Caf 6 All PDF
Caf 6 All PDF
Caf 6 All PDF
Principles of Taxation
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
Basic salary 440,000
Conveyance allowance 44,000
Medical 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.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
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)
Principles of Taxation Page 2 of 5
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:
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)
Principles of Taxation Page 3 of 5
Q.5 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.6 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:
Rupees
Supplies
Taxable goods to registered persons 15,000,000
Taxable goods to unregistered persons 2,800,000
Exports 1,500,000
Exempt supplies 1,700,000
Purchases
Taxable goods from registered suppliers 20,000,000
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
Except where otherwise specified, all figures are exclusive of sales tax. Rate of sales tax is
17%.
Principles of Taxation Page 4 of 5
Required:
Compute the sales tax liability of CA for the month of August 2017. (17)
Q.7 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.8 (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)
Principles of Taxation Page 5 of 5
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.
(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
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.
Page 1 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
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.
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
Page 2 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
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.
Page 3 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
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.
(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.
Page 4 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
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)
Input tax for the month 2,949,738
Add: Excess of input tax over output tax of July 2017 75,000
Accumulated credit 3,024,738
Page 5 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
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.
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.
− 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.
Page 6 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2017
(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.
(c) Ethical issues facing tax administration in the discharge of their duties are:
(THE END)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations
The Institute of 6 March 2017
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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:
Atif Aslam
------ Rupees ------
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:
Rupees
Furniture 200,000
Used machinery imported from Germany 500,000
(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.
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)
Principles of Taxation Page 2 of 5
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)
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)
(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)
Principles of Taxation Page 3 of 5
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:
Rupees
Assets
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 600,000
Cash in hand 300,000
15,540,000
Liabilities
Bank loan (1,500,000)
Net assets 14,040,000
Rupees
Income from business for the tax year 20X7 2,540,000
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)
Principles of Taxation Page 4 of 5
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 registered suppliers 3,000,000
Exempt goods from registered suppliers 70,000
Taxable goods from unregistered suppliers 95,000
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
forward, if any, for the tax period February 2017. (17)
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)
Principles of Taxation Page 5 of 5
Part II
Initial Allowance and First Year Allowance
The rate of initial allowance shall be 25% for plant and machinery and 15% for building.
PRINCIPLES OF TAXATION
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
PRINCIPLES OF TAXATION
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
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:
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.
(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.
PRINCIPLES OF TAXATION
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
(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.
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:
(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
PRINCIPLES OF TAXATION
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
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.
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.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
PRINCIPLES OF TAXATION
Suggested Answer
Certificate in Accounting and Finance – Spring 2017
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.
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)
Certificate in Accounting and Finance Stage Examinations
The Institute of 5 September 2016
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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:
Rupees
Basic salary 250,000
Medical allowance 28,000
House rent allowance 120,000
(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 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.
(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.
Principles of Taxation Page 2 of 5
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the taxable income and net tax payable by or refundable to 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:
Under the provisions of the Income Tax Ordinance, 2001:
(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:
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:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute under the relevant head of income, taxable income of Farrukh for tax year 2016. (12)
Principles of Taxation Page 3 of 5
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:
Rupees
Supplies:
To registered persons 2,500,000
To un-registered persons 875,000
To persons registered as exporter 625,000
Purchases:
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.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at
the rate of 17%.
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 SA and the amount of sales tax to be carried
forward, if any, for the tax period August 2016. (18)
Note: Show all relevant exemptions, exclusions and disallowances.
Ignore value addition tax payable at import stage.
Principles of Taxation Page 4 of 5
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:
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:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
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)
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.
(THE END)
Principles of Taxation Page 5 of 5
Bader
Ans.1 Computation of income tax liability
For the tax year 2016
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
Page 1 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
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.
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.
Page 2 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
Ans.4 Farrukh
Computation of taxable income
For the tax year 2016
Rupees
Income from property:
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
Page 3 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
Page 4 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
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.
Page 5 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
Page 6 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2016
Ans.8 Mehreen
Computation of taxable income and income tax liability
For the tax year 2016
---------------- 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
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)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations
The Institute of 7 March 2016
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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
(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.
(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:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the total income, taxable income and net tax payable by/refundable to Wajahat
during the tax year 20X6. (16)
Note: Show all relevant exemptions, exclusions and disallowances. Tax rates are given on the last page.
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)
Principles of Taxation Page 2 of 5
Q.3 Under the provisions of the Income Tax Ordinance, 2001 explain the following:
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:
Rupees
Trading business loss 550,000
Speculation business loss 300,000
Capital loss 250,000
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute LT’s taxable income/(loss) and the amount of loss to be carried forward, if any, for
tax year 2016. (10)
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
Exempt goods from registered suppliers 100,000
Imports – raw material 280,000
Principles of Taxation Page 3 of 5
(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.
