 1) (887,762)
Sales tax debits - output tax

Local taxable supplies - registered suppliers
(15,118,000–4,225,000–2,500,000) 8,393,000 1,426,810
Local taxable supplies - registered suppliers
(4,225,000×0.9÷0.65) 5,850,000 994,500
- unregistered persons 10,150,000 1,725,500
24,393,000 -
Export (zero rated) 5,000,000 -
Exempt supplies (Rs. 4,500,000) - -
Less: Sales return - taxable supplies (900,000) (153,000)
Admissible credit (90% of output tax i.e. Rs. 3,594,429 (3,993,810 ×0.9) or input tax
excluding Fixed Assets (4,766,238 – 378,454 = 4,387,784) which ever is lower. (3,594,429)
399,381
Input tax on fixed assets (378,454)
20,927
Further tax on supplies to unregistered persons = 10,150,000×2 203,000
Sales tax to be carried forward (4,766,238–3,594,429 – 378,454 ) 793,355

Sales tax refundable (5,059,000×5,000,000/28,493,000) 887,762
Note 1: Apportionment of input tax

Residual input tax 5,059,000
Inadmissible input tax i.e. Export [(5,000,000/28,493,000)×5,059,000] 887,762
(THE END)
Q.1 Mr. Qateel, a resident individual, is engaged in the manufacture of various consumer goods
under the name and style ‘Qateel Enterprises (QE)’. The following information has been
extracted from the records of QE for the financial year ended 30 June 20X8.
Total turnover 28,500,000

(4,500,000)
Operating expenses
(2,155,000)
Operating loss (35,703)
Finance charges on lease of machinery 5,000,000
Profit before tax
(i) Cost of sales includes:
▪ Rs. 45,000 paid as fine for violation of contract with a customer for delay in supply
of goods.
▪ accounting depreciation of Rs. 1,900,000 (including depreciation on leased assets).
▪ Rs. 450,000 paid for renewal of a manufacturing licence for fifteen years.
▪ vehicle tax paid in cash amounting to Rs. 55,000 for eight office cars.
▪ Rs. 200,000 paid as security deposit to K-Electric (KE) for replacement of
transformer at the factory.
▪ Rs. 300,000 collected by KE as advance tax through monthly electricity bills.
▪ cash donation to poor families amounting to Rs. 64,600 and donation of
Rs. 2,000,000 paid through cheque to Edhi Foundation, which is listed in Part 1 of
the Second Schedule of the Income Tax Ordinance, 2001.
▪ penalty of Rs. 25,000 imposed by the Commissioner Inland Revenue for late filing of
annual return of income for the tax year 20X7.
▪ entertainment expenditure of Rs. 128,000 incurred on arrival of foreign customers for
business purposes.
(iii) Other income includes:
▪ dividend of Rs. 580,000 received from listed companies. The amount is net of
income tax at the rate of 15% and Zakat of Rs. 100,000 deducted under the Zakat
and Usher Ordinance, 1980.
▪ Capital gain of Rs. 1,200,000 from sale of shares of a private limited company.
Shares were acquired on 1 August 20X3.
(iv) On 30 June 20X8, leased machinery was transferred to Qateel on maturity of lease. The
leasing company was asked to adjust the amount of security deposit against the residual
value of Rs. 100,000. The date of commencement of lease was 1 July 20X3.
Lease rentals paid during the year amounted to Rs. 270,000.
On the date of maturity, the accounting written down value and market value of the
machinery was Rs. 590,490 and Rs. 800,000 respectively.
(v) During the year, a warehouse was constructed for storage of goods at a cost of
Rs. 1,040,000. No accounting depreciation has been recorded on it.
(vi) Tax depreciation for the tax year 20X8 without considering the effect of para (iv) and (v)
above, amounted to Rs. 1,560,000.
(vii) Advance income tax paid during the year amounted to Rs. 480,000.
Required:
compute the total income, taxable income and net tax payable by or refundable to QE for the
year ended 30 June 20X8. (18)
▪ Show all the relevant exemptions, exclusions and disallowances.
Q.2 Under the provisions of the Income Tax Ordinance, 2001 compute taxable income or loss
under correct head of income for tax year 20X8, in each of the following cases:
(a) Mrs. Raees separated from her spouse due to certain disagreements. Under an agreement
to live apart, her spouse provided her a house and paid cash of Rs. 150,000 per month as
support payment. The fair market rent of the house is Rs. 50,000 per month. (02)
(b) Shaoor is the sole proprietor of Shaoor Enterprises (SE). On 31 January 20X8 SE sold a
factory building including land for Rs. 10 million. At the time of disposal, the fair market
values of the land and building were Rs. 3 million and Rs. 5 million respectively.
The land and building were acquired on 1 July 20X6 at a cost of Rs. 2 million and
Rs. 6 million respectively. The tax WDV of the building on 1 July 20X7 was
Rs. 5.4 million. (05)
(c) Hasrat has been working as Director HR in Shakir Limited (SL) for many years. During
the tax year 20X8 he received basic salary of Rs. 6 million. SL also contributed
Rs. 50,000 per month towards a recognized provident fund. An equal amount was
contributed by Hasrat. Interest income of Rs. 3,391,000 at the rate of 20% of
accumulated balance of the fund was credited to Hasrat’s account. (04)
Q.3 (a) Under the provisions of the Income Tax Ordinance, 2001 briefly discuss the following:
(i) The term ‘Concealed assets’. (02)
(ii) The powers of Commissioner relating to the concealed assets of any person when
these are impounded by the Federal Government. (03)
(b) Anwar had filed his return of income for the tax year 2013 on 31 August 2013. Discuss
the following in the light of provisions of the Income Tax Ordinance, 2001:
(i) By which date the Commissioner of Income Tax could make the first amendment
of the assessment, if required. (02)
(ii) By which date any further amendment can be made if the first amendment was
made on 15 February 2017. (02)
(c) On 1 December 20X7 Bruce Lee was appointed by a Chinese company as a Technical
Director for Pakistan. He has provided you the following details:
Arrival in Pakistan 15 December

Joined office in Pakistan 20X7
Visit to Dubai on an official trip
Visit to South Korea for vacations 21-30 March 20X8
12-21 April 20X8
In view of the provisions of the Income tax Ordinance, 2001 and related Rules
thereunder, comment on the residential status of Bruce Lee for the tax year 20X8. (03)
(d) Under the provisions of the Income Tax Rules, 2002 list the records to be kept by a
taxpayer in respect of his income from:
(i) Salary (01)
(ii) Property (1.5)
(iii) capital gain (1.5)
Q.4 (a) Nadeem has agricultural land in Thatta which is being used for the cultivation of
sugarcane. During the year, he cultivated 200,000 tonnes of sugarcane. Out of total
cultivation, 140,000 tonnes of sugar cane was sold to a sugar mill at a price of
Rs. 4,550 per ton whereas the remaining quantity was utilized in his own sugar mill.
During the year, there were no other purchases of sugar cane by his sugar mill.
The sale of his sugar mill stood at Rs. 310 million whereas total expenses other than the
raw material amounted to Rs. 19 million. There was no opening and closing stock of
sugarcane.
Required:
compute the taxable income of Nadeem for the tax year 20X8. (04)
(b) Identify due date of filing of tax return in each of the following cases, under the
provisions of the Income Tax Ordinance, 2001:
(i) An individual who’s entire income falls under final tax regime (0.5)
(ii) An individual who derives his income from business which falls under normal tax
regime. (0.5)
(iii) An individual filing return in response to a notice received from the Commissioner
who believes that he is likely to discontinue his business. (01)
(iv) An individual filing return in response to a notice received from the Commissioner
for not filing return of income of the previous tax year. (01)
(v) A company. (01)
(c) Discuss the provisions of the Income Tax Ordinance, 2001 regarding set off and carry
forward of losses under the following heads:
(i) Income from business (05)
(ii) Income from speculation business (04)
Q.5 (a) Taxes are primary revenue yielding tools of the Government of modern ages. You are
required to state any three non-revenue objectives which the Government achieves by
imposing taxation. (03)
(b) List any five taxes which can be imposed by the Federal Government. (05)
Q.6 Under the provisions of the Sales Tax Act, 1990:
(a) List the exceptions to the following general rule:
(i) Where the taxable supplies are made to a person who has not obtained registration
number, there shall be charged, levied and paid a further tax at the rate of 2% of
the value in addition to the normal rate of 17%. (03)
(ii) Goods exported shall be charged to tax at the rate of zero percent. (03)
(b) Explain the term ‘Temporary registration’. Briefly discuss the rights, obligations and
responsibilities of a person who has obtained temporary registration. (06)
Q.7 Faiz Associates (FA) is a partnership concern and registered under the Sales Tax Act, 1990 as
manufacturer-cum-distributor. Following information has been provided by FA for the month
of January 2018:
Rupees
Supplies
Consumable goods supplied on PIA’s international flight 500,000
Export 700,000
Taxable goods from registered suppliers

Taxable goods from un-registered suppliers 450,000
Exempt goods from registered suppliers
Input tax brought forward from December 2017
(i) Supply of taxable goods to registered customers include the following:
▪ Goods amounting to Rs. 80,000 sold to Hafiz Brothers (HB) on 31 January 2018.
HB started business in January 2018 and had filed an application for registration
under the Sales Tax Rules 2006 on 30 January 2018. However, no sales tax
registration number was issued till 31 January 2018.
▪ Goods having market value of Rs. 600,000 which were supplied to Parveen Limited,
an associated company, for Rs. 500,000.
▪ An invoice erroneously issued for Rs. 450,000 whereas the correct amount of the
invoice was Rs. 540,000.
▪ Sale to Ghalib Corporation of goods worth Rs. 225,000. The contract for sale has
been signed but neither invoice was issued nor any delivery and payment was made
in January 2018.
(ii) Purchases from registered suppliers include:
▪ purchase of two air-conditioners amounting to Rs. 150,000 for FA’s new office.
▪ an invoice of Rs. 500,000 dated 22 January 2018 issued by Taqi Corporation (TC).
However, TC was blacklisted by the Commissioner on 6 February 2018.
(iii) FA destroyed certain goods worth Rs. 45,000 after following the due process under the
Sales Tax Rules, 2006. Input tax on these goods was claimed in December 2017.
(iv) Free replacement of defective parts costing Rs. 400,000 relating to goods which were
sold under 1-year warranty. The market value of such parts was Rs. 550,000.
(v) A debit note for Rs. 100,000 issued by a customer in respect of goods returned was duly
settled and the relevant credit note has been issued within the stipulated time.
(vi) During the month, FA paid Sindh Sales Tax worth Rs. 8,500 on franchise services.
Under the Sindh Sales Tax Laws, such tax is not an admissible credit.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at the
rate of 17%.
Required:
Compute sales tax payable by or refundable to Faiz Associates along with input tax to be
carried forward, if any, in the sales tax return for the month of January 2018. (18)
Note : Show all relevant exemptions, exclusions and disallowances.
(THE END)

THE FIRST SCHEDULE
Tax Rates for Every Individual and Association of Person Except for Salaried Taxpayer
3. Exceeds Rs. 500,000 but does not exceed Rs. 750,000 exceeding Rs. 500,000
Rs. 1,319,500 + 35% of the amount
8. Exceeds Rs. 6,000,000
THE THIRD SCHEDULE

Part I
Depreciation Rates
Building (all types) 10%
Furniture and fittings
Plant and machinery
Motor vehicles (all types)
Computer hardware 30%
Part II
Suggested Answers
Ans.1 Qateel Enterprises

Rupees
Accounting profit before taxation 2,809,297
Fine paid – violation of the contract -
Vehicle tax -
Renewal of license fee 450,000
Replacement of transformer (KESC) – security deposit 200,000
Advance tax collected (KESC) 300,000
Donation paid in cash 64,600
Donation paid 2,000,000
Penalty paid to CIR for late filing of return 25,000
Entertainment expenditures – foreign customer -
Dividend income - Gross 800,000
Gain on sale of a private limited company shares Rs. 1,200,000.
Since holding period is > one year gain would be reduced to 75% 900,000
Finance charges on lease machinery 35,703
6,675,303
Less: Admissible expenses & inadmissible/FTR income
Renewal of license fee [450,000/10] 45,000
Gain on sale of a private limited company shares 1,200,000
Tax depreciation as given 1,560,000
Tax depreciation on warehouse constructed N-1 244,400
Lease rental paid 270,000
Dividend income 580,000
Tax depreciation on leased machinery acquired by paying residual value 15,000
(3,914,400)
Total income for the year 5,570,200
Less: Dividend income (FTR income) N-2 (800,000)
4,770,200
Zakat deducted on dividend (100,000)
4,670,200
Deductible allowances
Donation paid – allowed upto 30% of the taxable income (1,401,060)
Computation of tax liability
Tax on 2,500,000 344,500
Tax on income exceeding 2,500,000 @ 25% 192,285
Tax on dividend – FTR (15%) 120,000
Advance tax collected on electricity bill (300,000)
Advance tax paid (480,000)
Advance tax on dividend (120,000)
(900,000)
Income tax refundable (243,215)
Rupees
N-1: Warehouse constructed 1,040,000
Initial allowance @ 15% (1,040,000×15%) 156,000
Tax depreciation @ 10% [(1,040,000–156,000)×10%] 88,400
Total depreciation 244,400
N-2: Dividend received
Add: Zakat paid (Rs.4,000,000) 580,000
100,000
680,000
Add: Advance tax deducted 120,000
Grossed up with amount of tax deducted @ 15% 800,000
Ans.2 (a) Head of income: Income from other sources
According to Income tax Ordinance, any income received by a spouse as support

payment under an agreement to live apart shall be exempt from tax.
(b) Computation of taxable income

Mujahid Enterprises
For the year ended 30 June 2017
Rupees
From sale of building
Sale proceeds (equivalent to cost) 6,000,000
Tax WDV of building (6,000,000–600,000) (5,400,000)
Taxable income (under NTR) 600,000
Capital gain
From sale of land
Sale proceeds (cost of the assets) 3,750,000
Cost of land (2,000,000)
Taxable income (separate block of income) 1,750,000
Accordingly, the sale proceeds of the building and land are computed as under:
Land = 10×3/8 = Rs. 3.75 million
Building = 10×5/8 = Rs. 6.25 million
(c) Head of income: Income from salary

----------- Rupees -----------
Salary 6,000,000
Provident fund contribution by SL (50,000×12) 600,000
Tax exemption up to 150,000 or 10% of salary (150,000) 450,000
Interest credited to provident fund

Amount credited 3,391,000
Exempt higher of:
- 2,712,800 (3,391,000×16%÷20%); or
- 1/3rd of salary i.e. 2,000,000 (6,000,000÷3) 2,712,800 678,200
Taxable income of Hasrat 7,128,000
Suggested Answers
Ans.3 (a) (i) Under the Income Tax Ordinance, 2001 if in the opinion of the Commissioner,
an asset is acquired from any income chargeable to tax but could not be
charged to tax, it is considered to be a concealed asset.
(i) Where a concealed asset of any person is impounded by any department or

agency of the Federal Government, the Commissioner may at any time, before
making a best judgement or any amended assessment order, issue to the person
a provisional assessment order or provisional amended assessment order, as the
case may be, for the last completed tax year during which the concealed asset
was accounted for.
(b) (i) The Commissioner of income tax is empowered to amend the assessment of
the taxpayer within five years from the end of the financial year in which the
Commissioner has issued or treated to have issued the assessment order to the
taxpayer Accordingly, in this case amendment can be made by 30 June 2019.
(ii) Where the Commissioner has issued the amended assessment order to the
taxpayer, the limitation period should be later of:
▪ five years from the end of the financial year in which the original
assessment order is issued or treated as issued by the Commissioner; or
▪ one year from the end of the financial year in which the amended
assessment order is issued or is treated as issued to the tax payer.
The time limitation for the next assessment will therefore to be by 30 June
2019.
(c) Mr. Bruce Lee is not a resident for the tax year 2017 as he was present for less than
183 days in Pakistan i-e 178 days as follows:
Months Days
December 2016 (15-12-16 is also included) 17
January 2017 31
February 2017 28
March 2017 31
April 2017 30
May 2017 31
June 2017 30
198
Less: Number of days visited to Dubai – March (10)
Less: Number of days visited to South Korea – April (10)
178
For not considering the days spent on personal trip within Pakistan.
(d) Under the provisions of the Income Tax Rules 2002, following are the records to be
kept by a tax payer in respect of his income from:
(i) Salary
▪ Salary certificate indicating the amount of salary and tax deducted
therefrom.
(ii) Property
▪ Tenancy agreement, if executed
▪ Tenancy termination agreement, if executed
▪ Receipt for amount of rent received
▪ Evidence of deductions claimed in respect of premium paid to insure
the building, local rate, tax, charge or cess, ground rent, profit/interest
or share in rent on money borrowed, expenditure on collecting the rent,
legal services and unpaid rent.
(iii) Capital gain
▪ Evidence of cost of acquiring the capital asset
▪ Evidence of deduction for any other costs claimed
▪ Evidence in respect of consideration received on disposal of the capital
asset.
Ans.4 (a) Income from business: Rs. in million

Sale – Sugar 310
Market value of agricultural produce used as raw-material
(60,000×4,550) (273)
18
Exempt income:
Sale of Sugar cane worth of Rs. 910 million (200,000×4,550)
received from agricultural land -
Taxable income 18
(b) (i) On or before 31 August next following the end of tax year.
(ii) On or before 30 September next following the end of the tax year.
(iii) Due date fixed for submission of tax return by the Commissioner.
(iv) Due date specified in the notice for submission of tax return or thirty days
from the date of issuance of notice.
(v) ▪ If tax year ends between 1 January On or before 31 December next
to 30 June following the end of tax year.
▪ If tax year ends between 1 July to On or before 30 September next
31 December following the end of tax year.
(c) Business Loss

(i) Where a person sustains a loss for a tax year under the head “income from
business”, the said loss can be fully offset against the person’s income, if any,
chargeable to tax under any other head of income except income from salary
and income from property.
(ii) Where such loss cannot be fully offset against the income of any other head
for that year, so much of the loss that has not been offset fully, may be carried
forward to the following tax year and set off against the person’s chargeable
income under the head “income from business” for that year.
(iii) No loss can be carried forward for more than six tax years immediately
succeeding the tax year for which the loss was first computed.
(iv) Where the business loss includes deductions allowed under depreciation and
amortization that have not been set off against income, the amount not set off,
may be added to the deductions allowed under these heads in the subsequent
years and so on until completely set off.
Speculation Losses
(i) If a person sustains a loss in a tax year from any speculation business, he can
set off such loss only against profits of any other speculation business carried
on by him during the same tax year.
(ii) In the subsequent years too, the speculation loss can be set-off against income
of any speculation business only. It means that loss from speculation business
cannot be adjusted against income under any other head.
(iii) If a person has a speculation loss carried forward for more than one tax years,
the loss of earliest tax year shall be set-off first.
Suggested Answers
Ans.5 (a) The taxation system may also be utilized to achieve the following non revenue
objectives as follows:
▪ To strengthen anemic enterprises by granting them tax exemptions or other

▪ To protect local industries against foreign competition by increasing local
import taxes;
▪ As a bargaining tool in trade negotiations with other countries;
▪ To counter the effects of inflation or depression;
▪ To reduce inequalities in the distribution of wealth;
▪ To promote science and invention, finance educational activities or maintain
and improve the efficiency of local forces;
▪ To implement laws which eliminate discrimination among various elements in
the markets/businesses.
▪ To discourage certain undesirable sectors and activities.
▪ To promote documentation in the economy.
▪ To promote export of the country.
▪ To promote investment in listed companies.
▪ To promote information technology specially software houses.
▪ To promote culture of payment of donation to only organized and regulated
institutions.
(b) Following taxes can be imposed by the Federal Government
(i) Taxes on income other than agricultural income.

(ii) Taxes on corporations.
(iii) Taxes on the sales and purchases of goods imported, exported, produced,
manufactured or consumed, except sales tax on services.
(iv) Taxes on the capital value of the assets, not including taxes on immovable
property.
(v) Taxes on mineral oil, natural gas and minerals for use in generation of
nuclear energy.
(vi) Taxes on the production capacity of any plant, machinery, undertaking,
establishment or installation in lieu of any one or more of them.
(vii) Terminal taxes on goods or passengers carried by railway, sea or air; taxes on
their fares and freights.
Ans.6 (a) (i) 2% further tax is not payable in the following cases even if the supplies are
made to unregistered persons:
▪ Electricity energy supplied to domestic and agricultural consumers.
▪ Natural gas supplied to domestic consumers and CNG stations.
▪ Motor oil, diesel oil, jet fuel, kerosene oil and fuel oil.
▪ Goods sold by the retailers to end customers.
▪ Supply of goods directly to end customers including food, beverages,
fertilizers and vehicles.
▪ Items listed in Third Schedule to the Sales Tax Act, 1990.
▪ Second hand worn clothing and other worn articles falling under PCT
heading 6309.0000.
▪ Fertilizers.
▪ Supplies by steel melters, re-rollers and ship breakers operating under
Chapter XI of Sales Tax Special Procedure Rules, 2007.
▪ Supplies covered under the Fifth Schedule to the Sales Tax Act, 1990.
(ii) Following is the list of goods which are exported but shall not be charged at
the rate of zero percent:
▪ Goods exported but have been or are intended to be re-imported into

Pakistan; or
▪ Goods which have been entered for export under section 131 of the
Customs Act, 1969 (IV of 1969), but are not exported; or
▪ Have been exported to countries specified by the Federal Government, by
notification in the official Gazette in this regard.
(b) Where a person files application for sales tax registration as a manufacturer prior to
installation of machinery, for the purpose of import of machinery to be installed by
him, temporary registration as manufacturer shall be allowed to him for a period of
sixty days.
After receiving temporary registration, the person shall be allowed to import plant,
machinery and raw materials, etc. as a manufacturer, subject to submission to the
customs authorities of a post-dated cheque equal to the difference in duties and
taxes to be availed as a manufacturer.
In case the list of machinery is not provided within sixty days of issuance of the
temporary registration, such temporary registration shall be disabled and the post-
dated cheques submitted shall be encashed.
A person holding temporary registration shall file monthly return, but shall not
issue a sales tax invoice and if such invoice is issued, no input tax credit shall be
admissible against such invoice.
No sales tax refund shall be paid to the person during the period of temporary
registration and the amount of input tax may be carried forward to his returns for
subsequent tax periods.
Suggested Answers
Ans.7 Faiz & Faraz Associates

Computation of sales tax payable/refundable
For the tax period January 2018
Taxable
Sales Tax Rate Sales Tax
Value
------------------- Rupees -------------------
Purchases from registered suppliers 2,000,000
Purchases of air conditioners for office use 150,000
1,850,000 314,500
Purchases from unregistered suppliers 450,000 inadmissible -
Purchases exempt goods from registered suppliers 600,000 exempt -
Invoice issued by Taqi Corporation which was declared blacklisted in
next period -
Sindh sales tax paid on franchise service - inadmissible -
Total input tax 314,500
Less: Inadmissible/unadjusted input tax (68,431)
Input tax for the month 246,069
Opening balance 265,000
Less: Input tax on goods destroyed (45,000×0.17) 7,650
257,350
Accumulated credit 503,419

Local taxable supplies 3,450,000
Local taxable supplies - *to Hafiz Brothers (80,000)
Local taxable supplies - to Ghalib Corporation (225,000)
Local taxable supplies - to Parveen Limited – associated undertaking
(600,000–500,000) 100,000
Local taxable supplies - correction of invoice (540,000–450,000) 90,000
3,335,000 566,950
- unregistered persons 1,000,000 U.R 170,000
Local taxable supplies - to Hafiz Brothers* 80,000 U.R 13,600
4,415,000
Export (zero rated) 700,000 Z.R -
Consumer goods supplied to PIA international flight 500,000 Z.R -
1,200,000
Output tax for the month 5,615,000 750,550
Less: Sales return (100,000) (17,000)
Total supplies/Output tax for the month 5,515,000 733,550
Free replacement of defective parts - -
Admissible credit [90% of output tax i.e. Rs. (733,550×0.9 = 660,195) or
input tax Rs. 503,419 whichever is lower] (503,419)
230,731
Further tax on supplies to unregistered persons
(1,000,000+80,000)=1,080,000×2% 21,600
Sales tax to be carried forward (503,419–503,419) -

Sales tax refundable [314,500×(700,000+500,000)/5,515,000] 68,431
W-1: Apportionment of input tax Rupees

Residual input tax 314,500
Export and zero rated sales (500,000+700,000) 1,200,000
Inadmissible input tax [(700,000+500,000)/5,515,000×314,500] 68,431
(THE END)
Q.1 Taqi Ahmed is working as Director Marketing with Zee Textiles Limited (ZTL) for the last
twenty five years. Details of his monthly emoluments during the year ended 30 June 20X7
are as under:
Rupees
Conveyance allowance 44,000
In addition to the above, Taqi Ahmed has provided the following information:
(i) He and his family members are covered under the health insurance policy in
accordance with the terms of employment. The amount of annual premium paid by
ZTL was Rs. 200,000.
(ii) During the year, daily allowance of Rs. 400,000 was received to meet the expenses for
working on assignments at ZTL’s factories located in Lahore and Multan.
(iii) On 31 July 20X7, the HR Committee approved a performance bonus for all
employees for the year ended 30 June 20X7. Taqi received Rs. 1,200,000 as
performance bonus on 15 August 20X7.
(iv) On 31 March 20X7, in recognition of completion of twenty five years of his service
with ZTL, the board of directors approved to waive the outstanding amount of loan
taken by Taqi Ahmed. This interest free loan of Rs. 2,500,000 was taken on
1 January 20X5 and was repayable in fifty equal monthly instalments commencing
from May 20X5. The prescribed benchmark rate is 10% per annum.
(v) During the year, he received Rs. 100,000 for attending board meetings of ZTL. No
tax was withheld from this amount.
(vi) Amount of tax withheld by ZTL from his salary amounted to Rs. 2,000,000.

(i) Salary is transferred to the bank account on 10th of the following month.
(ii) 10% annual increase was given to him effective 1st July in each of the last three years.
(iii) Taqi has given his house on rent to his cousin at annual rent of Rs. 1,500,000. The
rent was inclusive of amenities and utilities of Rs. 25,000 per month. However,
annual rent for a similar house with same amenities and utilities, in the vicinity, is
Rs. 1,800,000.
(iv) He acquired 15,000 shares of a listed company from Privatization Commission of
Pakistan at a price of Rs. 60 per share on 15 January 20X6. He claimed tax credit of
Rs.90,000 on such investment, against the tax payable for the tax year 20X6. On
15 June 20X7 he sold all the shares at the rate of Rs. 85 each.
(v) On 31 August 20X6, he was entitled to receive 5,000 interim bonus shares from Arian
Limited (AL) a listed company. The market value of these shares on that date was
Rs. 22 per share.
(vi) He also received Rs. 150,000 as cash dividend declared by AL. The share registrar
incorrectly treated Taqi as non-filer and deducted withholding tax accordingly.
Required:
compute under correct head of income, the total income, the taxable income and net tax
payable by or refundable to Taqi Ahmed for the year ended 30 June 20X7. (16)
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Q.2 Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder:
(a) Discuss the residential status for tax year 2017 in each of the following situations:
(i) On 21 September 2016 Asif proceeded to Dubai to join his new job. Due to
certain professional issues with his employer in Dubai, he resigned on
1 May 2017 and came back to Pakistan. On 16 May 2017 he got a new job in
Pakistan which he continued till 30 June 2017. (02)
(ii) Sami Associates is an association of persons and provides accounting services in
Dubai. On 2 January 2017, the entire management and control of its affairs was
shifted from Karachi to Dubai. (02)
(b) Explain the treatment of foreign source income for tax year 2017 under each of the
following independent situations:
(i) Joseph, a South African cricket coach is working in Pakistan under an
employment contract since 20 July 2014. During the tax year 2017, he earned
foreign source income from his business established in South Africa and brought
25% of the income to Pakistan. (04)
(ii) On 15 January 2016 Farhan returned to Pakistan from London after 10 years
and has been living in Pakistan since then. During the tax year 2017, he received
GBP 5,000 as return from his investment in London. (02)
(c) Determine the amount of deductible allowance that a resident individual can claim on
account of education expenses, if his taxable income for the year was Rs. 800,000 and
he paid monthly fee of Rs. 6,000 per child for his three children. (02)
Q.3 Under the provisions of the Income Tax Ordinance, 2001 compute taxable income or loss,
under the correct head of income for tax year 2017, in each of the following cases:
(a) Under an employee share scheme, 30,000 shares of Dawood Limited were issued to
Qamar, on 1 August 2013 for Rs. 30 each. According to the scheme, he was not
allowed to sell/transfer the shares before completion of three years from the date of
issue. The face value of each share is Rs. 10 per share. Fair market value of each share
on different dates was as follows:
1 August 2013 30 June 2016 31 July 2016

Rs. 40 Rs. 30 Rs. 50
He sold 10,000 shares on 31 May 2017 for Rs. 65 per share. (04)
(b) Zaheer sold a painting to his brother on 10 April 2017 for Rs. 2,000,000. Zaheer had
purchased this painting for his residence, in an auction on 14 August 2013 for
Rs. 1,800,000. (02)
(c) Sarwar Enterprises sold an immovable property for Rs. 50 million. The cost of the
immovable property was Rs. 30 million. Tax depreciation of Rs. 6 million had been
allowed on the immovable property up to the tax year 2016. (2.5)
(d) Shams Industries Limited (SIL) sold and exported one of its plants to a Nigerian
Company. The sale proceeds received in SIL’s account amounted to Rs. 25 million.
The cost and tax written down value of the plant was Rs. 20 million and Rs. 7 million
respectively. (2.5)
Q.4 (a) Under the provisions of the Income Tax Ordinance, 2001, state the situations where
expenditure is required to be apportioned for the purpose of claiming a deduction. (03)
(b) List the situations under which an original assessment can be amended or an
amended assessment can be further amended by the Commissioner of Income Tax.
Also state the time period within which the original or the previously amended
assessment order can further be amended. (07)
Under the Income Tax Ordinance, 2001 certain persons are required to pay minimum tax amounting to 1% of
their turnover from all sources.
(a) Explain the term ‘Turnover’ for the purpose of determining the minimum tax. (05)
(b) List the persons who are required to pay minimum tax. (03)
(c) Discuss the provisions relating to carry forward of minimum tax paid to the
subsequent years. (02)
Q.5 Cyma Associates (CA) is registered under the Sales Tax Act, 1990, as manufacturer-cum-
distributor-cum-retailer. Following information has been extracted from its records for the
month of August 2017:

Exports 1,500,000
Purchases
Taxable goods from unregistered suppliers 1,800,000
Exempt goods from registered suppliers 400,000
Fixed assets (machinery) from a registered supplier 1,000,000
The following additional information is available for August 2017:

(i) Supply of taxable goods to registered persons include the following:
▪ Goods invoiced at Rs. 325,000 (net of special discount of Rs. 125,000) sold to a
government official.
▪ On 1 August 2017, CA launched ‘Halloween Tooth Brush’ which is covered
under 3rd schedule. The retail price of the tooth brushes is Rs. 100 each.
However, being the first month of launching, it was sold at a discounted price of
Rs. 75 each. 4,000 tooth brushes were sold in August 2017.
(ii) Exports include supply of taxable goods of Rs. 500,000 to a retailer in Export
Processing Zone.
(iii) Exempt supplies include distribution of free samples of exempt goods among the
vendors. Value of such goods amounted to Rs. 80,000.
(iv) Purchases from registered suppliers include:
▪ material worth Rs. 350,000 the payment of which was made by depositing cash
directly in the business bank account of the supplier.
▪ material worth Rs. 800,000 against which a discrepancy has been indicated by
the CREST.
▪ an amount of Rs. 2,000,000 paid for purchase of raw material. However, only
30% of the goods were supplied during August for which sales tax invoice has
been issued by the supplier.
(v) On 1 August 2017, CA executed an agreement with Majeed Sons (MS) for sale of
locally purchased goods worth Rs. 225,000. The agreement empowers MS to obtain
delivery of these goods anytime it likes.
(vi) Supplies returned by different registered persons amounted to Rs. 756,000. Proper
debit and credit notes were raised within the specified time.
(vii) The auditors have proposed a provision against obsolete and expired stock of
Rs. 285,000 which is lying in CA’s warehouse since January 2016.
(viii) Machinery purchased during the month was commissioned into operations on
31 August 2017.
(ix) Excess of input tax over output tax in July 2017 amounted to Rs. 75,000.
Principles of Taxation Page 11 of
5
Required:
Compute the sales tax liability of CA for the month of August 2017. (17)
Q.6 Zubair has recently been registered under the Sales Tax Act, 1990. You are required to
advise him on the following matters:
(a) Type of exports which are outside the purview of zero rating. (03)
(b) Eligibility for a refund if input tax is paid in excess of output tax payable for the
month. (03)
(c) The conditions required to be fulfilled for filing a revised return. (02)
(d) Concept of provisional and final adjustment in relation to ‘Apportionment of input
tax’. (02)
(e) How to deal with change in rate of tax during a tax period. (04)
Q.7 (a) Briefly describe the pillars/principles of tax administration which are meant to
safeguard the interest of taxpayers and avoid abuse of powers by the tax (04)
administrators.
(b) Differentiate between the terms ‘Tax evasion’ and ‘Tax avoidance’. Give one example
in each case. (03)
(c) List any six ethical issues that which administrators may face while discharging their
duties. (03)
(THE END)
SECTION 236M
Bonus shares issued by companies quoted on stock exchange
Every company, quoted on stock exchange, issuing bonus shares to the shareholders of the company, shall
withhold five percent of the bonus shares to be issued.
THE FIRST SCHEDULE

Where the taxable income exceeds Rs. 3,000,000 but does not exceed Rs. 359,500 + 22.5% of the amount
9.
Rs. 3,500,000 exceeding Rs. 3,000,000
Where the taxable income exceeds Rs. 3,500,000 but does not exceed Rs. 472,000 + 25% of the amount
10. Rs. 4,000,000 exceeding Rs. 3,500,000
Where the taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 597,000 + 27.5% of the amount
11. Rs. 7,000,000 exceeding Rs. 4,000,000
Rs. 1,422,000 + 30% of the amount
12. Where the taxable income exceeds Rs. 7,000,000 exceeding Rs. 7,000,000
(a) 7.5% in the case of dividends declared or distributed by purchaser of a power project privatized by
WAPDA or on shares of a company set up for power generation or on shares of a company,
supplying coal exclusively to power generation project; and
(b) 12.5% for filers other than mentioned in (a) above;
(c) 20% for non-filers other than mentioned in (a) above
Income from Property

The rate of tax to be paid under section 15, in the case of individual and association of persons, shall be as
follows:
Where the gross amount of rent exceeds Rs. 600,000 but does not Rs. 20,000 plus 10% of the gross
3.
exceed Rs. 1,000,000. amount exceeding Rs. 600,000.
Where the gross amount of rent exceeds Rs. 1,000,000 but does not Rs. 60,000 plus 15% of the gross
4.
exceed Rs. 2,000,000. amount exceeding Rs. 1,000,000.
Rs. 210,000 plus 20% of the gross
5. Where the gross amount of rent exceeds Rs. 2,000,000.
amount exceeding Rs. 2,000,000.
Capital Gains on Disposal of Securities

Tax year Tax year Tax year

S. No. Period
2015 2016 2017
(1) (2) (3) (4) (5)
Where holding period of a security is twelve months or more but less
2. than twenty-four months. 10% 12.5% 12.5%
Where holding period of a security is twenty-four months or more but
3. the security was acquired on or after 1st July, 2012. 0% 7.5% 7.5%
Suggested Answers
Ans.1 Taqi Ahmed