All the above figures are exclusive of sales tax, wherever applicable. Sales tax is payable at
the rate of 17%.
Required:
Under the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the
amount of sales tax payable by/refundable to MA and the amount of sales tax to be carried
forward, if any, for the tax period February 2016. (18)
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)
Principles of Taxation Page 4 of 5
(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
Cost of sales (20,500,000)
Gross profit 9,500,000
Administrative and selling expenses (4,732,000)
Financial charges (980,000)
Other income 1,700,000
Profit before taxation 5,488,000
Additional information:
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.
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:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
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.
Show all relevant exemptions, exclusions and disallowances.
Tax rates are given on the last page.
(THE END)
Principles of Taxation Page 5 of 5
Part II
Initial Allowance and First Year Allowance
The rate of initial allowance for eligible depreciable assets shall be 25%.
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2016
Ans.1 Wajahat
Computation of income tax liability
For the tax year 20X6
Rupees
Income from Salary:
Page 1 of 6
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2016
A deduction shall only be allowed for expenditure incurred on the entertainment of persons
related directly to Akram’s business.
The Board has authority to prescribe any special tax year in respect of any particular class
of taxpayers.
(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
(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
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.
Page 3 of 6
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2016
Page 4 of 6
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2016
(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.
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PRINCIPLES OF TAXATION
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Certificate in Accounting and Finance – Spring 2016
(c) Following are the six ethical issues faced by tax administration authorities under the four
pillars of tax administration:
(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
(vii) Corruption
(viii) Lack of Autonomy
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)
Page 6 of 6
Certificate in Accounting and Finance Stage Examinations
The Institute of 7 September 2015
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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:
Rupees
Basic salary (per month) 250,000
Medical allowance (per month) 37,500
Housing allowance (per month) 25,000
Travel allowance (per month) 11,500
(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.
Other information relevant to tax year 20X5 is as under:
(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.
Principles of Taxation Page 2 of 4
(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:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,
compute the taxable income of Mukarram for tax year 20X5. (20)
Note: show all relevant exemptions, exclusions and disallowances.
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)
Principles of Taxation Page 3 of 4
(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.
Rupees
Supplies:
to corporate customers – registered 20,000,000
to Government hospitals – un-registered 3,780,000
Q.6 (a) Under the provisions of the Sales Tax Act, 1990 explain the following:
(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)
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
Ans.1 Mukarram
Computation of Taxable Income and Tax liability
For the tax year 20X5
Rupees
Income from Salary:
Capital Gain:
Sale of personal car ( the loss on sale of Rs. 50,000 is not recognized as the car was
for personal use and is not covered under capital asset.) -
Capital loss of Rs. 30,000 on sale of diamond ring not recognized -
Consideration received on disposal of painting 275,000
Less: Cost of acquisition of painting (100,000)
Insurance premium paid (15,000)
Gain on disposal of painting 160,000
Since holding period is > one year gain would be reduced to 75% 120,000
Exempt income:
Rent of Rs. 750,000 received from agricultural land -
Rent of Rs. 325,000 received from building -
-
Page 1 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
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.
Ans.3 (a) (i) No you would not be regarded as a non-resident individual as by virtue of your
employment in Pakistan embassy you were the employee of Federal Government and
would be treated as a resident individual for tax year 2015. For this purpose it is not
essential that the stay was not at the same place.
(ii) The foreign levy equivalent to PKR 150,000 paid on the foreign income may be
regarded as a foreign income tax if the following conditions are satisfied:
the levy is a tax; and
the tax is substantially equivalent to the income tax imposed by the Income Tax
Ordinance, 2001 on the related foreign income.
A foreign levy is a tax if it requires a compulsory payment pursuant to the
authority of the foreign country to levy taxes.
(iii) Yes you would be required to file the wealth statement as every resident taxpayer
being an individual, filing a return of income for any tax year shall furnish a wealth
statement and wealth reconciliation statement for that year along with such return.
(b) The dates by which appeal can be filed with the Commissioner (Appeals) in the
following cases:
(i) Date of assessment order is irrelevant; 30 days will be calculated from
date of service of demand notice that is 1 January 2015. Thus appeal can
be filed by 31.1.2015
(ii) Sixty days from the submission of refund application i.e. 17 June 2015,
Appeal can be filed (within 30 days) by 17.07.2015
Derivative products:
Derivative products means a financial product which derives its value from the underlying
security or other asset, may be traded on stock exchange of Pakistan and includes
deliverable future contracts, cash settled future contracts, contracts of rights and options.