Rupees
Income from Salary:
Basic Salary [(400,000+(440,000×11)] 5,240,000
Conveyance allowance [(40,000+(44,000×11)] 524,000
Medical allowance [(40,000+(44,000×11)] 524,000
Daily allowance (Special allowance) -
Performance bonus for tax year 20X7 but received in 20X8 -
Director's fees for attending board meeting - ZTL 100,000
Loan waived by ZTL (50,000×28) 1,400,000
Imputed/deemed interest on loan (1,800,000×10%) from July 20X6 to Mar 20X7 135,000
7,923,000
Rental amount (1,800,000−300,000) 1,500,000
1,500,000
Bonus shares received [5,000×22) 110,000
Dividend received (150,000/0.80 ) 187,500
Value of amenities and utilities included in rent 300,000
597,500
Capital gain
Consideration received on disposal [15,000×85] 1,275,000
Less: cost of acquisition [15,000×60] (900,000)
Gain on disposal of 15,000 shares 375,000
Less:
Property income-Separate block income (1,800,000−300,000) (1,500,000)
Bonus shares - FTR income (110,000)
Dividend received - FTR income (187,500)
Gain on disposal of 15,000 shares-Separate block (375,000)
(2,172,500)
Tax liability
NTR-Income
Tax on Rs. 7,000,000 1,422,000
exceeding Rs. 7,000,000 at the rate of 30% 366,900
1,778,900
Property income-Separate block income
Rent upto Rs. 1,000,000 60,000
Amount exceeding Rs. 1,000,000 i.e. Rs. 500,000 @ 15% 75,000
135,000
Capital Gain - Separate block income
Holding period is more than twelve months but less than 24 months (Rs. 375,000@12.5%) 46,875
Bonus shares (Rs. 110,000 @ 5%) 5,500
Dividend - FTR income (Rs. 187,500 @ 12.5%) 23,438
Tax payable 1,999,713
Less: Tax deducted by ZTL (2,000,000)
Tax deducted on dividend @ 20% (37,500)
Tax paid/deducted on bonus shares (5,500)
Add: Tax credit previously allowed, now added back 90,000
Total tax payable 46,713
Page 1 of 7
Ans.2 (a) (i) The number of days Asif spent in Pakistan during tax year 2017 is 144 as
shown below:
Month Days
July 2016 31
August 2016 31
September 2016 21
May 2017 31
June 2017 30
Total 144
Asif is a non- resident person as his total stay in tax year 2017 is less than 183
days.
(ii) An AOP is treated as a resident if the management and control of its affairs is
situated in Pakistan at any time during the year. Hence Sami Associates
would be considered a resident irrespective of the fact that its entire
management and control of affairs was subsequently shifted from Karachi to
Dubai.
(b) (i) Joseph is considered as a short term resident individual as he is:
▪ in Pakistan solely by reason of his employment

▪ present in Pakistan for a period not exceeding three years.
Under the Income Tax Ordinance, 2001, the foreign source income of a short
term individual is exempt from tax if it is not brought into Pakistan. Therefore,
25% of his foreign source income which he brought into Pakistan is taxable
whereas 75% of his foreign source income which he kept outside Pakistan is
exempt from tax.
(ii) Since Farhan, being a citizen of Pakistan, was not resident in any of the four
tax years preceding the tax year in which he became a resident his foreign
source income is exempt from tax in the tax year in which he became resident
and following one tax year.
(c) The amount allowed as educational expense should be the lesser of:
Rupees
(i) 5 % of the total tuition fee paid (6,000×12×3×5%) 10,800
(ii) 25% of the person’s taxable income (800,000×25%) 200,000
(iii) An amount equal to 60,000 × 3 children 180,000
Therefore, the amount allowed is Rs. 10,800.

Suggested Answers
Ans.3 (a) Taxable

Income
Share of DL - Employees share scheme Rupees
Fair market value of shares on 31 July 2016 (30,000× 50) 1,500,000
Purchase price (30000×30) 900,000
Income from salary 600,000
Share of DL - Employees share scheme Rupees

Sale proceeds of shares on 31 May 2017 (10,000×65) 650,000
Purchase price (10,000×50) 500,000
Capital Gain 150,000
Taxable
Income
(b) Sale of painting Rupees
Consideration received 2,000,000
Less: Cost of painting (1,800,000)
Capital gain 200,000
The taxable gain would be 75% of 200,000 = Rs. 150,000 as the painting was
disposed of after more than one year.
Rs. in million
(c) Sale proceeds (equivalent to cost) 30
Less: Cost of land and WDV of immovable property (30 - 6) (24)
Gain on disposal (Income from business) 6
Rs. in million
(d) Cost (equivalent to sale proceeds) 20
Less: WDV of plant (7)
Gain on disposal (Income from business) 13
Ans.4 (a) Expenditures, deductions and allowances are required to be apportioned where
these relate to:
(i) the derivation of more than one head of income.
(ii) derivation of income comprising of taxable income and any class of income
on which the tax collected at source is treated to be the final tax liability of the
person.
(iii) the derivation of income chargeable to tax under a head of income and to
some other purpose also.
(b) When the Commissioner has definite information acquired from an audit or
otherwise, the Commissioner is satisfied that:
▪ Any taxable income has escaped assessment;
▪ Total income has been under assessed or assessed at too low tax rate or has
been the subject of excessive relief or refund; or
▪ Any amount under a head of income has been misclassified.
The Commissioner considers that the assessment order is erroneous in so far as it is

prejudicial to the interest of revenue.
Page 3 of 7
Time period within which assessment can be amended:
The Commissioner is empowered to amend the assessment order within the later of:
▪ Five years from the end of financial year in which the original assessment order
is issued or treated as issued by the Commissioner; or
▪ One year from the end of financial year in which the amended assessment order
is issued or treated as issued.
Ans.5 (a) For the purpose of minimum tax liability, turnover is defined as:
(i) The gross sales/gross receipts, exclusive of sales tax and federal excise duty or
any trade discounts shown on invoices or bills, derived from the sale of goods
and also excluding any income taken as deemed.
(ii) The gross fees for the rendering of services, including commissions.
(iii) The gross receipts from the execution of contracts.
(iv) The company’s share of the above stated amounts of an association of persons
of which the company is a member.
In case of (i), (ii) and (iii) above, it does not include any amount covered by final
discharge of tax liability for which tax is separately paid or payable.
(b) Following persons are required to pay minimum tax:

(i) a resident company
(ii) an individual having turnover of Rs. 10 million or above in the tax year 2017
or in any subsequent tax year
(iii) an association of persons having turnover of Rs. 10 million or above in the tax
year 2017 or in any subsequent tax year
(c) Where minimum tax exceeds the actual tax payable, the excess amount of tax paid
shall be carried forward for adjustment against normal tax liability of the subsequent
tax year.
However, the amount shall be carried forward and adjusted against tax liability for a
maximum of five tax years immediately succeeding the tax year for which the
amount was paid.
Suggested Answers
Ans.6 Cyma Associates

Computation of Sales Tax Payable/Refundable
Taxable
Sales tax rate Sales Tax
value
------------------- Rupees -------------------
SALES TAX CREDITS (INPUT TAX)
Purchases from registered suppliers
(20,000,000−350,000−800,000) 18,850,000 17% 3,204,500
Purchases from unregistered suppliers 1,800,000 inadmissible
Purchases of exempt goods from registered suppliers 400,000 inadmissible
Purchases against which cash deposited in bank account 350,000 inadmissible
Purchases against which discrepancy indicated by CREST 800,000 inadmissible
Fixed assets (Machinery) 1,000,000 17% 170,000
Total input tax 23,200,000 3,374,500
Less: Inadmissible/unadjusted input tax (W-1) (424,762)
Add: Excess of input tax over output tax of July 2017 75,000
SALES TAX DEBIT (OUTPUT TAX)

Local taxable supplies - to registered suppliers
(15,000,000+500,000−325,000−300,000) 14,875,000 17% 2,528,750
Local taxable supplies - to unregistered persons 2,800,000 17% 476,000
Local taxable supplies - according to agreement with Majeed
Sons 225,000 17% 38,250
Local taxable supplies - to government official
(325,000+125,000) 450,000 17% 76,500
Local taxable supplies - sale of tooth brushes 400,000 17% 68,000
18,750,000 -
Exempt supplies - no effect of free samples given 1,700,000 -
Export (zero rated) (1,500,000−500,000) 1,000,000
Less: Sales return (756,000) 17% (128,520)
Total supplies/Output tax for the month 20,694,000 3,058,980
2,753,082
Admissible credit (90% of output tax i.e. Rs. 2,753,082 (3,058,980×0.9) or

input tax excluding Fixed Assets (3,024,738−148,601=2,876,137) whichever is
lower. 2,876,137 (2,753,082)
305,898
Input tax on fixed assets (170,000 x 18,750,000 / 21,450,000) (148,601)
157,297
Further tax on supplies to unregistered persons = 2,800,000×2% 56,000
Sales tax to be carried forward (3,024,738−2,753,082-148,601) 123,055

Sales tax refundable (3,374,500×1,000,000/21,450,000) 157,319

Residual input tax 3,374,500
Exempt supplies and export sales (1,700,000+1,000,000) 2,700,000
Inadmissible input tax [(2,700,000/21,450,000)×3,374,500] 424,762
Page 5 of 7
Ans.7 (a) Following exports are outside the purview of zero rating:
(i) Goods which are intended to be re-imported into Pakistan
(ii) Goods which have been entered for export under the Customs Act, 1969 but
are not exported
(iii) Goods exported to a country specified by the Federal Government, by
Notification in the official gazette.
(b) There are two types of refunds

(i) Refund of input tax in excess of 90% of output tax ; and
(ii) Refund of input tax related to zero ratings and exports.
In case of (i) a registered person would be required to submit a statement along with
annual audited accounts, duly certified by the auditors, showing value additions less
than the limit prescribed.
The refund of input tax shall be made on yearly basis in the second month following
the end of the financial year of registered person.
In the case of (ii) the refund claim shall have to file in such manner and subject to
such conditions as the Board may, by notification in the official gazette specify.
(c) A revised return may be filed to correct any omission or wrong declaration made in
a return subject to approval of the Commissioner Inland revenue having jurisdiction
within 120 days of filing of return.
(d) Monthly adjustment of input tax claimed by a registered person is treated as a

provisional adjustment and at the end of each financial year, a final adjustment is
made on the basis of taxable and exempt supplies made during the course of that
year.
(e) If there is a change in the rate of tax,

▪ a taxable supply made by a registered person shall be charged to tax at such rate
as in force at the time of supply.
▪ imported goods shall be charged to tax at such rate as is in force:
- in case the goods are entered for home consumption, on the date on which
a goods declaration is presented.
- in case the goods are cleared from warehouse, on the date on which a
goods declaration for clearance of such goods is presented.
▪ where a goods declaration is presented in advance of the arrival of the

conveyance by which the goods are imported, the tax shall be charged as is in
force on the date on which the manifest of the conveyance is delivered.
▪ where the tax is not paid within seven days of the presenting of the goods
declaration the tax shall be charged at the rate as is in force on the date on
which tax is actually paid.
If there is a change in the rate of tax during a tax period, a separate return has to be
furnished in respect of each portion of the tax period showing the application of
different rates.
Suggested Answers
Ans.8 (a) Pillars of tax administration

Pillars of tax administration which safeguard the interest of taxpayers and avoid
abuse of powers by the tax administration are as follows:
(i) Fairness
Strive to be impartial, fair, neutral and consistent in administering the law
without regard to race, social or economic circumstances.
(ii) Transparency
All proceedings must be transparent and must be seen as transparent.
(iii) Equity
Treating all tax payers fairly. Refraining from unduly pressurising a tax payers
or a body of tax payers merely to achieve tax targets.
(iv) Accountability
There must be a strong system of accountability for wrong doers which should
curb corruption, nepotism and maladministration.
(b) Tax Evasion Tax Avoidance

Attempts to minimise a taxpayer’s Attempts to minimise a tax payer’s
liability through illegal means is called liability through legal means and without
Tax Evasion. violating tax laws is called Tax
Avoidance.
Example of tax evasion include Examples of tax avoidance involve using
deliberately concealing the true state of tax deductions, changing one’s business
affairs to the tax authorities to reduce tax structure through incorporation.
liability and dishonest tax reporting. Establishing companies in tax heavens
through legal means.
(c) Ethical issues facing tax administration in the discharge of their duties are:

(vi) Discretion
(vii) Corruption
(viii) Lack of autonomy
(THE END)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations
Q.1 Mushtaq is a sole proprietor of Mushtaq Enterprises (ME) engaged in the business of
manufacturing of different products. ME’s profit and loss account shows profit before
taxation of Rs. 1.8 million for the year ended 30 June 20X7. A review of ME’s records has
revealed the following information.
(i) ME employs five salesmen. Rs. 22,000 per month were paid to each salesman in cash
which includes reimbursement of Rs. 6,000 per month incurred on entertainment of
customers at the business premises.
(ii) Administrative expenses include Rs. 150,000 which were paid to a research institute
in China for the purpose of developing a new product.
(iii) Accounting loss on the sale of patents was Rs. 65,000. The tax written down value of
these patents at the beginning of the year was Rs. 430,000 and these were sold for
Rs. 524,000. Amortization charged to the profit and loss account on these patents for
the current year was Rs. 25,000.
(iv) Receivables from Atif and Aslam which had been written off in the previous year
were recovered. Details are as follows:
Claimed bad debts in last tax return 800,000 1,200,000

Allowed by tax authorities last year 550,000 600,000
Amount recovered during the year 700,000 400,000
(v) ME has opened a sales office in Dubai. In this respect, furniture costing Rs. 850,000
with written down value (WDV) of Rs. 650,000 was shifted to Dubai office. The tax
WDV of the furniture at the beginning of the year was Rs. 610,000.
(vi) Accounting depreciation for the year is Rs. 580,450. However, no depreciation has
been provided on the following fixed assets purchased on 1 March 20X7:
Furniture
Used machinery imported from Germany
(vii) Tax depreciation for the year, prior to the adjustments mentioned in (vi) above,
amounted to Rs. 456,400.
(viii) Advance tax paid u/s 147 was Rs. 200,000.
(ix) The assessed business losses of tax year 20X1 brought forward in year 20X7 are
Rs. 830,000. These include unabsorbed tax depreciation amounting to Rs. 705,000.
Other transaction of Mushtaq

On 1 June 20X7, he sold 6,000 shares for Rs. 432,000 out of 15,000 shares which he
received on 1 May 20X4, on the death of his father. The fair market value of shares on the
date of transfer to Mushtaq was Rs. 25 per share.
Required:
Under the provisions of Income Tax Ordinance, 2001 and rules made thereunder, compute
taxable income and net tax payable by or refundable to Mushtaq for the year ended
30 June 20X7. (16)
Q.2 (a) Explain the term ‘disposal of assets’ as referred to in the Income Tax Ordinance, 2001. (05)
(b) Saleha is a resident person. She disposed of the following assets during the tax year
20X7.
(i) A painting which she inherited from her father was sold for Rs. 1,250,000. The
market value of the painting at the time of inheritance was Rs. 1,550,000. The
painting was purchased by her father for Rs. 1,000,000. (02)
(ii) She sold jewellery for Rs. 2,300,000 which was purchased by her husband in
March 20X5 for Rs. 1,300,000 and gifted to her on the same date. (02)
(iii) She disposed of her car for Rs. 1,800,000. The car was being used for the
purposes of her business. The tax written down value of the car at the beginning
of tax year 20X7 was Rs. 1,600,000. The rate of depreciation for tax purposes is
20%. (02)
(iv) On 20 October 20X6 she sold a dining table to Faheem for Rs. 18,000 which
she had purchased on 15 May 20X5 for Rs. 15,000 for her personal use. (02)
Required:
Under the provisions of the Income Tax Ordinance, 2001, discuss the taxability of
each of the above transactions in the context of capital gain/loss.
Q.3 (a) On 1 June 20X6 Dawood and Dewan jointly purchased a bungalow for
Rs. 35 million. They paid the amount in the ratio of 65:35 respectively. To arrange
funds for the deal, Dawood borrowed Rs. 3,000,000 in cash from Shameem who is in
the business of lending money. The rate of interest is agreed @ 20% per annum.
On 1 July 20X6, the house was let out to a company at annual rent of Rs. 4,500,000
inclusive of an amount of Rs. 75,000 per month for utilities, cleaning and security. For
providing these services Dawood and Dewan paid Rs. 35,000 per month. During the
tax year 20X7 they also paid Rs. 10,000 as collection charges and Rs. 230,000 for
administering the property.
Required:
Compute taxable income of Dawood and Dewan under appropriate heads of income
for the tax year 20X7. (08)
(b) Najam had purchased a house in 20X2 for Rs. 20 million.
On 1 July 20X6, Najam entered into an agreement with Zameer for sale of the house
for Rs. 25 million. As per the terms of the agreement, Najam received Rs. 5 million on
the day the contract was signed and balance amount was to be paid on
30 September 20X6. However, due to financial difficulties, Zameer failed to pay the
balance amount on the due date and consequently, Najam forfeited the advance in
accordance with the terms of the agreement.
On 15 February 20X7 Najam sold the house to Farid for Rs. 30 million.
Required:
Advise Najam about the taxability of the above transaction under the Income Tax
Ordinance, 2001. (04)
Q.4 (a) State the duties of National Finance Commission. (04)
(b) List the taxes and duties which may be raised under the authority of Parliament. Also
list various types of taxes which are covered under the scope of legislation of the
Provinces. (06)
Q.5 (a) List the persons who are required to file a tax return under the provisions of the
Income Tax Ordinance, 2001. (06)
(b) In the light of the provisions of the Income Tax Ordinance, 2001:
(i) Identify the circumstances under which the Commissioner of Income Tax may
require a person to furnish a return of income for a period of less than twelve
months. (03)
(ii) State the consequences if a person fails to furnish the return as required in (i)
above. (03)
Q.6 Zahid, the sole proprietor of FG and company, is a resident individual and is in the process
of filing his wealth statement for the tax year 20X7. The relevant information is as under:
(i) Assets and liabilities disclosed in the wealth statement for the tax year 20X6 were as
follows:
Agriculture land in Hyderabad 5,000,000

Residential property in DHA Karachi 3,000,000
Investment in shares of listed companies 1,100,000
Business capital – FG & Co. 4,000,000
Motor vehicle 1,540,000
Cash at bank
Cash in hand
loan
(ii) Details relating to FG & Co. are as follows:
Income from business for the tax year 20X7