Page 3 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
Ans.5 Rahbar
Computation of Net Sales Tax Liability
For the tax period August 2015
Page 4 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
Working: (W-1)
Purchases from local registered persons 25,800,000
Less: value of material on which input tax not admissible
Purchases against which discrepancy indicated by CREST (1,600,000)
Purchases from supplier whose registration has been suspended (2,000,000)
Purchase of wires and cables (500,000)
Purchase of electrical and sanitary fittings (900,000)
20,800,000
Apportionment of input tax: (W-2)
Residual input tax 3,748,500
Exempt supplies (Government hospital) 3,780,000
Total supplies (20,000,000 + 3,780,000 + 375,000 + 175,000) 24,330,000
Inadmissible input tax [(3,780,000 ÷ 24,330,000) × 3,748,500] 582,381
(ii) Supply:
Supply means:-
a sale or other transfer of the right to dispose of goods as owner, including
such sale or transfer under a hire purchase agreement, and also includes
putting to private, business or non-business use of goods produced or
manufactured in the course of taxable activity for purposes other than those of
making a taxable supply;
auction or disposal of goods to satisfy a debt owed by a person; and
possession of taxable goods held immediately before a person ceases to be a
registered person:
Provided that the Federal Government, may by notification in the official
Gazette, specify such other transactions which shall or shall not constitute
supply;
The original copy of the Credit Note shall be sent to Mubarak Enterprises and the duplicate
shall be retained for record.
Mubarak Enterprises shall issue a Debit Note with reference to the Credit Note issued by
Baber Associates as an acknowledgement of the receipt of the same. The Debit Note shall
contain the same details as are provided in the corresponding Credit Note.
Page 5 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
Ans.7 Canons of Taxation are the basic principles set to build a 'Good Tax System'. Main canons of
taxation are as follows:
(i) the remuneration payable to the President and other expenditure relating to his office, the
remuneration payable to:
the Judges of the Supreme Court and the Islamabad High Court
the Chief Election Commissioner;
the Chairman and the Deputy Chairman;
the Speaker and the Deputy Speaker of the National Assembly;
the Auditor-General;
(ii) The administrative expenses, including the remuneration payable to officers and servants,
of the Supreme Court, the Islamabad High Court, the department of the Auditor-General,
the Office of the Chief Election Commissioner and of the Election Commission and the
Secretariat of the Senate and the Secretariat of National Assembly;
(iii) All debt charges for which the Federal Government is liable, including interest, sinking
fund charges, the repayment or amortisation of capital, and other expenditure in connection
with the raising of loans, and the service and redemption of debt on the security of the
Federal Consolidated Fund;
(iv) Any sums required to satisfy any judgment, decree or award against Pakistan by any court
or tribunal; and
(v) Any other sums declared by the Constitution or by Act of Majlis-e-Shoora (Parliament) to
be so charged.
Page 6 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2015
(THE END)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations
The Institute of 7 March 2015
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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:
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)
Principles of Taxation Page 2 of 4
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:
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:
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)
Principles of Taxation Page 3 of 4
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:
LHR PAR BER
----- Rs. in million -----
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
Exempt supplies 1,874,000
Export to USA 2,000,000
Purchases
Purchases from registered person 21,710,000
Import of a machine 2,500,000
(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)
Principles of Taxation Page 4 of 4
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
S. No. Taxable income Rate of tax
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
Where the taxable income exceeds Rs. 2,500,000 but does not exceed Rs. 347,500 + 25% of the
5.
Rs.4,000,000 amount exceeding Rs. 2,500,000
Where the taxable income exceeds Rs. 4,000,000 but does not exceed Rs. 722,500 + 30% of the
6.
Rs.6,000,000 amount exceeding Rs. 4,000,000
Rs. 1,322,500 + 35% of the
7. Where the taxable income exceeds Rs.6,000,000
amount exceeding Rs. 6,000,000
Explanations:
1 The amount received from employment in UAE is foreign source income and since Tahir is
a citizen of Pakistan and was not resident in last four tax years, such income is exempt from
tax in this and the next year.
3 The plot is covered in the definition of immovable property. Since holding period of
property is more than two years, the rate of tax would be zero.
Page 1 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2015
Ans.2 (a) 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 is above the
maximum amount not chargeable to tax.
(iii) Any non-profit organization.
(iv) Any welfare institution.
(v) Any person who has been charged to tax in respect of any of the two preceding tax
years.
(vi) Any person who has a carried forward loss.
(vii) Owner of immovable property with a land area of 250 square yards or more.