Drawings during the year 450,000
(iii) Balance of cash in hand and at bank, as on 30 June 20X7 amounted to Rs. 157,500
and Rs. 730,000 respectively.
(iv) Transactions carried out by Zahid during the year were as follows:
▪ Paid an advance of Rs. 1,000,000 against purchase of a bungalow for
Rs. 10,000,000.
▪ Sold shares of a listed company for Rs. 350,000. The shares were purchased on
1 May 20X6 for Rs. 50,000. Capital gain tax collected by NCCPL amounted to
Rs. 37,500.
▪ Gifted shares of a listed company to his brother. The shares were purchased by
Zahid in 20X2 at a cost of Rs. 100,000 whereas market value of the shares at the
time of gift was Rs. 150,000.
▪ Paid Rs. 200,000 towards principal amount of the bank loan.
▪ Personal expenses amounted to Rs. 2,075,000.
▪ Net receipts against agricultural income amounted to Rs. 2,500,000.
Required:
Prepare Zahid’s wealth statement and wealth reconciliation statement for the tax year 20X7. (07)
Q.7 Jahangir Ali (JA) is registered under the Sales Tax Act 1990. JA runs multiple businesses.
Following information has been extracted for the month of February 2017:
Rupees
Supplies
Taxable goods exported to Qatar 100,000
Taxable goods to registered customers 750,000
Taxable goods to unregistered customers 550,000
Purchases
Taxable goods from unregistered suppliers 95,000
The following further information is available:
(i) Taxable goods supplied to registered customers include goods amounting to

Rs. 300,000 supplied to an associated company at a special discount of 25%.
(ii) Taxable goods supplied to unregistered customers include goods worth Rs. 100,000
supplied to Saleem Brothers (SB). JA did not charge any sales tax from SB as it has
submitted an undertaking that it is a cottage industry and exempt from sales tax under
the Sixth Schedule of the Sales Tax Act, 1990.
(iii) Taxable goods purchased from registered suppliers include:
▪ goods worth Rs. 320,000 purchased from Akram Limited who was blacklisted on
25 February 2017 due to issuance of flying invoices.
▪ goods purchased from ZA Traders amounting to Rs. 30,000. ZA Traders did not
declare this amount in its tax return for the month of February 2017.
▪ a new machine purchased for Rs. 500,000 which was commissioned into
operation during February 2017.
▪ office equipment of Rs. 200,000, purchased for the warehouse.
(iv) Goods pledged with a bank were sold by the bank in an auction for Rs. 1,000,000.
The normal selling price of these goods was Rs. 1,200,000.
(v) Excess of input tax over output tax brought forward from January 2017 was
Rs. 110,000.
Rate of sales tax is 17%. All figures are exclusive of sales tax.
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 JA and the amount of sales tax to be carried
Q.8 (a) Under the provisions of Sales Tax Act, 1990 and Rules made thereunder, identify the
circumstances in which:
(i) a registered person is not allowed to reclaim or deduct input tax paid. (06)
(ii) a registered person may be liable for deregistration. (03)
(b) On 2 June 2016, Abid Limited inadvertently issued a tax invoice with an incidence of
sales tax amounting to Rs. 25,000 as against the applicable tax of Rs. 45,000. The error
was detected on 15 February 2017 i.e. after expiry of 180 days.
Advise Abid Limited in the light of Sales Tax Rules, 2006. (04)
(THE END)

THE FIRST SCHEDULE
Capital Gains on disposal of Securities

1. Where holding period of a security is less than twelve months 15%
Where holding period of a security is twelve months or more but
2. 12.5%
less than twenty-four months
Where holding period of a security is twenty-four months or more
3. 7.5%
but the security was acquired on or after 1st July, 2012
Capital Gains on disposal of Immovable Property

6. Where holding period of immovable property is up to three years 5%
Where holding period of immovable property is more than three
7. 0%
years
THE THIRD SCHEDULE

Part I
Depreciation Rates
Plant and machinery
Part II
Ans.1 Mushtaq Enterprises
For tax year 20X7
Income from Business: Rupees

Salary paid to salesmen [5×(22,000–6,000)×12] 960,000
Entertainment expenditures -
Research expenditure incurred outside Pakistan 150,000
Accounting loss on the sale of patents 65,000
Amortisation charged on patents for the year 25,000
Gain on sale of patents (524,000 – 430,000) 94,000
Bad debts recovered: Atif [700,000 – (800,000 – 550,000)] 450,000
Accounting depreciation 580,450
Transfer of furniture to Dubai (850,000–610,000) 240,000
Bad debts recovered: Aslam [1,200,000–600,000–400,000] (200,000)
Tax depreciation (W-1) (667,650)
3,496,800
Less:
B/f business loss (125,000)
Unabsorbed tax depreciation – brought forward (705,000)
(830,000)
Total business income for the year 2,666,800
Capital Gain (Separate block income)

Gain on the sale of 6,000 shares [432,000 – (6,000 × 25)] 282,000
Total income for the year 2,948,800

Less: Separate block income (282,000)
Taxable income for the year under NTR 2,666,800
Computation of net tax liability

Tax on Rs. 2,500,000 344,500
Tax on income exceeding Rs. 2,500,000 @ 25% 41,700
Income tax payable on separate block income @ 7.5% 21,150
407,350
Less: Tax paid under (200,000)
Income tax payable with the return 207,350
W-1: Computation of tax depreciation

Depreciation on furniture (200,000 × 15%) 30,000
Used imported machine
Initial allowance (500,000 × 25%) 125,000
Depreciation [(500,000 – 125,000) × 15%] 56,250
Depreciation on additions 211,250
Depreciation for the year 456,400
667,650
Suggested Answer
Ans.2 (a) A person who holds an asset shall be treated as having made a disposal of the asset at
the time the person parts with the ownership of the asset, including when the asset is:
▪ sold, exchanged, transferred or distributed; or

▪ cancelled, redeemed, relinquished, destroyed, lost, expired or surrendered.
The transmission of an asset by succession or under a will shall be treated as a

disposal of the asset by the deceased at the time asset is transmitted.
The application of a business asset to personal use shall be treated as a disposal of the
asset by the owner of the asset at the time the asset is so applied.
Where a business asset is discarded or ceases to be used in business, it shall be treated

to have been disposed of.
A disposal shall include the disposal of a part of an asset.
(b) (i) Since Saleha inherited paintings from her father, the fair market value of the
painting on the date of its acquisition/transfer would be treated to be its cost.
Hence, cost of the painting would be Rs. 1,550,000. and there is a loss of Rs.
300,000. But, according to the ITO-2001, no loss can be recognized on disposal
of painting.
(ii) The cost of the Jewellery would be Rs. 1,300,000 i.e. the value thereof at the
time of gift. Therefore, the gain of Rs. 1,000,000 should be recognized.
However, as the holding period of Jewellery is more than one year, the taxable
gain will be restricted to 75% i.e. Rs. 750,000
(iii) The car sold by Saleha was being used by her for business purposes and
therefore depreciation was also being charged on it. However, depreciable
assets are specifically excluded from the definition of capital assets. Therefore,
no capital gain or loss would arise on the disposal of car.
(iv) No capital gain/loss will arise as any movable property held for personal use
by the person is excluded from the definition of capital assets.
Ans.3 (a)
Income from property (Rs. 3,600,000 (W-1) × 65%) Income 2,340,000
from other sources (Rs. 480,000 (W-2) × 65%) Income from 312,000
other sources 3,000,000
Less: Separate block of income - Income from property (2,340,000)

3,312,000
1,260,000
Income from other sources (Rs. 480,000 (W-2) × 35%) 168,000
Less: Separate block of income - Income from property (1,260,000)

168,000
W-1: Computation of joint taxable income under income from property
Rent received by joint owners for 12 months 4,500,000
Less: Amount received on account of utilities, cleanliness & security
(75,000×12) (900,000)
Rent chargeable to tax
Deduction of expenses against income from property is allowed only for
company therefore no deduction is allowed [15A (1)]
W-2: Computation of income from other sources

Amount received on account of utilities, cleanliness & security
(75,000×12) 900,000
Less: Actual expenses incurred (35,000×12)
480,000
(b) ▪ The amount of Rs. 5 million forfeited by Najam in accordance with the terms of
the agreement for the sale of his house to Zameer is to be treated as rent
received.
▪ Najam should recognize the gain of Rs. 10,000,000 (30,000,000 – 20,000,000)

on disposal of the house to Farid under the head ‘Capital Gain’.
Since the disposal was made after holding the house for more than three years
as it was acquired in 2012, therefore no tax is payable under the law.
Ans.4 (a) The duty of the National Finance Commission is to make recommendations to the
President as to:
(i) the distribution between the Federation and the Provinces of the net proceeds
of the taxes;
(ii) the making of grants-in-aid by the Federal Government to the Provincial
Governments;
(iii) the exercise by the Federal Government and the Provincial Governments of
the borrowing powers conferred by the Constitution; and
(iv) any other matter relating to finance referred to the Commission by the
President.
(b) Following taxes may be raised under the authority of the Parliament:
(i) taxes on income, including corporation tax, but not including taxes on income
consisting of remuneration paid out of the Federal Consolidated Fund;
(ii) taxes on the sales and purchases of goods imported, exported, produced,
manufactured or consumed;
(iii) export duties on cotton, and such other export duties as may be specified by
the President;
(iv) such excise duties as may be specified by the President; and
(v) such other taxes as may be specified by the President.
Powers of the Provinces to legislate on taxes
Following taxes are covered in the scope of legislation of Provinces:

Suggested Answer

▪ Taxes on transfer of immoveable property
▪ Tax on luxury houses
▪ Tax on registration of luxury vehicles
▪ Property tax
Ans.5 (a) Persons liable to file a tax return

The following persons are required to furnish a return of income for a tax year:
(i) Every company

(ii) Every person (other than a company) whose taxable income for the year
exceeds the maximum amount that is not chargeable to tax
(iii) Any non-profit organisation
(iv) Any welfare institution
In addition to the above, return is also required to be filed by a person who,-

(i) has been charged to tax in respect of any of the two preceding tax years;
(ii) claims a loss carried forward for a tax year;
(iii) owns immovable property with a land area of two hundred and fifty square
yards or more or owns any flat located in areas falling within the municipal
limits existing immediately before the commencement of local government
laws in the provinces; or areas in a cantonment; or the Islamabad capital
territory.
(iv) owns immoveable property with a land area of five hundred square yards or
more located in a rating area;
(v) owns a flat having covered area of two thousand square feet or more located in
a rating area;
(vi) owns a motor vehicle having engine capacity above 1000 CC;
(vii) has obtained National Tax Number;
(viii) is the holder of commercial or industrial connection of electricity where the
amount of annual bill exceeds rupees five hundred thousand.
(ix) is a resident person registered with any chamber of commerce and industry or
any trade or business association or any market committee or any professional
body including Pakistan Engineering Council, Pakistan Medical and Dental
Council, Pakistan Bar Council or any Provincial Bar Council, Institute of
Chartered Accountants of Pakistan or Institute of Cost and Management
Accountants of Pakistan.
(x) every individual whose income under the heading ‘Income from business’
exceeds Rs. 300,000 but does not exceed Rs. 400,000 is also required to file tax
return.
(b) (i) The Commissioner may, by notice in writing, require the following persons or
their representatives to furnish a return of income for a period of less than
twelve months:
▪ a person who has died;
▪ a person who has become bankrupt or gone into liquidation;
▪ a person who is about to leave Pakistan permanently;
▪ where the Commissioner otherwise considers it appropriate to require such
a return to be furnished.
(ii) If a person fails to furnish the return as required in (i) above then the
Commissioner may, based on any available information or material and to the
best of his judgment, make a provisional assessment of the taxable income of
the person and issue a provisional assessment order specifying the taxable
income and the tax due thereon.
The provisional assessment order is treated as the final assessment order after
the expiry of forty five days from the date of service of order of provisional
assessment.
Ans.6 Mr. Zahid

Wealth Statement
2017
Rupees
Agriculture land in Hyderabad 5,000,000
Residential property in DHA Karachi 3,000,000
Investment in shares of listed companies (1,100,000–100,000–50,000) 950,000
Business capital FG & Co. (4,000,000+2,540,000–450,000) 6,090,000
Advance against bungalow 1,000,000
Motor Vehicle 1,540,000
Cash at banks 730,000
Cash 157,500
Total 18,467,500
Less: Bank loan – closing balance (1,300,000)
Wealth as on 30 June 20X7 17,167,500
Wealth as on 30 June 20X7

Wealth as on 30 June 20X6 14,040,000
Net increase in wealth 3,127,500
Inflows
Income from business 2,540,000
Agriculture income – Exempt 2,500,000
Capital gain [(350,000 – 50,000 – 37,500)] 262,500
5,302,500
Outflows
Gift to brothers – Listed company shares and shares sold 100,000
Personal expenses 2,075,000
2,175,000
Net increase in wealth 3,127,500
Ans.7 Jawwad Associates (JA)

Computation of Net Sales Tax Liability
Taxable goods from registered suppliers 1,950,000 331,500
Exempted goods from registered suppliers

Taxable goods from unregistered suppliers 95,000
Fixed assets (Machinery) 85,000
416,500
Suggested Answer
Less: Inadmissible/un-adjustable input tax (W-1) (15,426)

Admissible input tax 401,074
Add: Excess of input tax over output tax 110,000
Input Tax for the month (Accumulated credit) 511,074

Taxable goods supplied to Qatar (zero rated) 100,000 -
Taxable goods to registered persons (750-300) 450,000 76,500
Taxable goods to an associated undertaking at a
special discount (300/0.75) 400,000 68,000
Taxable goods supplied to unregistered customers 550,000 93,500
Goods disposed of by the bank 1,200,000 204,000
Total supplies Output tax for the month 2,700,000 442,000
Input tax on fixed assets [(2,700,000 – 100,000) /2,700,000] × 85,000) (81,852)
360,148
Admissible credit (90% of output tax i.e Rs. 324,133 (360,148 × 0.9 ) or input tax
excluding Fixed Assets (511,074 – 81,852 = 429,222) whichever is lower (324,133)
Excess of output tax over input tax 36,015
Add: Further tax on supplies made to unregistered person [550,000 × 2%] 11,000
Input tax to be carried forward (429,222 – 324,133) 105,089
Sales tax refund on zero rate supplies (W-1) 15,426

Zero rated supplies 100,000
Input tax 416,500
Inadmissible input tax relating to zero rate supplies (100,000/2,700,000×416,500) 15,426
Ans.8 (a) (i) A registered person shall not be entitled to reclaim or deduct input tax paid on:
▪ the goods or services used or to be used for any purposes other than for
taxable supplies made or to be made by him;
▪ the goods on which extra amount of tax is payable under sub-section (5) of
section 3;
▪ any other goods or services which the Federal Government may by a
notification in the official Gazette specify;
▪ the goods or services in respect of which sales tax has not been deposited
in the Government treasury by the respective supplier;
▪ goods which are destroyed with the permission of the collector of sales tax
▪ purchase from suppliers who are black listed by the Commissioner
▪ if the payment in case of a transaction on credit is not transferred within
180 days of issue of the tax invoice
▪ if payment is not made for the supplies in the business bank account of the
supplier
▪ fake invoices;
▪ purchases made by a registered person in case he fails to provide
information relating to his imports, purchases, sales etc. as required by the
Board.
▪ purchases in respect of which a discrepancy is indicated by CREST or
input tax of which is not verifiable in the supply chain;
▪ goods and services not related to the taxable supplies made by the
registered person;
▪ goods and services acquired for personal or non-business consumption;
▪ vehicles falling in Chapter 87 of the First Schedule to the Customs Act,
1969.
▪ services in respect of which input tax adjustment is barred under the
respective provincial sales tax law;
▪ import or purchase of agricultural machinery or equipment subject to sales
tax at the rate of 7% under Eighth Schedule to this Act; and
▪ from the date to be notified by the Board, such goods and services which,
at the time of filing of return by the buyer, have not been declared by the
supplier in his return or he has not paid amount of tax due as indicated in
his return.
▪ the goods which are subject to extra tax in addition to normal tax payable
at 17%.
▪ gifts and giveaways.
(ii) The following registered persons may apply for deregistration:

▪ Who ceases to carry on his business
▪ Whose supplies become exempt from tax
The Commissioner may de-register a person if that person fails to file tax return
for six continuous months.
(b) Time limitation of 180 days shall not apply in the given case as it is applicable only
in the case of decrease in output tax and increase in input tax. The above increase of
output tax may be declared without any time limitations.
Since Abid Limited has already accounted for the output tax in the sales tax return
for the supplies, it can issue a debit note in the month of February 2017 when the
error was detected, and increase the amount of output tax in the return for February
2017 by Rs. 20,000.
(THE END)
Q.1 Bader is working as General Manager Finance with HiFi Limited (HFL) for the past two
years. The details of his monthly emoluments during the year ended 30 June 2016 are as
under:

In addition to above, Bader was also provided the following:
(i) Rs. 900,000 for signing a bond with HFL. According to the bond Bader would not
resign from his employment before the expiry of 30 June 2019.
(ii) Company maintained car for both official and private use. The car was purchased on
1 August 2015 at a fair market value of Rs. 1,500,000.
(iii) On 1 January 2016 HFL sold an item of inventory to Bader for Rs. 12,000. The net
realizable value of the item of inventory at the end of 31 December 2015 and 30 June
2016 was Rs. 22,000 and Rs. 24,000 respectively. HFL had acquired it in July 2014 at
a cost of Rs. 35,000.
(iv) An option was granted to Bader in August 2014 to acquire 2,500 shares in HFL’s
parent company, Mamoo plc. (MP), listed on Hong Kong stock exchange. However,
the option was exercisable after completion of one year of service with HFL. Bader
paid an amount equivalent to PKR 200,000 to acquire the option when the fair market
value of the option was PKR 250,000.
On 1 September 2015 he paid an amount equivalent to PKR 300,000 to acquire the

shares in MP. The shares were issued to him on 15 September 2015 when the market
value of each share was equivalent to PKR 375.
On 15 June 2016 Bader sold 2,000 shares in MP and received net proceeds equivalent
to PKR 875,000 in his bank account in Pakistan. This amount was received after
deduction of bank charges of PKR 5,000 and brokerage commission equivalent to
PKR 10,000.
Other information relevant to tax year 2016 is as under:
(i) On 1 July 2015 Bader received following payments from his previous employer Sultan
Hospital Limited:
▪ Rs. 600,000 in respect of termination benefits under an agreement.
▪ Rs. 485,000 against gratuity under an unapproved scheme.
(ii) On 1 November 2015 Bader fell ill and was admitted to Sultan Hospital Limited. The
hospital incurred Rs. 65,000 on his treatment but did not charge anything to Bader.
(iii) On 1 December 2015 he paid a premium of Rs. 300,000 on a life insurance policy.
(iv) On 1 January 2016 Bader purchased 35,000 listed shares in Muft Limited (ML) at a
price of Rs. 25 per share. On 20 March 2016 he fully subscribed 15% right shares
offered by ML to its existing shareholders at a price of Rs. 20 per share.
(v) Withholding tax deducted from Bader’s salary during tax year 2016 amounted to
Rs. 1,105,000.
(vi) His total assessed taxable income and total taxes paid thereon during the three
preceding tax years amounted to Rs. 10,500,000 and Rs. 1,260,000 respectively.
Required:
compute the taxable income and net tax payable by or refundable to Bader for tax year 2016. (15)
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.
Q.2 Maroof filed his return of income for tax year 2015 on 30 September 2015. On 15 August
2016 he received a show cause notice from the Commissioner Inland Revenue u/s 122 for
amendment of the assessment order issued on self-assessment basis.
Required:
Under the provisions of the Income Tax Ordinance, 2001 briefly describe:
(a) the circumstances under which an assessment order treated as issued on
self-assessment basis may be amended by the Commissioner. (04)
(b) the situations in which the Commissioner may be barred from amending the original
assessment order. (04)
Q.3 (a) The Income Tax Department initiating a proceeding against Mobeen, issued a
demand note requiring him to pay the outstanding amount of his tax liability for tax
year 2015 along with default surcharge. However, before settlement of his tax liability,
Mobeen died in a car accident.
Required:
(i) describe whether tax authorities would be able to recover the amount of tax after
Mobeen’s death and what would be the extent of such recovery. (03)
(ii) comment on the status of the proceedings initiated against Mobeen. (02)
(b) Under the provisions of the Income Tax Ordinance, 2001 describe the following:
(i) meaning of the term ‘Associates’. (02)

(ii) circumstances in which a member of an association of persons and the
association may be regarded as associates. (02)
(iii) situation in which members of an association of persons may not be regarded as
associates. (02)
(c) List the persons who may be granted immunity from filing of tax return u/s 114 of the
Income Tax Ordinance, 2001 solely by reason of owning immovable property with a
land area of two hundred and fifty square yards or more or any flat located in areas
falling within the municipal limits. (03)
Q.4 On 1 July 2015 Farrukh borrowed Rs. 8,000,000 from Star Bank Limited and acquired a
plot of land in Hub Industrial Zone for Rs. 6,500,000. He invested the rest of the loan in a
business venture with his friend. The above loan carries mark-up at a rate of 12% per annum
and is repayable in eight equal quarterly instalments starting from 1 July 2016. On 1 August
2015 Farrukh decided to sell the plot of land to Zulfiqar Motors for Rs. 10,000,000 and
received a deposit of Rs. 500,000 from them. On 15 August 2015 Farrukh forfeited the
deposit on refusal of Zulfiqar Motors to purchase the plot of land.
On 1 September 2015 Farrukh let out the plot of land to his friend Atif at a monthly rent of
Rs. 150,000. He received an un-adjustable deposit of Rs. 200,000 from Atif and paid
Rs. 80,000 for levelling the ground, Rs. 50,000 as ground rent, Rs. 12,000 as insurance
premium against the risk of damage or destruction by water logging and Rs. 140,000 against
rent collection charges. Farrukh had paid Rs. 25,000 to a firm of professional valuers which
determined the annual rental value of the plot of land at Rs. 2,160,000.
Required:
compute under the relevant head of income, taxable income of Farrukh for tax year 2016. (12)
Q.5 Samaaj Associates (SA) is registered under the Sales Tax Act, 1990 and is engaged in the
business of manufacturing, trading and export of electronic, chemical and other consumer
goods. Following information has been extracted from SA’s records for the month of
August 2016:
To registered persons 2,500,000

To un-registered persons 875,000
To persons registered as exporter 625,000
Raw material from registered persons 930,000

Finished goods from un-registered persons 725,000
Packing material from registered persons 510,000
Local machinery from un-registered persons 360,000
Imports – finished goods 472,000
Packing material from registered persons include material worth Rs. 150,000 which was
used for packing electric motors. On 31 August 2016 these motors were still part of SA’s
unsold stock.
Following transactions pertaining to August 2016 are not included in the above table:
(i) Sales tax of Rs. 70,000, Rs. 45,000 and Rs. 68,000 was paid in cash on electricity, gas
and telephone bills respectively.
(ii) SA purchased high quality cables and wires worth Rs. 250,000 from a registered
supplier for the installation of local machinery purchased from un-registered suppliers.
(iii) Three cartons of imported shampoo, falling under third schedule, were supplied to
un-registered distributors at a price of Rs. 110,000 per carton. The distributors
normally supply such shampoo to retailers at a price of Rs. 135,000 per carton.
(iv) Five electric kettles worth Rs. 75,000 were purchased for use in the offices of factory
manager and first line-supervisors of production workers.
(v) On 5 August 2016 SA received advance of Rs. 600,000 against supply of electric
shavers to Bari Electronics. SA agreed to deliver the goods in September 2016.
(vi) On 25 August 2016 SA issued discount coupons worth Rs. 450,000 to its customers
for participating in grand annual sales exhibition to be held in December 2016.
Other related information is as under:
(i) On 10 February 2016 SA purchased liquid nitrogen worth Rs. 300,000 from Mughal
Chemicals (MC), a registered supplier, on credit. On 15 August 2016 SA paid the
outstanding amount to MC by way of a crossed cheque drawn on SA’s bank account.
(ii) In April 2016 SA inadvertently charged sales tax of Rs. 58,000 instead of 85,000 on
supply of chemicals to one of its registered customers. So far, SA has not obtained
permission from the Commissioner Inland Revenue for revision of return.
(iii) In July 2016 SA claimed input tax of Rs. 80,000 on purchase of hydrochloric acid
from JB Traders. The supplier has not yet deposited the amount of sales tax collected
from SA in Government treasury.
In July 2016 the excess of input tax over output tax amounted to Rs. 20,000. Whereas,
unadjusted input tax in excess of 90% of output tax amounted to Rs. 10,000.
the rate of 17%.
Required:
amount of sales tax payable by or refundable to SA and the amount of sales tax to be carried
forward, if any, for the tax period August 2016. (18)
Ignore value addition tax payable at import stage.
Q.6 (a) Under the Sales Tax Act, 1990 and Rules made thereunder, briefly describe the
concept of ‘Residual input tax’. How it differs from ‘Residual input tax credit’? (03)
(b) Under the provisions of the Sales Tax Act, 1990 enumerate any four features
distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’. (04)
(c) Identify the records which a registered person making taxable/exempt supplies is
required to maintain at his business premises or registered office under the Sales Tax
Act, 1990. (Note: details of contents not required) (04)
Q.7 (a) List any seven responsibilities of tax administrators emanating from best ethical
practices. (07)
(b) List any five types of taxes which can be imposed by the Federation as provided in the
Federal legislative list under the Constitution of Pakistan. (05)
Q.8 On 1 July 2015 Mehreen joined a local newspaper as an investigative journalist at a salary of
Rs. 300,000 per month. Tax deducted u/s 149 from her salary amounted to Rs. 40,000 per
month.
Following are the details of her income received from Germany; tax paid thereon and
brought forward foreign losses for tax year 2016:
Speculation business 600,000 110,000 (380,000)

Non-speculation business 1,480,000 187,600 -
Other sources (1,500,000) - -
Capital gain 950,000 76,000 (1,800,000)
On 1 May 2016 Mehreen resigned from her current job and joined Akhbar Merhaba (AM),
an Arabic newspaper in Dubai, as editor-in-chief on a monthly salary equivalent to
PKR 1,200,000. AM paid 50% of her salary in Dubai and remitted the remaining 50% to her
bank account in Pakistan through normal banking channel. Mehreen remained in Dubai
during the rest of the tax year 2016.
Required:
compute the taxable income, net tax payable by or refundable to Mehreen for tax year 2016
and the amount of foreign losses or foreign tax credit, if any, to be carried forward. (10)
(THE END)

THE FIRST SCHEDULE
1. Upto Rs. 400,000 0%
2. Exceeds Rs. 400,000 but does not exceed Rs. 500,000
Rs. 400,000
4. Exceeds Rs. 750,000 but does not exceed Rs. 1,500,000 exceeding Rs. 750,000
5. Exceeds Rs. 1,500,000 but does not exceed Rs. 2,500,000 exceeding Rs. 1,500,000
Rs. 1,319,500 + 35% of the amount
8. Above Rs. 6,000,000

1. Upto Rs. 400,000 0%
Rs. 400,000
4. Exceeds Rs. 750,000 but does not exceed Rs. 1,400,000 exceeding Rs. 750,000
Rs. 79,500 + 12.5% of the amount
Rs. 137,000 + 17.5% of the amount
Rs. 359,500 + 22.5% of the amount
Rs. 597,000 + 27.5% of the amount
Rs. 1,422,000 + 30% of the amount
12. Exceeds Rs. 7,000,000
Suggested Answers
Bader
Ans.1 Computation of income tax liability
Rupees
Income from Salary:
Basic Salary (250,000 × 12) 3,000,000
Medical allowance (28,000 × 12 – 3,000,000 × 10%) 36,000
House rent allowance (120,000 × 12) 1,440,000
Consideration for Bader’s agreement to condition of employment 900,000
Perquisite representing car W-1 68,648
Benefit on purchase of item of inventory ( 22,000 – 12,000) 10,000
Share option scheme [(375 × 2,500) – 200,000 – 300,000] 437,500
Termination benefits 600,000
Unapproved gratuity (485,000 – 75,000 exempt 410,000
Free medical treatment by SHL – exempt -
Total income under the head salary 6,902,148
Capital Gain:
Sale of 2,000 shares in MP (875,000 + 5,000 + 10,000) 890,000
Less: Cost of acquisition of shares [( 200,000+300,000+437,500) × 0.8] (750,000)
Net gain on disposal of shares 140,000

Computation of net tax liability:
Total taxable income 7,042,148
Less: Separate block
▪ Termination benefits (600,000)
▪ Unapproved gratuity (410,000)
( assuming Bader, by notice in writing to the Commissioner, would elect to be taxed on the basis of
average rate of tax)
Taxable income ( excluding separate block income) 6,032,148
Tax on Rs. 4,000,000 597,000
Tax @ 27.5% on the amount exceeding Rs. 4,000,000 (6,032,148 – 4,000,000) 558,841
Total gross tax payable under NTR 1,155,841
Tax on termination benefits @ average rate (1,260K /10,500K = 12% × 600,000) 72,000
Tax on unapproved gratuity @ average rate (1,260K /10,500K = 12% × 410,000) 49,200
Less: Tax credit: either of the following two amounts would be claimed
Right shares in ML [(35,000 × 15% × 20 ) × 1,155,841 ÷ 6,032,148] 20,119 -
Investment in life insurance [(300,000 × 1,155,841 ÷ 6,032,148] 57,484 (57,484)
Less: Taxes withheld at source from salary (1,105,000)

W-1 Perquisite representing car:

The perquisite shall be computed as below:
FMV of the car 1,500,000
5% of the FMV (1,500,000 × 5%) 75,000
Restricted to the number of days it was used in the tax year (335 ÷ 366) 68,648
Ans.2 (a) Revision of assessment by the Commissioner:
An assessment order shall only be amended by the Commissioner where, on the basis of
definite information acquired from an audit or otherwise, the Commissioner is satisfied
that:-
(i) any income chargeable to tax has escaped assessment; or
(ii) total income has been under-assessed, or assessed at too low a rate, or has been the
subject of excessive relief or refund; or
(iii) any amount under a head of income had been mis-classified.
The Commissioner may also amend the assessment if after making necessary enquiries he
considers that the assessment order is erroneous in so far it is prejudicial to the interest of
revenue.
(b) Situations in which the Commissioner may be barred from revising the assessment
order.
The Commissioner shall not revise any assessment order:-
(i) after the expiry of five years from the end of the financial year in which the order was
issued or treated as issued.
(ii) if an appeal against the order lies to the Commissioner (Appeals) or to the Appellate
Tribunal and the time within which such appeal may be made has not expired; or
(iii) The order is pending in appeal before the Commissioner (Appeals) or has been made
the subject of an appeal to the Appellate Tribunal.
Further an assessment shall not be amended unless the taxpayer has been provided with an
opportunity of being heard.
Ans.3 (a) (i) Deceased individual:

Yes, the tax authorities would be able to recover the amount of outstanding liability
from the legal representative of Mobeen.
The legal representative is liable for:-
▪ any tax that Mobeen would have become liable for if he had not died; and
▪ any tax payable in respect of the income of Mobeen’s estate.
The liability of the legal representative shall be limited to the extent to which
Mobeen’s estate is capable of meeting the liability and such liability shall be the first
charge on Mobeen’s estate, in preference to any other outstanding liability of the
deceased.
(ii) Comment on the status of the proceedings:

Any proceeding taken against Mobeen before his death shall be treated as taken
against the legal representative and may be continued against him from the stage at
which the proceeding stood on the date of Mobeen’s death.
(b) (i) Associates:

Two persons are associate where the relationship between the two is such that one
may reasonably be expected to act in accordance with the intentions of the other, or
both persons may reasonably be expected to act in accordance with the intentions of a
third person.
(ii) Circumstances in which a member of an association of persons and the association

may be regarded as associates:
Where the member, either alone or together with an associate or associates under
another application of section 85 of the Income Tax Ordinance, 2001, controls fifty
per cent or more of the rights to income or capital of the association;
Suggested Answers
(iii) Situation in which members of an association of persons may not be regarded as

associates:
Members of an association of persons may not be regarded as associates where the
Commissioner is satisfied that neither person may reasonably be expected to act in
accordance with the intentions of the other.
(c) Persons not liable to file tax return:

The following persons may be granted immunity from filing of tax return u/s 114 of the
Income Tax Ordinance, 2001 solely by reason of owning immovable property with a land
area of two hundred and fifty square yards or more or any flat located in areas falling within
the municipal limits:
(i) a widow;
(ii) an orphan below the age of twenty-five years;
(iii) a disabled person; or
(iv) a non-resident person.
Ans.4 Farrukh
Computation of taxable income
Rupees
Forfeiture of deposit 500,000
Rent of plot of land [higher of (2,160,000 ÷ 12 × 10) or (150,000 × 10)] 1,800,000
Gross rent 2,300,000
Amount not adjustable against the rent -
(Nothing is to be included in the chargeable income as this provision of law is attracted where the
owner of building and not land receives such amount.)
Less:
Repairs 1/5th of rent (leveling of ground) -
(Admissible only against the rent of the building)
Interest on loan [6,500,000 × 12%] × [10 ÷ 12] (650,000)
(interest on only that portion of the loan which is utilized for the acquisition of land is admissible)
Ground rent (50,000)
Insurance premium [not available on land] -
Rent collection charges (2,300,000 × 6%) (138,000)
(Lower of actual expenditure or 6% of rent is admissible)
Fee paid to professional valuer- inadmissible -
(838,000)
1,462,000
Ans.5 Samaaj Associates (SA)
Sales Tax Amount of

SALES TAX CREDIT (INPUT TAX) Taxable Value
Rate Sales Tax
Raw material from registered persons 930,000 17% 158,100
Finished goods from un-registered persons 725,000 inadmissible -
Packing material from registered persons 510,000 17% 86,700
Local machinery from un-registered persons 360,000 inadmissible -
Imports – finished goods 472,000 17% 80,240
Sales tax paid on utility bills [70,000+45,000+68,000] - - 183,000
Purchase of cables and wires 250,000 17% 42,500
Purchase of electric kettles 75,000 inadmissible -
Purchase of liquid nitrogen [more than 180 days] 300,000 inadmissible (51,000)
Input tax claimed on HCL (80,000)
419,540
Add: Credit brought forward from previous month [20,000+10,000] 30,000
Taxable goods to registered persons 2,500,000 17% 425,000
Taxable goods to un-registered persons 875,000 17% 148,750
Taxable goods to registered exporters 625,000 17% 106,250
Self-consumption of packing material 150,000 - -
Shampoo to un-registered distributors [3 × 110,000] 330,000 17% 56,100
Advance against supply of electric shavers 600,000 17% 102,000
Discount coupons to customers (actionable claims) 450,000 inadmissible -
Short payment of sales tax in April 2016 - - 27,000
Further tax on supplies to un-registered persons [875,000 × 2%] 17,500
Further tax on supply of shampoo to un-registered distributors [3rd schedule item]
[330,000 × 0%] -
Admissible credit (lower of 449,540 or 90% of 865,100 = 778,590 (449,540)
Input tax to be carried forward Nil
Suggested Answers
Ans.6 (a) Residual input tax Vs. Residual input tax credit:
“Residual input tax” means the amount of tax paid on raw materials, components and
capital goods being used for making taxable as well as exempt supplies but does not include
the input tax paid on raw materials used wholly for making taxable or exempt supplies;
Whereas
“Residual input tax credit” is that amount of residual input tax which is apportioned to the
value of taxable supplies using the following formula:
Residual Input Tax Credit = Value of taxable supplies × Residual Input Tax
on taxable supplies (Value of taxable + exempt supplies)
(b) Features distinguishing the concept of ‘Zero rating’ from ‘Exempt supply’:
Distinction
Zero Rated Supply Exempt Supply
points
Definition “Zero rated supply means a “Exempt Supply means a supply
taxable supply which is which is exempt from tax.
charged to tax at the rate of
zero per cent.
Products covered Goods exported as notified Goods specified by Federal
by FBR or listed in the Fifth Government and FBR and goods
Schedule are charged to listed in Sixth Schedule are exempt
sales tax at the rate of zero supplies.
per cent.
Invoicing Invoice shall be raised for No sales tax invoice shall be raised.
Requirements the goods supplied but sales
tax shall be charged at the
rate of zero per cent
Registration A person engaged in zero A person engaged exclusively in the
rated supplies has to be exempt supplies is not liable to be
registered with the Sales tax registered.
department.
Input tax credit Input tax paid related to Input tax paid related to exempt
zero rated supplies is supplies is inadmissible, therefore,
refundable. neither adjustable nor refundable.
(c) Records:
A registered person making taxable/exempt supplies shall maintain the following records of
goods (including zero rated and exempt supplies):
(i) records of supplies;
(ii) records of goods purchased;
(iii) records of goods imported;
(iv) records of zero-rated and exempt supplies;
(v) double entry sales tax accounts;
(vi) Following further records is desired:
Tax invoices, Credit notes, debit notes, Bank statements, Banking instruments in
terms of section 73, Inventory records, Utility bills, Salary and labour bills, Rental
agreements, Sale-purchase agreements, Lease agreements, Record relating to gate
passes, inward or outward, and transport receipts.
(vii) Such other records as may be specified by the Board.
(viii) The Board may specify to use such electronic fiscal cash registers as are approved by
the Board.
Ans.7 (a) Responsibilities of the tax implementing authorities:
A concise code which can enlist responsibilities of Tax Administrators can be as
under:
(i) Obey all laws relating to taxation and grant no exemptions, credit or advantage to
any taxpayer that is not provided by the law;
(ii) Be dedicated to the highest ideals of honesty and integrity in all matters in order to
maintain the respect and confidence of the government and taxpayers;
(iii) Strive to be impartial, fair, neutral and consistent in administering the law without
regard to race, social status or economic circumstances;
(iv) Provide prompt, efficient and quality service to all stakeholders in an effort to exceed
their expectations;
(v) Refrain from actively participating in partisan political activities;
(vi) Accurately record proceedings and maintain taxpayer information in the strictest
confidence and highest level of security;
(vii) Refrain from soliciting gifts for actions and non-actions;
(viii) Make reasonable effort to collect the proper amount of tax revenue due at the lowest
possible cost to the state, and in a manner that warrants the highest degree of
confidence in our integrity, efficiency, effectiveness and fairness;
(ix) Respond to valid taxpayer refund claims with the same diligence as employed in
collection of taxes;
(x) Educate taxpayers on their rights and responsibilities to ensure the highest possible
levels of voluntary compliance to the laws.
(b) Taxes which can be imposed by the Federation:

Following are the types of taxes which can be imposed by the Federation as provided in the
Federal legislative list under the Constitution of Pakistan:
(i) Duties of customs, including export duties.
(ii) Duties of excise, including salt, but not including alcoholic liquors, opium or other
narcotics;
(iii) Taxes on income other than agricultural income;
(iv) Taxes on corporations.
(v) Taxes on the sales and purchases of goods imported, exported, produced,
manufactured or consumed, except sales tax on services.
(vi) Taxes on the capital value of the assets, not including taxes on immovable property.
(vii) Taxes on mineral oil, natural gas and minerals for use in generation of nuclear
energy.
(viii) Taxes and duties on the production capacity of any plant, machinery, undertaking,
establishment or installation in lieu of any one or more of them.
(ix) Terminal taxes on goods or passengers carried by railway, sea or air; taxes on their
fares and freights.
Suggested Answers
Ans.8 Mehreen
Computation of taxable income and income tax liability
---------------- Rupees ----------------
Pakistan source Foreign source Total
Income from salary:
Salary[300,000 × 10], [1,200,000 × 2] (a) 3,000,000 2,400,000 5,400,000

Speculation business - 600,000 600,000
Less: brought forward speculation loss - (380,000) (380,000)
Net income from speculation business - 220,000 220,000
Non-speculation business - 1,480,000 1,480,000

Net business income (b) 1,700,000 1,700,000
(Loss) from other source (Carried forward) - (1,500,000) (1,500,000)
Capital gain - 950,000 950,000

Less: brought forward loss - (1,800,000) (1,800,000)
Net capital loss (Carried forward) (850,000) (850,000)
Total income (a+ b) 3,000,000 4,100,000 7,100,000
Less: exempt income

salary received from AM - (2,400,000) (2,400,000)
Taxable income 3,000,000 1,700,000 4,700,000
Since salary income is more than 50% of the taxable income, therefore, the slab applicable to salaried
individuals shall be applied.
Computation of net-tax liability:
Tax on Rs. 4,000,000 597,000
Tax @ 27.5% on the amount exceeding Rs. 4,000,000 (i.e. on 700,000) 192,500
Tax payable 789,500
Less: Tax credit
Which is lesser of (A) or (B): Business
Speculation Non-Speculation
Foreign taxes paid (A) 110,000 187,600
Proportionate Pakistan tax
[(789,500÷4,700,000) × 220,000] (B) 36,955 - (36,955)
Proportionate Pakistan tax
[(789,500÷4,700,000) × 1,480,000] (B) - 248,609 (187,600)
(224,555)
Total tax liability for the year 564,945
Less: Tax withheld at source (40,000 × 10) (400,000)
Net tax payable for tax year 2016 164,945
Un-adjusted foreign tax credit shall not be refunded, carried back to preceding year or carried to the
following year.
(THE END)
Q.1 Wajahat, aged 48 years, is a marketing manager in Nayaab (Pvt.) Limited (NPL), a
company engaged in the manufacture and supply of tissue papers. The details of his monthly
emoluments during the year ended 30 June 20X6 are as under:
Rupees
Basic salary 70,000
Dearness allowance 10,000
Conveyance allowance 8,000
In addition to the above, Wajahat was also provided the following:
(i) Provident fund (PF) contribution of Rs. 8,400 per month. An equal amount per
month was contributed by Wajahat to the fund. Interest income of Rs. 391,000 at the
rate of 20% of accumulated balance of PF was credited to his PF account.
(ii) Reimbursement of electricity bills during the year amounting to Rs. 60,000.
Following further information is also available:
(i) Wajahat received net dividend of Rs. 78,200 from BEE Limited, a company listed on
Pakistan Stock Exchange Limited. Withholding tax and zakat deducted from
dividend amounted to Rs. 9,200 and Rs. 4,600 respectively. He also received
dividend of Rs. 65,000 from a company in U.A.E through normal banking channels.
However, no tax was withheld either in Pakistan or U.A.E.
(ii) Wajahat contributed Rs. 890,000 in an approved pension fund under the Voluntary
Pension System Rules, 2005.
(iii) On 1 September 20X5, Wajahat started a tuition centre for the students of finance in
a posh locality. He received tuition fees of Rs. 2,198,000 and incurred following
expenses:
▪ Monthly salary of Rs. 50,000 paid to himself and Rs. 35,000 to his friend Yousuf
who taught financial accounting at the centre.
▪ Travelling, boarding and lodging expenses of Rs. 300,000. These expenses were
incurred by Wajahat in Sri Lanka for attending teachers training workshop.
▪ Rs. 250,000 against purchase of used computers for the centre.
▪ Other miscellaneous expenses amounting to Rs. 195,000.
(iv) Wajahat’s total taxable income during the previous tax year was Rs. 1,850,000.
Required:
compute the total income, taxable income and net tax payable by/refundable to Wajahat
during the tax year 20X6. (16)
Q.2 Akram has recently established an advertising agency in the name and style of Azad
Advertising. For introducing his business to both international and local clients, he has
allocated considerable chunk of his marketing budget to entertainment expenditures. Under
the Income Tax Ordinance, 2001 and Rules made thereunder, advise Akram about the
prescribed limits/conditions for the deduction of entertainment expenditure. (07)
Q.3 Under the provisions of the Income Tax Ordinance, 2001 explain the following:
(a) Special tax year (03)

(b) Transitional tax year (03)
(c) Order of application of various tax credits while computing the tax liability of the
taxpayer (03)
(d) General provisions/rules which may apply to income subject to final tax. (06)
Q.4 Lone Traders (LT), a sole proprietorship, is engaged in the business of buying and selling of
Maize and Wheat in bulk quantities. Following information has been extracted from LT’s
records for the year ended 31 December 2015:
(i) Wheat sold to food companies in Punjab amounted to Rs. 13,000,000. The sale was
made after allowing discount of Rs. 680,000 to some of the new customers. The gross
profit margin was 25% on gross sales.
(ii) LT paid Rs. 600,000 to a research institute for the development of a formula which is
likely to improve the quality of wheat it purchases from the growers.
(iii) In August 2015, LT signed a future contract with Mubarak Enterprises (ME) for the
purchase of 500 metric tons of maize at Rs. 15,800 per metric ton. The delivery was
expected to be made in October 2015. ME also agreed to repurchase the entire lot at
the price prevailing on the date of sale.
(iv) In October 2015 price of maize increased to Rs. 18,240 per metric ton and LT sold
the entire lot to ME without taking delivery.
(v) LT incurred expenditure of Rs. 25,000 in respect of above future contract.
(vi) Administrative, selling and distribution expenses amounted to Rs. 2,500,000. These
included a penalty of Rs. 45,000 which was imposed due to late payment of sales tax
on wheat.
(vii) Assessed losses brought forward from previous year were as follows:
Trading business loss 550,000

Speculation business loss 300,000
Capital loss 250,000
Required:
compute LT’s taxable income/(loss) and the amount of loss to be carried forward, if any, for
tax year 2016. (10)
Q.5 Mulaqat Associates (MA), an association of persons, is registered under the

Sales Tax Act, 1990 and is engaged in the business of manufacture and distribution of
various products. Following information has been extracted from MA’s records for
February 2016:
Rupees
Supplies:
Jet fuel to Pak Airways proceeding to Oslo 800,000
Taxable goods to registered customers 500,000
Taxable goods to un-registered customers 375,000
Purchases:
Taxable goods from registered suppliers 650,000
Taxable goods from un-registered suppliers 150,000
Imports – raw material 280,000
Following information is also available:
(i) Taxable goods purchased from registered suppliers include furniture of Rs. 45,000
which was acquired for use in the office of marketing manager.
(ii) Imports include raw materials worth Rs. 125,000 for the manufacture of shaving
cream, covered under Third Schedule. However, en route from port to MA’s
warehouse in Uthal a serious damage was caused to the consignment. MA received
insurance claim of Rs. 90,000 after surrendering the right of disposal of consignment
in favour of the insurance company.
(iii) MA purchased 150 bags of cement, covered under Third Schedule, for the
construction of a bungalow for managing partner. Cement was purchased at the
wholesale price of Rs. 400 per bag. However, the retail price was Rs. 500 per bag.
(iv) Advance of Rs. 268,000 was made to Nomi Corporation for the purchase of packing
materials.
(v) Taxable goods to un-registered customers include goods worth Rs. 200,000 sold to
cottage industry in Bela. The rest of the goods were sold to educational institutions in
Zhob.
(vi) On 15 February 2016 MA signed an agreement with Bali Traders (BT), a registered
customer, for the sale of goods worth Rs. 290,000. On 20 February 2016 the goods
were made available to BT. However, BT took the delivery of goods on
5 March 2016.
(vii) MA sold goods worth Rs. 52,000 to one of its customers on two months credit. The
amount was inclusive of 4% mark-up.
(viii) MA distributed free samples of one of its new detergents Zeta among corporate
clients. The value of these samples amounted to Rs. 65,000.
(ix) MA issued a debit note of Rs. 35,000 to Hali Brothers to rectify a mistake in MA’s
sales invoice. The invoice was originally raised in November 2015.
(x) On 1 February 2016 MA sold 4,000 packs of a new caramel ice cream, covered under
Third Schedule, at a discounted price of Rs. 100 per litre pack. The retail price of the
ice cream was Rs. 160 per litre pack.
(xi) Sales tax credit brought forward from January 2016 amounted to Rs. 245,000. This
amount was inclusive of input tax of Rs. 120,000 paid on a chemical which could not
be used before the expiry date and was consequently destroyed in February 2016.
the rate of 17%.
Required:
amount of sales tax payable by/refundable to MA and the amount of sales tax to be carried
Note: show all relevant exemptions, exclusions and disallowances.
Q.6 Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, briefly describe
the following:
(a) How and under what circumstances the Inland Revenue Department may recover the
amount of sales tax from a person without issuing him a show cause notice. (04)
(b) Rule relating to change in the particulars of registration other than the change of
business category. (05)
(c) What evidence(s) a person may be required to submit if he is applying for registration
as a manufacturer on shared premises. (02)
Q.7 (a) Under the provisions of Article 160 of the Constitution of Pakistan, briefly describe
the formation of National Finance Commission. Who may be the member(s) of such
Commission? (03)
(b) ‘Besides financing government operational expenditures, taxation is also utilized as a
tool to carry out the national objective of social and economic development.’ List any
five non-revenue objectives of taxation. (05)
(c) List any six ethical issues which may be faced by tax administration authorities while
discharging their duties under the four pillars of tax administration. (03)
Q.8 Baqir, Asad and Rahi are members of an association of persons (BAR) and share profits and
losses in the ratio of 5:3:2 respectively. BAR is engaged in the business of trading consumer
electronics and has two independent branches one each in Tehran and Dubai. Following
information has been extracted from BAR’s profit and loss account for the year ended
31 December 2015:
Rupees
Sales 30,000,000
Administrative and selling expenses (4,732,000)
Financial charges (980,000)
Cost of sales includes:
(i) Closing stock which has been valued at net realizable value of Rs. 1,820,000. The
cost of closing stock under absorption costing was Rs. 1,950,000.
(ii) Provision of Rs. 75,000 against slow moving stores and spares.
(iii) Freight charges of Rs. 160,000. These were paid in cash to Momin Goods Transport
for transporting goods to customers in Multan.
Administrative and selling expenses include:

(i) Commission of Rs. 290,000 paid to Baqir, annual performance award of Rs. 310,000
paid to Rahi and Rs. 455,000 paid to AB Bank Limited in final settlement of a loan
obtained by Asad for the construction of his house in Muree.
(ii) Provision for bad debts of Rs. 735,000. The opening and closing balances of
provision for bad debts amounted to Rs. 1,100,000 and Rs. 1,435,000 respectively.
Bad debts written off include a loan of Rs. 280,000 provided to a supplier.
(iii) Sales promotion expenses of Rs. 275,000. These expenses were paid by Rahi through
his personal credit card.
(iv) Rs. 86,000 paid to an institution operated by Federal Government for the training of
industrial workers in Punjab.
Further information:
For the year ended 31 December 2015 Dubai branch made a profit of Rs. 1,500,000 and
Tehran branch made a loss of Rs. 1,800,000. These figures are not included in the above
profit and loss account.
Required:
compute the taxable income, net tax payable by BAR and the amount to be carried forward,
if any, for tax year 2016. Assume tax and accounting depreciation is same. (12)
Note: ▪ Your computation should commence with the profit before tax figure of Rs. 5,488,000.
(THE END)

THE FIRST SCHEDULE
1. Upto Rs. 400,000 0%
Rs. 400,000
Rs. 1,319,500 + 35% of the amount
8. Above Rs. 6,000,000

1. Upto Rs. 400,000 0%
Rs. 400,000
Rs. 79,500 + 12.5% of the amount
Rs. 137,000 + 17.5% of the amount
Rs. 359,500 + 22.5% of the amount
Rs. 597,000 + 27.5% of the amount
Rs. 1,422,000 + 30% of the amount
12. Exceeds Rs. 7,000,000

10% in case of dividend received by a person from a mutual fund.
12.5% in all other cases.
THE THIRD SCHEDULE

Part I
Depreciation Rates
Plant and machinery
Part II
The rate of initial allowance for eligible depreciable assets shall be 25%.
Suggested Answers
Ans.1 Wajahat
Rupees
Income from Salary:
Basic salary (70,000×12) 840,000

Dearness allowance (10,000 × 12) 120,000
Conveyance allowance (8,000 × 12) 96,000
PF contrib. [(8,400 × 12) – (lower of Rs. 100,000 or 1/10th of basic + DA)] 4,800
Working: (100,800) or (lower of Rs.100,000 or (840,000+120,000)/10= 96,000
Interest on PF [391,000 – (higher of: interest @16% or 1/3rd of basic + DA)] 71,000
Working: (391,000/20% × 16% = 312,800 or ((840,000+120,000)/3= 320,000)
Reimbursement of electricity bill 60,000
Total income under the head salary 1,191,800

Tuition fees (for ten months ended 30 June 20X6) 2,198,000
Less: Admissible expenses:
Salaries paid: Wajahat (inadmissible being the owner of the centre) -
Friend ( 35,000 × 10) (350,000)
Training expenses (300,000)
Dep.: Computers (250,000 × 30%) [no initial allowance is admissible] (75,000)
Other misc. expenses (195,000)
1,278,000
Income (Separate block):

Dividend received from BEE Limited (78,200 + 9,200 + 4,600) 92,000
Dividend received from a company in U.A.E 65,000
157,000

Less: Separate block income - (157,000)
Less: Zakat (4,600)
Since salary income is less than 50% of the taxable income, therefore, the slab applicable
to non-salaried individuals shall be applied:
Computation of net tax liability:
Tax on Rs. 1,500,000 144,500
Tax @ 20% on the amount exceeding Rs. 1,500,000 (i.e. on 965,200) 193,040
Less: Tax credit on investment in pension: (887,472 × 337,540/2,465,200) (121,514)
Which is lesser of (A), (B) or (C):
▪ Total contribution paid by Wajahat (A) 890,000
▪ 20% of taxable income (2,465,200 × 20%) 493,040
Add: 2% add. for each year of age above 40 years (2%×8×2,465,200) 394,432
(B) 887,472
▪ 50% of last assessed taxable income (1,850,000 × 50%) (C) 925,000
216,026
Add: Tax payable on dividend income (157,000 × 12.5%) (FTR) 19,625
Total tax liability for the year 235,651
Less: Tax withheld at source (Dividend) (9,200)
Net tax payable for tax year 2016 226,451
Ans.2 Entertainment expenditure:
Akram would be allowed a deduction for entertainment expenditure if the following conditions
are satisfied:
The expenditure should be incurred in deriving income from business chargeable to tax and
should be limited to expenditure incurred which satisfies the following conditions:
▪ expenditure incurred outside Pakistan on entertainment in connection with business
transactions or is allocated as head office expenditure;
▪ expenditure incurred in Pakistan on entertainment of foreign customers and suppliers;
▪ expenditure incurred on entertainment of customers and clients at the person’s business
premises;
▪ expenditure incurred on entertainment at a meeting of shareholders, agents, directors or
employees; or
▪ expenditure incurred on entertainment at the opening of branches.
A deduction shall only be allowed for expenditure incurred on the entertainment of persons
related directly to Akram’s business.
Ans.3 (a) Special tax year:

Where a person’s income year is different from the normal tax year, or where, by an order,
a person has been allowed by the Commissioner Inland Revenue to use a twelve months’
period different from normal tax year, such income year or such period shall be that
person’s special tax year and shall be denoted by the calendar year relevant to normal tax
year in which the closing date of the special tax year falls.
The Board has authority to prescribe any special tax year in respect of any particular class
of taxpayers.
(b) Transitional tax year:

Where the tax year of a person changes as a result of an order by the Commissioner of
inland revenue either from the normal tax year to special tax year or vice versa, the period
between the end of the last tax year prior to change and the date on which the changed tax
year commences shall be treated as a ‘transitional tax year’.
(c) Application of tax credits while computing the tax liability of the taxpayer:
If a taxpayer is allowed more than one tax credit for a year, the credits shall be applied in
the following order:
(i) Any foreign tax credit; then
(ii) Any tax credit allowed under Part X of Chapter III; such as
▪ Charitable donations
▪ Investment in shares and insurance
▪ Contribution to an approved pension fund
▪ Tax credit for employment generation by manufacturer u/s 64B
(iii) Second schedule credits e.g. reduction in tax liability due to full time teacher
allowance etc.
(iv) Any tax credit allowed for quarterly advance tax paid u/s 147 and for tax collected /
deducted at source u/s 168
(d) General provisions/ rules apply to income subject to final tax:

Following rules apply to income subject to final tax:
(i) Tax imposed is a final tax
(ii) Such income is not chargeable to tax under any head of income in computing the
taxable income of the person
(iii) No deduction is allowed for any expenditure incurred in deriving such income
(iv) The amount of such income is not reduced by:
▪ Any deductible allowance
▪ The set off of any loss
Suggested Answers
(v) The final tax payable is not reduced by any tax credit allowed (foreign tax credit or tax
credits on donations, investments etc.)
(vi) The liability of the recipient of such income is discharged to the extent that:
▪ In the case of shipping and air transport income, the tax is paid in accordance
with relevant sections of the Ordinance; or
▪ In any other case, the final tax payable has been deducted at source
Ans.4 Lone Traders (LT)

Computation of Taxable income / (loss)
Rupees
Speculation Trading
Particulars Total
Business Business
Gross sales [ 18,240 × 500] & [13,000,000 + 680,000] 9,120,000 13,680,000 22,800,000
Less: Discount - (680,000) (680,000)
Net sales 9,120,000 13,000,000 22,120,000
Gross profit [9,120,000 – 7,900,000] & [13,680,000 × 25%] 1,220,000 3,420,000 4,640,000
Less: Exp. - Direct
▪ Scientific research - (600,000) (600,000)
▪ Expenditure in respect of future contract (25,000) - (25,000)
Less: Exp.- Common [gross sales basis i.e. 40:60]
Admin., selling and distrib. 2,500,000
Less: inadmissible - penalty (45,000)
Allowable common expenses 2,455,000
Admin., selling and distrib. [2,455,000 × 40% & 60%] (982,000) (1,473,000) (2,455,000)
Net business income 213,000 1,347,000 1,560,000
Brought forward losses (300,000) (550,000)
Taxable income/(loss) for the year (87,000) 797,000
▪ Speculation loss of Rs. 87,000 would be carried forward to the next year.
▪ Speculation loss cannot be set off against trading business income of Rs. 797,000.
▪ Similarly capital loss of Rs. 250,000 would be carried forward to next year as it cannot be set
off against any other head of income.
Ans.5 Mulaqat Associates (MA)
Sales Tax Amount of Sales
SALES TAX CREDIT (INPUT TAX) Taxable Value
Rate Tax
Taxable goods from registered suppliers [650,000 – 45,000] 605,000 17% 102,850
Furniture for use in marketing manager’s office 45,000 inadmissible -
Taxable goods from un-registered suppliers 150,000 inadmissible -
Exempt goods from registered suppliers 100,000 - -
Import of raw material 280,000 17% 47,600
Purchase of cement [being personal in nature] [150x500] 75,000 inadmissible -
Advance against purchase of packing material 268,000 17% 45,560
196,010
Add: Credit brought forward from previous month 245,000
Less: input tax on chemicals destroyed (120,000)
125,000

Jet fuel to Pak Airways 800,000 0% 0
Taxable goods to registered customers 500,000 17% 85,000
Taxable goods to Cottage Ind. In Bela 200,000 17% 34,000
Taxable goods to un-registered -end consumers 175,000 17% 29,750
Raw material to insurance company [treated as supply] 90,000 17% 15,300
Taxable goods to Bali Traders 290,000 17% 49,300
Taxable goods on two months credit 52,000 17% 8,840
Free samples of detergent Zeta 65,000 17% 11,050
Debit note issued to Hali Brothers 35,000 17% 5,950
Caramel ice cream [4,000 x 160] 640,000 17% 108,800
Further tax on supplies to cottage Ind. [200,000 × 2%] 4,000
Further tax on supplies to un-registered end consumers-Exempt [175,000 × 0%] 0
Admissible credit (lower of 321,010 or 90% of 347,990 = 313,191 (313,191)
Sales tax payable (347,990 – 313,191 = 34,799) + (4000) 38,799
Input tax to be carried forward [321,010 – 313,191] 7,819
Suggested Answers
Ans.6 (a) Short paid amounts recoverable without notice:

Where a registered person pays the amount of tax less than the tax due as indicated in his
return, the short paid amount of tax along with default surcharge shall be recovered from
such person by stopping removal of any goods from his business premises and through
attachment of his business bank accounts, without giving him a show cause notice and
without prejudice to any other action prescribed under section 48 of this Sales Tax Act or
the rules made thereunder:
(b) Change in the particulars of registration (other than change of business category):
(i) In case there is a change in the name, address or other particulars as stated in the
registration certificate, the registered person shall notify the change in the Form
STR-1 to the computerized system, within fourteen days of such change.
(ii) In case of approval of the change applied for, a revised registration certificate shall be
issued through computerized system, which shall be effective from the date the
person applied for the change.
(iii) Where a person is unable to file application for change in particulars of registration
directly in computerized system, he may submit the prescribed application and
required documents to the concerned Commissioner Inland Revenue at RTO, who
shall ensure entry of the application and documents in computerized system within
three days.
(iv) The commissioner may, based on available information or particulars and after
making such inquiry as he may deem necessary and after providing reasonable
opportunity of being heard to a person, by an order in writing, make modifications in
registration of the person.
(c) In case the person applying for registration as manufacturer is sharing the premises, he shall
provide evidence of:
(i) demarcation of manufacturing premises for registration, and
(ii) installation of sub-meter by the relevant utility company, in case he does not have
independent industrial utility connection but is using electricity or gas through sub-
meter.
Ans.7 (a) National Finance Commission:

Within six months of the commencing day and thereafter at intervals not exceeding five
years, the President shall constitute a National Finance Commission consisting of the
Minister of Finance of the Federal Government, the Ministers of Finance of the Provincial
Governments, and such other persons as may be appointed by the President after
consultation with the Governors of the Provinces.
(b) Non-revenue objectives:

Following are the five non-revenue objectives of taxation:
(i) To strengthen anaemic enterprises by granting them tax exemptions or other
(ii) To protect local industries against foreign competition by increasing local import
taxes;
(iii) As a bargaining tool in trade negotiations with other countries;
(iv) To counter the effects of inflation or depression;
(v) To reduce inequalities in the distribution of wealth;
(vi) To promote science and invention, finance educational activities or maintain and
improve the efficiency of local forces;
(vii) To implement laws which eliminate discrimination among various elements in the
markets/businesses.
(viii) To discourage certain undesirable sectors and activities.
(c) Following are the six ethical issues faced by tax administration authorities under the four
pillars of tax administration:
(ii) Conflict of Interest
(vi) Discretion
(vii) Corruption
(viii) Lack of Autonomy
Ans.8 BAR (AOP)

Rupees
Accounting profit before taxation 5,488,000
Add: Inadmissible expenses:
Closing stock-in-trade adj. [1,950,000 – 1,820,000] 130,000
Provision for slow moving stock 75,000
Freight charges paid in cash -
Commission paid to Baqir 290,000
Annual performance award – Rahi 310,000
Bank loan of Asad paid by BAR 455,000
Provision for bad debts 735,000
Sales promotion expenses 275,000
Employee training and facilities (FG run institution) -
Loss from Tehran branch 1,800,000
Profit from Dubai branch (1,500,000)
Net loss from foreign source (to be carried forward for adjustment
against foreign source income of the following tax year, if any.) 300,000
2,270,000
7,758,000
Less: Admissible expenses:
Bad debts written off (W-1) (120,000)
Net taxable income 7,638,000
Tax on Rs. 6,000,000 1,319,500

On balance Rs. 1,638,000 tax @ 35% 573,300
Net Liability 1,892,800
Rupees
W-1: Computation of bad debts written off:
Opening balance of provision for bad debt account 1,100,000
Add: provision during the year 735,000
1,835,000
Less: Closing balance of provision for bad debt A/c (1,435,000)
Debts written off during the year 400,000
Less: loan to supplier written off [W-1(a)] (280,000)
Bad debt written off allowed for tax purpose 120,000
(THE END)
Q.1 Mukarram is working as a Commercial Manager in Airmen Engineering Limited (AEL), an
unlisted public company, for the past many years. He derived following emoluments during
the tax year ended 30 June 20X5:
Basic salary (per month) 250,000

Medical allowance (per month) 37,500
Housing allowance (per month) 25,000
Travel allowance (per month) 11,500
In addition to above, Mukarram was also provided the following:
(i) A used company maintained car for both business and personal use. This car was
provided to him on 1 July 20X4 in replacement of his previous car. This car was
purchased three years ago at a price of Rs. 1,000,000. However, the fair market value
of the car on 1 July 20X4 was Rs. 800,000. On 1 September 20X4, in accordance
with the terms of his employment, AEL transferred the previous car to Mukarram
free of cost. The market value of the car at the time of transfer was Rs. 400,000
whereas its book value was Rs. 200,000. On 1 June 20X5, Mukarram sold this car to
his neighbour at a price of Rs. 350,000.
(ii) Performance related bonus of Rs. 500,000. The bonus was however, paid to him on
5 July 20X5.
(iii) Two free buffet dinner coupons per month, one each for Mukarram and his wife in a
five star hotel. The coupons were provided in line with AEL’s policy for its
management employees. The dinner costs AEL Rs. 2,000 per person.
(iv) Reimbursement of Rs. 20,000 in respect of telephone and internet charges. 20% of
this amount was spent by Mukarram in performance of his official duties.
(v) Two air-conditioners and a washing machine for use at home. The combined book
value of these appliances was Rs. 300,000. The appliances are returnable to AEL
after three years’ time. AEL charged 10% depreciation on these appliances.
(vi) An option to purchase 20,000 shares in AEL on 1 May 20X5 at Rs. 25 per share.
The break-up value of AEL on that date was Rs. 85 per share.
(i) On 1 April 20X5, Mukarram sold a diamond ring to his brother Zohaib for
Rs. 250,000. The ring was purchased on 1 January 20X3 at a price of Rs. 280,000.
(ii) Mukarram has 65 acres of agricultural land in Badin and a building in immediate
vicinity of the land. Mukarram rented out 30 acres of his land along with the
building to Dino who is a cultivator. Dino uses the building as a store house.
Mukarram received annual rents of Rs. 750,000 and Rs. 325,000 in respect of the
land and building respectively.
Mukarram is also running a small rice husking unit in Badin. He uses entire
agricultural produce in the husking unit which is grown on the remaining portion of
his land. During the year he brought 5,000 kilograms of raw rice from his land to the
unit for husking. He would have earned Rs. 2,500 per 40 kilogram of raw rice had he
sold it directly to the market. His sales from rice husking unit stood at Rs. 850,000
whereas other operating expenses were of Rs. 400,000.
(iii) On 31 May 20X5 a painting was destroyed by heavy rains. Mukarram had purchased
the painting on 30 June 20X2 for Rs. 100,000. However, due to constant increase in
the value of the painting, he had insured it at a premium of Rs. 15,000. He received
insurance claim of Rs. 275,000 on 15 June 20X5.
Required:
compute the taxable income of Mukarram for tax year 20X5. (20)
Q.2 Under the provisions of the Income Tax Ordinance, 2001 what would be the cost of an asset
for the purpose of depreciation deduction in each of the following circumstances?
(a) Mr. Aamir acquired a new machine partly in exchange for an old machine. He paid
freight to bring the old machine to the seller’s location and also purchased cooling
equipment which was attached to the new machine for its smooth functioning. (04)
(b) Mr. Saulat acquired production machinery by utilizing a loan repayable in euro. The
loan is expressed in rupees and is repayable in two years’ time. Mr. Saulat also
received 20% subsidy on such machinery from the Provincial Government. (04)
(c) On 1 July 2015 Mr. Talha started using his personal computer for business purposes.
He also had to upgrade the operating system to comply with his business needs. (02)
(d) Mr. Rahi constructed a furnace for his factory in Korangi Industrial Area. (02)
Q.3 (a) Mr. Baqir was working in Pakistan Embassy in United Kingdom for the past ten
years. He returned back to Pakistan five months back and is now working with a
British conglomerate in Islamabad. He is in the process of filing his return of income
for tax year 20X5 and has sought your advice on the following matters:
(i) Whether I would be a non-resident for tax year 2015 as my period of stay in
Pakistan is less than 183 days under the Income tax Ordinance, 2001? (02)
(ii) Whether I can claim a foreign levy paid on my foreign income, equivalent to
PKR 150,000, as foreign income tax in my return of income to avoid double
taxation under the Income Tax Rules, 2002? (03)
(iii) Whether I would be required to file a wealth statement and what particulars
should I disclose in the statement under the provisions of the Income Tax
Ordinance, 2001? (05)
(iv) For the purpose of disclosure of securities in wealth statement, what would be
regarded as supportive evidence in respect of securities I acquired after my
return to Pakistan under the Income Tax Rules, 2002? (03)
(v) I jointly with my brother Owais own a two story house in Lahore. Each story
of the house has been rented out to two separate families. What would be the
tax treatment of income from such property under the Income Tax Ordinance,
2001? (02)
(b) Under the provisions of the Income Tax Ordinance, 2001 determine the date by
which appeal can be filed with the Commissioner (Appeals) in the following cases:
(i) Assessment order for tax year 2014 was made on 31 December 2014. Demand
notice was served on 1 January 2015. (02)
(ii) Refund application was filed on 18 April 2015 but no refund order was passed
within 60 days. (02)
Q.4 (a) What do you understand by the terms ‘Security’ and ‘Derivative products’ as
provided in the Income Tax Ordinance, 2001 and Rules made thereunder? (03)
(b) Under the provisions of the Income Tax Ordinance, 2001 compute taxable gain or
loss, under the correct head of income, in each of the following cases. Also identify,
giving reasons, whether the company is a public or private company for tax
purposes:
(i) Ashiq has 5,000 shares in Rumi (Pvt.) Limited (RPL). 52% of the shares of
RPL are held by Delta Plc. which is owned by the British Government. Ashiq
inherited these shares from his father on 1 January 2014. His father had
purchased these shares on 31 May 2012 at a price of Rs. 250 per share. The
market value of these shares at the time of inheritance was Rs. 300 per share.
On 30 June 2015 Ashiq sold 2,500 shares in RPL at a price of Rs. 325 per
share when the break-up value of RPL was Rs. 350 per share. (04)
(ii) What would be your answer in (i) above, if 40% of the shares of RPL were
held by the Provincial Government, 48% by the British Government and 12%
by individual investors. (03)
Q.5 Rahbar is registered under the Sales Tax Act, 1990 and is engaged in the business of
manufacture and supply of specialized equipment. Following information has been
extracted from his records for the month of August 2015.
to corporate customers – registered

to Government hospitals – un-registered
from cottage industry 550,000

from local registered persons
Following information is also available:
(i) Purchases from local registered persons include the following:
▪ Material worth Rs. 1,600,000 against which a discrepancy has been indicated
by the CREST.
▪ Raw-material of Rs. 2,000,000 purchased from AB Enterprises on 2 August
2015.The payment was made on the same day by pay order. On 15 August
2015, AB Enterprises informed Rahbar that with effect from 1 August 2015
their registration has been suspended by the Commissioner Inland Revenue.
▪ Wires and cables of Rs. 500,000 and electrical and sanitary fittings of
Rs. 900,000. These items were used in the renovation of a factory building.
(ii) An electronic cash register was purchased from High Tech Limited at Rs. 250,000.
(iii) On 18 August 2015 Rahbar acquired a machine on operating lease from Aroma
Limited. The total lease rentals payable over the lease term of two years are
Rs. 3,500,000. The fair value at the inception of the lease amounted to Rs. 3,100,000.
(iv) On 28 August 2015, Rahbar paid sales tax of Rs. 170,000 on electricity bill.
(v) Own manufactured equipment worth Rs. 375,000 was used for internal testing
purposes in R&D department.
(vi) Rahbar made free replacement of faulty parts on request from three of his customers.
These parts were covered under warranty and had a market value of Rs. 175,000.
the rate of 17%.
Required:
amount of sales tax payable by or refundable to Rahbar and the amount of sales tax to be
carried forward, if any, for the tax period August 2015. (18)
Q.6 (a) Under the provisions of the Sales Tax Act, 1990 explain the following:
(i) Input tax in relation to a registered person (03)