(viii) owns immoveable property with a land area of five hundred square yards or more
located in a rating area;
(ix) Owner of a flat having covered area of 2000 square feet or more located in a rating
area;
(x) Owner of a motor vehicle having engine capacity above 1000cc.
(xi) Holder of National Tax Number.
(xii) Holder of commercial or industrial connection of electricity where the amount of
annual bill exceeds five hundred thousand.
(xiii) 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.
(xiv) Every individual whose income under the heading ‘Income from business’ is
between Rs. 300,000 and Rs. 400,000
(b) In the following circumstances, the Commissioner may require a person or person’s
representative to furnish a return of income for a period of less than twelve months:
(i) the person who has died;
(ii) the person who has become bankrupt or gone into liquidation;
(iii) the person who is about to leave Pakistan permanently;
(iv) the Commissioner otherwise considers it appropriate to require such a return to be
furnished.
(c) The Commissioner may, if a taxpayer fails to furnish return of income as required, based on
any available information or material and to the best of his judgment, make a provisional
assessment of the taxable income and issue a provisional assessment order specifying the
taxable income and the tax due thereon.
The provisional assessment order is treated to be as the final assessment orderafter the
expiry of forty five days from the date of service of order of provisional assessment;
Rupees
Salary (350,000 6 ) 2,100,000
Leave encashment 150,000
Golden Handshake scheme 4,000,000
Total taxable income 6,250,000
Page 2 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2015
Option 2: Tax on salary at applicable rate and final settlement amount at average rate
of tax
Rupees
Salary (350,000 6 ) 2,100,000
Leave encashment 150,000
2,250,000
Munir should select option 2 as it would result in tax saving of Rs. 295,239 (1,218,750 – 923,511)
Ans.4 (a) (i) ‘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 the 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.
(ii) The income given in the question would be chargeable under the head
Income from other sources
Income from other sources
(b) Rules relating to set off and carried forward of losses of AOP:
The AOP is entitled to set off and carry forward its losses against its income only.
However, share of loss from AOP is neither adjustable against the income of its
members nor it is considered for rate purpose.
Tax payable at proportionate Pakistan income tax (13,572,000 ÷ 41,000,000 24,000,000) 7,944,878
Ans.7 Bashir
Computation of Sales Tax Payable / Refundable
For the tax period February 2015
Taxable Value Sales Tax
Rupees
Sales tax credits - Input Tax
Purchases from registered suppliers [21,710,000-500,000] 21,210,000 3,605,700
Purchase of machinery 2,500,000 425,000
Tax not claimed for the tax period of January 2015 55,900
4,086,600
Less : Inadmissible / un-adjustable input tax (W-1) (487,813)
Input tax for the month 3,598,787
(+) previous month credit brought forward 410,000
Accumulated credit 4,008,787
Page 5 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2015
Ans.8 (a) In the following cases a registered person shall not be entitled to adjust the input
tax liability against output tax liability:
(i) Input tax on goods or services used or to be used for any purpose other than
for taxable supplies.
(ii) Input tax on such goods or services which the Federal Government may
specify through a Gazette notification.
(iii) The goods which are subject to extra tax in addition to normal tax payable at
17%.
(iv) Input tax on goods or services in respect of which sales tax has not been
deposited into the government treasury, by the supplier.
(v) Purchases, in respect of which a discrepancy is indicated by CREST or input
tax of which is not verifiable in the supply chain.
(vi) On fake invoices.
(vii) Input tax on purchases made by such person who fail to furnish the
information required by the FBR.
(viii) Such proportion of the input tax which is attributable to non-taxable
supplies.
(ix) If payment against purchases exceeding Rs. 50,000 is not made through
proper banking channel.
(x) Vehicles falling in Chapter 87 of the 1st Schedule of the Customs Act,1969.
(xi) Tax on gifts and give aways.
(xii) If payment in case of a transaction on credit is not made within one hundred
and eighty days of issuance of the tax invoice.
(c) Saleem, being a registered person, shall not be allowed a refund of input unless 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 Saleem.
In the case of unadjusted input tax related to zero rated and export made during
that tax period, the excess amount of input tax shall be refunded not later than
forty-five days of filling of refund claim in such manner and subject to such
conditions as the Board may, by notification in the official gazette specify.
Page 6 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Spring 2015
Ans.9 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.
Tax incentives for agro based projects to promote agriculture.
Ans.10 Following are the indirect taxes under the Pakistani Taxation System.
A registered person can make adjustment of tax paid at earlier stages against the tax
payable by him on his supplies.
(THE END)
Page 7 of 7
Certificate in Accounting and Finance Stage Examinations
The Institute of 9 September 2014
Chartered Accountants 3 hours – 100 marks
of Pakistan Additional reading time – 15 minutes
Principles of Taxation
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:
(b) He was also provided the following benefits in accordance with the terms of his
employment:
(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)
Principles of Taxation Page 2 of 4
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:
(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)
Principles of Taxation Page 3 of 4
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
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)
(THE END)
Principles of Taxation Page 4 of 4
EXTRACTS FROM THE FIRST SCHEDULE OF THE INCOME TAX ORDINANCE, 2001
RATES OF TAX
Division I
Rates of Tax for Individuals
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
Where the taxable income exceeds Rs.1,400,000 but does not exceed Rs. 82,500 + 12.5% of the
4.
Rs.1,500,000 amount exceeding Rs. 1,400,000
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
Where the taxable income exceeds Rs.1,800,000 but does not exceed Rs. 140,000 + 17.5% of the
6.
Rs.2,500,000 amount exceeding Rs. 1,800,000
Where the taxable income exceeds Rs.2,500,000 but does not exceed Rs. 262,500 + 20% of the
7.
Rs.3,000,000 amount exceeding Rs. 2,500,000
Where the taxable income exceeds Rs.3,000,000 but does not exceed Rs. 362,500 + 22.5% of the
8.
Rs.3,500,000 amount exceeding Rs. 3,000,000
Where the taxable income exceeds Rs.3,500,000 but does not exceed Rs. 475,000 + 25% of the
9.
Rs.4,000,000 amount exceeding Rs. 3,500,000
Where the taxable income exceeds Rs.4,000,000 but does not exceed Rs. 600,000 + 27.5% of the
10.
Rs.7,000,000 amount exceeding Rs. 4,000,000
Rs. 1,425,000 + 30% of the
11. Where the taxable income exceeds Rs.7,000,000
amount exceeding Rs. 7,000,000
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Page 1 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Ans.2 (a) An association of persons shall be liable to tax separately from its members and
where the association of persons has paid tax on its income, the amount received by
a member of the association in the capacity as member out of the income of the
association shall be exempt from tax.
Therefore, the share of profit received from AOP by Mr. Farhan is exempt from tax.
However, the income from AOP will be included in Farhan’s income for
determining the rate of income tax. Accordingly, his tax liability would be computed
by using the following formula:
(A/B) × C
Where:
A is the amount of tax that would be assessed to the individual for the year if the
amount of profit were chargeable to tax;
B is the taxable income of the individual for the year including the amount of
the profit; and
C is the individual’s actual taxable income for the year.
(b) The term dividend includes any payment by a private limited company by way of
loan to its shareholder for the individual benefit of the shareholder to the extent of
accumulated profit of the company.
Page 2 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Ans.3 (All
amounts
are in Rs.)
Taxable
Income
(a) Share of YPL - Employees share scheme
Fair market value of shares on 30 November 2013 (25,000× 55) 1,375,000
Purchase price (25000*25) 625,000
Income from salary A 750,000
3,845,625
Ans.4 Under the following situations an asset shall be treated to have been disposed off:
(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:
(i) sold , exchanged ,transferred or distributed; or
(ii) cancelled, redeemed, relinquished, destroyed, lost, expired or surrendered.
(b) 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.
(c) 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.
(d) Where a business asset is discarded or ceases to be used in business, it shall be treated to
have been disposed of.
(e) Where a depreciable asset that has been used by a person in Pakistan is exported or
transferred out of Pakistan, the person shall be treated as having disposed of the asset at
the time of the export or transfer for a consideration received equal to the cost of the
asset.
Page 3 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Ans.5 (a) (i) The following persons engaged in making of taxable supplies in Pakistan,
including zero-rated supplies are required to be registered:
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) 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.
Page 4 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Working:
Apportionment of Input tax
Unadjustable
Amount
input tax
Total local supplies
(14,500,000+10,254,980+980,000+4,000,000)/8,666,940 29,734,980 -
Zero rated supplies 18,650,000 2,999,694
Exempt supplies 5,500,000 884,628
Total sales 53,884,980 3,884,322
Page 5 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
Ans.7 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
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;
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 documentation of 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.
Ans.8 A concise code which can enlist ethical 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 ideal 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 or economic circumstance;
(iv) Provide prompt, efficient and quality service to all stakeholders in an effort to exceed
their expectation;
(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.
Page 6 of 7
PRINCIPLES OF TAXATION
Suggested Answers
Certificate in Accounting and Finance – Autumn 2014
(b) The duties of the National Finance Commission 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;
(iv) Any other matter relating to finance referred to the Commission by the
President.
(THE END)
BY HAIDER
Page 7 of 7