(ii) Supply (04)
(b) Baber Associates, who is registered with the Inland Revenue Department for sales
tax purposes, has supplied a heavy duty motor to Mubarak Enterprises on one
month’s credit. However, due to sharp decline in petroleum prices, the price of the
motor has reduced by 10% in the local market. Upon request from Mubarak
Enterprises, Baber Associates has finally agreed to reduce the price of motor by 8%.
In view of the Sales Tax Rules, 2006 describe the procedure which may be followed
by both the parties to give effect to the above price change. (03)
Q.7 Briefly describe any three main canons of taxation which can be helpful in formulating a
good tax system. (03)
Q.8 What do you understand by ‘Federal consolidated fund’? Enumerate the expenditures
which are charged upon the Federal consolidated fund. (08)
(THE END)
Q.1 On 1 July 20X4, Tahir commenced business of manufacturing garments. Income statement
of the business for the year ended 30 June 20X5 is as follows:
Sales 49,330
Less: Cost of sales (i) (39,150)
Gross profit 10,180
Less: Administrative and selling expenses (ii) (9,140)
Financial charges (iii) (2,500)
Other charges (iv) (1,358)
(2,818)
Add: Other income 3,875
Profit before taxation 1,057
Notes to the income statement:

(i) On 15 July 20X4, used machinery was imported from China valuing Rs. 1,500,000.
Depreciation @ 15% was charged on machinery for the whole year and is included in
cost of sales.
(ii) Administrative and selling expenses include:
▪ Rs. 975,000 paid for the purchase of computer software. The software is likely to
be used for twelve years.
▪ Cost of preparation of a feasibility study amounting to Rs. 250,000 which was
issued prior to the commencement of business.
▪ Salary of Rs. 50,000 per month was paid to Tahir’s brother who handles the
financial matters of the business.
(iii) Financial charges include Rs. 80,000 pertaining to a vehicle obtained on lease from a
leasing company. The cost of vehicle was Rs. 1,300,000. Depreciation of Rs. 260,000
has been included in administrative and selling expenses. Lease rentals paid during the
year amounted to Rs. 300,000.
(iv) Other charges include:
▪ running and maintenance expenses of vehicle amounting to Rs. 295,450. Use of
vehicle for personal purposes was approximately 20%.
▪ provision for bad debts amounting to Rs. 25,000.
Other information:
(i) Tahir was working in UAE for the past five years and had come back to Pakistan in
April 20X4. He received an amount equivalent to Rs. 150,000 from his ex-employer as
differential amount on his final settlement in August 20X4.
(ii) He sold a plot for Rs. 3,500,000 which was inherited from his father in 20X1. Fair
market value of the plot at the time of inheritance was Rs. 1,500,000.
(iii) 5,000 shares were purchased for Rs. 600,000 from initial public offering of a new listed
company.
(iv) Premium of Rs. 300,000 was paid on Tahir’s life insurance policy.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and
tax liability of Tahir for the tax year 20X5. Provide comments in respect of items which do
not appear in your computation. (Tax rates are given on the last page) (18)
Q.2 (a) List the persons who are required to furnish a return of income for a tax year under the
Income Tax Ordinance, 2001. (06)
(b) Specify the circumstances under which the Commissioner has powers to issue notice
demanding a return of income from certain person(s) for less than one year. (03)
(c) State the powers of the Commissioner if a taxpayer fails to furnish return as required
under part (b) above, within the specified time. (04)
Q.3 Munir resigned from his employment with Ali Industries Limited (AIL) with effect from
31 December 2014. He received following amounts in final settlement:
▪ Rs. 150,000 as Leave Encashment.

▪ Rs. 4,000,000 under a Golden Handshake Scheme.
Munir had received a salary of Rs. 350,000 per month for a period of six months upto
December 2014. His taxable income and tax liability during the preceding five tax years
were as under:
Tax year 2010 2011 2012 2013 2014

Total taxable income (Rs) 2,000,000 2,450,000 2,700,000 3,100,000 3,650,000
Total tax paid (Rs) 300,000 392,000 472,500 542,500 650,000
Required:
As a tax consultant, advise Munir about the amount of income tax payable by him for the
tax year 2015, under the Income Tax Ordinance, 2001. (Tax rates are given on the last page) (06)
Q.4 (a) (i) Explain the term ‘Rent’ in context of ‘Income from property’. (02)
(ii) Specify the head of income under which the following amounts would be
chargeable to tax:
▪ rent from sub lease of a building.
▪ amount included in rent for the provision of amenities, utilities and any
other service connected with renting of the building. (02)
(b) On 1 July 2014, Fahim agreed to rent out a house to Mirza at a monthly rent of
Rs. 180,000 with effect from 1 August 2014 and received one year’s rent in advance.
He also received Rs. 800,000 as a security deposit which was partly used to repay the
security deposit amounting to Rs. 400,000 received from the previous tenant in July
2010 and partly used for renovation of the house.
Fahim also incurred the following expenses in respect of the above house:
(i) property tax of Rs. 15,000.
(ii) payment of interest amounting to Rs. 200,000 to his friend against amount
borrowed for renovation of the house.
(iii) insurance premium of Rs. 110,000.
(iv) Rs. 5,000 per month to Wasif for collection of rent.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income
of Fahim for tax year 2015 assuming he has no other income. (07)
Q.5 (a) Under the provisions of the Income Tax Ordinance, 2001 state the rules relating to
residential status of an Association of Person (AOP). Also explain the taxability of
income of AOP, in the hands of the firm and its members. (05)
(b) State the rules relating to set-off and carry-forward of losses of AOP and its members. (02)
Q.6 Aslam is a resident taxpayer who operates his business from Lahore (LHR) and Paris
(PAR). In August 2014, he established a new branch in Berlin (BER).
Following information is available in respect of his business operations for tax year 2015:
Income / (loss) from business 29 40 (15)

Advance taxes paid in respective countries during the year 10 5 3
Income from capital gain (net of income tax of Rs. 3 million) - 27 -
Carried forward losses:
Loss from business - 55 -
Capital loss - 6 -
The following amounts paid by Aslam in respect of BER have been charged to LHR:
(i) salaries for the first three months amounting to Rs. 5 million.
(ii) rent expense for the year amounting to Rs. 7 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 calculate the tax payable by
Aslam in the tax year 2015 and foreign tax losses to be carried forward to next year, if any. (09)
Q.7 Bashir 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 his records
for the month of February 2015.
Rupees
Supplies
To registered persons 25,980,000
To unregistered persons 2,500,000
Export to USA 2,000,000
Purchases from registered person 21,710,000

Import of a machine
Following additional information is also available:
(i) supplies to registered persons include goods amounting to Rs. 300,000 which were
supplied to an associated company at a special discount of 25%.
(ii) input tax amounting to Rs. 55,900 was paid in January, 2015 but inadvertently it could
not be claimed in the return for January 2015.
(iii) a registered supplier had supplied goods worth Rs. 500,000 to Bashir in February 2015.
However, Bashir did not receive the sales tax invoice from the supplier.
(iv) the imported machine was put into operation during February, 2015.
(v) sales tax credit of Rs. 410,000 is to be brought forward from January 2015.
Sales tax is payable at the rate of 17%. All the above amounts are exclusive of sales tax,
wherever applicable.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute sales
tax payable/refundable and input tax credit to be carried forward, if any, for tax period
February 2015. (13)
Q.8 Saleem is registered under the Sales Tax Act, 1990 and is engaged in the business of export
and distribution of electronic appliances.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, advise Saleem
on the following matters:
(a) any six situations in which input tax is not allowed to be adjusted against the output
tax liability. (06)
(b) exports which are outside the purview of zero rating. (03)
(c) eligibility for a refund if input tax is paid in excess of the output tax payable for the
month. (02)
(d) concept of provisional and final adjustment in relation to ‘Apportionment of input tax’. (02)
Q.9 State any five ways through which taxes can be used for development of the country. (05)
Q.10 Briefly explain any three indirect taxes applicable in Pakistan. (05)
(THE END)
EXTRACTS DROM THE FIRST SCHDULE OF THE INCOME TAX ORDINANCE, 2001
Rates of Tax for Non-salaried Individuals
Where the taxable income exceeds Rs.750,000 but does not exceed Rs. 35,000 + 15% of the amount
3.
Rs.1,500,000 exceeding Rs. 750,000
Where the taxable income exceeds Rs. 1,500,000 but does not exceed Rs. 147,500 + 20% of the
4.
Rs.2,500,000 amount exceeding Rs. 1,500,000
5. Rs.4,000,000 amount exceeding Rs. 2,500,000
6.
Rs. 1,322,500 + 35% of the
7. Where the taxable income exceeds Rs.6,000,000 amount exceeding Rs. 6,000,000

Where the taxable income exceeds Rs.1,800,000 but does not exceed Rs. 140,000 + 17.5% of the
4.
Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs. 262,500 + 20% of the
5.
6.
7.
8.
Rs. 1,425,000 + 30% of the
9. Where the taxable income exceeds Rs.7,000,000
Capital Gains on disposal of Immovable Property

1. Where holding period of immovable property is up to one year. 10%
Where holding period of immovable property is more than one year
2. but not more than two years. 5%
3. Where holding period of immovable property is more than two year. 0%
Q.1 Sultan is working as electronic engineer with Ansari Electrical Company Limited (AECL).
He has provided you with the following information for the tax year ended 30 June 2014:
(a) His monthly cash remuneration in AECL is as follows:
Basic salary
allowance
allowance
Market value of rent free accommodation
(b) He was also provided the following benefits in accordance with the terms of his
employment:
(i) Leave encashment amounting to Rs. 300,000.

(ii) Hospitalization cost is covered by an insurance policy upto the amount of
Rs. 1.5 million. The insurance premium relating to this benefit amounted to
Rs. 55,000.
(iii) He is allowed to use his personal car for office use. Reimbursement of car
running and maintenance expenses amounted to Rs. 550,000. 15% of these
expenses pertain to personal use.
(c) Rs. 200,000 were received from a private limited company for attending board
meetings.
(d) A lump sum amount of Rs. 1.2 million was received as the author of a literary work.
Sultan took three years to complete this literary work.
(e) Sultan is also a part time singer and owns a studio. He sold the premises in which the
studio was situated for Rs. 10 million and shifted his musical instruments to new
premises which he purchased for Rs. 15 million. He received Rs. 2.5 million from his
father in cash as loan to pay for his new studio. The previous premises was purchased
several years ago for Rs. 1.4 million and had a tax written down value of Rs. 600,000
at the time of disposal.
(f) The net income from the studio for tax year 2014 was Rs. 990,000. The expenses
include salaries of two workers at Rs. 15,000 and Rs. 18,000 per month and utility
bills amounting to Rs. 110,000. All expenses were paid in cash.
(g) He won a car, in a competition held by Star Motor Limited for promotion of its sales.
The fair market value of the car was Rs. 850,000.
(h) He gifted 40 fans having a fair market value of Rs. 100,000 to an approved charitable
organisation.
(i) An amount of Rs. 500,000 was paid by him as contribution to an approved pension
fund.
Required:
Under the provisions of the Income Tax Ordinance, 2001 compute the taxable income and
tax thereon for the tax year 2014. Tax rates are given on the last page. (20)
Q.2 Briefly discuss the provisions of Income Tax Ordinance, 2001 in respect of the following
situations:
(a) Farhan received Rs. 960,000 as his share of profit from AOP, during the tax year
2014. He also earns income from other sources. (05)
(b) ABC (Private) Limited has decided to provide a loan of Rs. 5 million to one of its
shareholders, for the purchase of a house. (04)
Q.3 Zaman is working as the Chief Executive Officer in Yasir Limited (YL). Following are the
details of sale and purchase relating to his capital assets during the tax year 2014.
(a) Under an employee share scheme, 25,000 shares of YL were allotted to Zaman, on
1 December 2011 for Rs. 25 each. According to the scheme, he was not allowed to
sell/transfer the shares before completion of two years from the date of transfer. The
face value of each share is Rs. 10 per share. Fair market value of the shares was as
follows:
▪ Rs. 40 per share on 1 December 2011
▪ Rs. 48 per share on 30 June 2012
▪ Rs. 55 per share on 30 November 2013
▪ Rs. 61 per share on 30 June 2014
(b) He sold 24,000 shares of HQ (Pvt.) Limited on 30 June 2014 for Rs. 200 per share.
He had acquired these shares as follows:
▪ 18,000 shares were purchased at Rs. 55 per share on 25 June 2013.
▪ 6,000 shares were allotted as bonus shares on 28 February 2014.
(c) A gain of Rs. 300,000 was realized on the sale of shares of Zeeshan Industries
Limited (ZIL), a public listed company, in June 2014. The shares were acquired on
31 May 2013.
(d) Zaman sold a painting to his brother on 23 March 2014 for Rs. 1,800,000. Zaman
had purchased this painting for his residence, in an auction for Rs. 2,000,000 on
10 July 2011.
(e) He sold his old furniture to Furqan for Rs. 285,000 on 25 June 2014. The furniture
was purchased in 2012 for Rs. 250,000.
Required:
Compute the amount to be included in the taxable income of Zaman for the tax year 2014
and specify the head of income under which the income would be classified. (10)
Q.4 In Income Tax Ordinance, 2001 the term “disposal” has a wider connotation than sale
because it includes exchange, relinquishment, and extinguishment.
List the situations under which an asset owned by a person shall be treated to have been
disposed of. (05)
Q.5 (a) Under the Sales Tax Act, 1990 and Rules made thereunder:
(i) List the persons who are required to be registered. (05)

(ii) Change in rate of tax during a tax period (04)
(b) There are certain food items in the inventory of XY Limited (XYL) which were
returned by the customers after the expiry date. Specify the procedure which must be
followed under the Sales Tax Rules, 2006 if XYL wishes to destroy these items. (03)
Q.6 Ali Trading Company (ATC) is registered under the Sales Tax Act, 1990 and is engaged in
the business of manufacture and supply of consumer goods. Following information has
been extracted from the records of ATC for the month of August 2014.
Rupees
Supplies
Local supplies to wholesalers 14,500,000
Local supplies to distributors 10,254,980
Exports 18,650,000
Local supplies to registered retailers 980,000
Supply of exempted goods 5,500,000
Purchases
Local purchases from registered persons 50,982,000
Local purchases from un-registered persons 9,200,000
Following additional information is also available:
(i) Supplies amounting to Rs. 540,000 were returned by registered retailers.

(ii) An early settlement discount of Rs. 250,000 was given to local distributors.
(iii) An amount of Rs. 500,000 was received from Imran Associates, representing 25%
advance payment in respect of supply of a special order. ATC will supply this order in
November 2014.
(iv) Goods pledged with a bank, were disposed of by the bank for Rs. 4 million in
satisfaction of debt owed by ATC.
(v) Sales tax credit brought forward from previous month amounted to Rs. 854,700.
(vi) Proper debit and credit notes have been issued wherever necessary.
Sales tax is payable at the rate of 17%. All the above figures are exclusive of sales tax.
Required:
Under the provisions of the Sales Tax Act, 1990 compute sales tax payable/refundable and
input tax credit to be carried forward, if any, for August 2014. (14)
Q.7 The primary objective of a taxation system is to collect revenue. You are required to list the
other objectives (non-revenue) which a taxation system can achieve. (10)
Q.8 Briefly explain the ethical responsibilities of the tax implementing authorities. (10)
Q.9 (a) List the taxes which can be imposed by the Federal Government. (06)
(b) Briefly describe the duties of National Finance Commission. (04)
(THE END)
EXTRACTS FROM THE FIRST SCHEDULE OF THE INCOME TAX ORDINANCE, 2001
RATES OF TAX
Division I
Rates of Tax for Individuals

(1) (2) (3)
Where the taxable income exceeds Rs.400,000 but does not exceed 5% of the amount exceeding Rs.
2.
Rs.750,000 400,000
Where the taxable income exceeds Rs.750,000 but does not exceed Rs. 17,500 + 10% of the amount
3.
Rs.1,400,000 exceeding Rs. 750,000
4.
Where the taxable income exceeds Rs.1,500,000 but does not exceed Rs. 95,000 + 15% of the amount
5.
Rs.1,800,000 exceeding Rs. 1,500,000
6.
7.
8.
9.
10.
Rs. 1,425,000 + 30% of the
11. Where the taxable income exceeds Rs.7,000,000

CAF02 Pas Papers From 2014 To 2023 (JJ)

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SPRING ATTEMPT 2024

CAF2 TAX PAST PAPERS

And if you are seeking information about any other topic

The Institute of 9 September 2023

For more CA related stuff feel free to visit: www.journaljotter.info

(b) Consider the following independent situations:

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EXTRACTS FROM THE INCOME TAX ORDINANCE, 2001

S. No. Taxable income Rate of tax

Tax rates for non-salaried individuals and AOP

S. No. Taxable income Rate of tax

Tax rate for profit on debt

The Institute of 11 March 2023

Additional information (other benefits provided by DH):

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Taxability of interest income

For more CA related stuff feel free to visit: www.journaljotter.info

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S. No. Taxable income Rate of tax

Tax rates for non-salaried individuals and AOP

S. No. Taxable income Rate of tax

Capital gains on disposal of securities

Rate of Dividend Tax

A.1 Mr. Cheng

Total income 15,375,000

A.3 (a) Faith Brothers

Add: Inadmissible expenses

Less: b/f business loss (52.0)

Less: Separate block of income

W-1: Cost of plant and depreciation thereon

A.6 (a) Time of supply Reasons

(b) Short paid amounts recoverable without notice:

A.7 (a) Confidence Engineering

Tax Evasion Measures to prevent tax evasion

The Institute of 10 September 2022

S. No. Taxable income Rate of tax

1. Where taxable income does not exceed Rs. 400,000 0%

Tax rates for salaried individuals and AOP

S. No. Taxable income Rate of tax

Minimum tax under section 113

Tax on capital gains on disposal of immovable property

Capital gains on disposal of securities

A.1 (a) Azadi and Co.

Computation of minimum tax:

Tax @ 1.25% 4.00

W-1: New Machine

(b) As Sara is an employee of AC and employee is not considered as an associate of

A.3 (a) (i) Capital gain Cash

Personal car (not covered

Painting (loss on painting not

Jewelry 8.0 4.8 3.2 2.4

(ii) Taxation of capital gain

Capital gain to be taxed under NTR:

Capital gain to be taxed under separate block of income:

Income from other sources

A.4 (a) Short term resident individual:

(b) Returning expatriates:

(c) Foreign source salary income of a resident person:

A.5 (a) (i) Normal assessment:

Best judgment assessment:

(ii) Notice of discontinued business:

(b) Following rules apply to the income subject to final tax:

▪ it does not have an industrial gas or electricity connection;