RISE PREMIER SCHOOL OF ACCOUNTANCY
Certificate in Accounting and Finance Stage Examination
Suggested mock solution
Answer-1
NAEEM
COMPUTATION OF TAXABLE INCOME & TAX LIABILITY
TAX YEAR 2023
Rupees
Income from salary
Received from HPL 7,200,000
Basic salary (Rs. 800,000 ×9 months)
Medical Allowance
72,000
(Rs.88,000 x 9 = 792,000) - [7,200,000x10%]
Company maintained car:
150,000
-personal use only (2,000,000 x 10% x 9/12)
Bonus (received after year end) _
Special allowance (Rs. 25,000 x 9) =225,000 225,000
Free food provided in lunch 135,000
Provident fund contribution
[65,000 × 9 = 585,000 – 150,000] 435,000
(Allowed limit is 1/10 of the basic salary or 150,000 whichever is lower)
8,217,000
Exempt Income
Salary received from DSL (From July 22 to September 22) (US $ 20,000×3
13,860,000
= 60,000 @ Rs.231)
FTR Income (separate block of income)
Dividend income from a listed company
811,765
(600,000+90,000=690,000+121765 for withholding tax)
Total Income 22,888,765
Less:
Exempt Income: salary from DSL (13,860,000)
FTR –dividend income (811,765)
Less: Deductible allowance
Zakat paid/deducted (90,000)
Taxable income for the year 8,127,000
Mark-up paid to sch. bank Rs. 30m×15%×7/12 = 2,625,000
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Allowed limit: 50% of the taxable income i.e. Rs. 4,063,500 or Rs. 2 million
whichever is lower (2,000,000)
Taxable income for the year 6,127,000
Tax Liability
Tax on Rs. 4,100,000 700,000
Tax on amount exceeding
[(6,127,000–4,100,000)×35%] 709,450
Tax on dividend received 121,765
1,531,215
Tax under FTR
Tax on dividend received 121,765
Tax withheld from salary (1,500,000)
Net tax refundable (90550)
Answer-2
Kumar & Co.
Computation of taxable income
Tax Year 2022 Tax Year 2023
----------- Rupees -----------
Income from Business (20,000,000) 30,000,000
Add: Commission to SPL 8,000,000 8,000,000
(12,000,000) 38,000,000
Dividend income - 6,000,000
Total income (12,000,000) 44,000,000
Less: FTR income - (6,000,000)
Taxable income (12,000,000) 38,000,000
B/F loss (12,000,000)
Taxable income 26,000,000
Less: SPL’s share of 50% (13,000,000)
Taxable income of AOP after deducting SPL’s share 13,000,000
Tax liability of AOP: Rupees
Upto 5,600,000 1,610,000
On balance @ 45% 3,330,000
4,940,000
Computation of taxable income and tax liability of Bilal:
Tax Year 2022 Tax Year 2023
----------- Rupees -----------
Capital gain on sale of property (Separate
block of income) - 5,500,000
Share of AoP - 2023 – exempt
(26,000,000*20%) - 5,200,000
Tax liability on capital gain related to sale of immoveable
property [5,500,000×7.5%] 412,500
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Computation of taxable income and tax liability of Okasha:
Tax Year 2022 Tax Year 2023
----------- Rupees -----------
Income from Business 8,000,000 2,300,000
Taxable income 8,000,000 2,300,000
Share of profit of AOP
-
Share of AoP - 2023 – exempt 7,800,000
(26,000,000*30%)
Taxable income for rate purpose 10,100,000
-
On 10,100,000 [ 1,610,000+ (4,500,000*45%) ] 3,635,000
Tax rate to be charged -
[(3,635,000/10,100,000)*2,300,000] 827,772
Answer-3
1)
Normal assessment
If a taxpayer has furnished a complete return of income other than a revised return, the
Commissioner shall be treated to have assessed the income and tax due thereon.
Best judgment assessment:
▪ This type of judgment is made where a person fails to:
– furnish return of income in response to notice of a Commissioner; or
– furnish a return as required to be filed by air carrier or shipping companies; or
– furnish the wealth statement; or
– produce before the commissioner, or a special audit panel or any person employed
by a firm of chartered accountants or a firm of cost and management accountants,
accounts, documents and records required to be maintained or any other relevant
document or evidence that may be required by him for the purpose of making
assessment of income and determination of tax due thereon.
Under any of the above cases, the Commissioner may, based on any available
information or material and to the best of his judgment, make an assessment of the
taxable income of the person and the tax due thereon.
2) Notice of discontinued business:
Sole proprietor shall give the Commissioner a notice in writing to that effect within fifteen
days of the discontinuance of business.
He shall furnish a return of income for the period commencing on the first day of the tax year
in which the discontinuance occurred and ending on the date of discontinuance and this
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period shall be treated as a separate tax year
3) Additional Records
Following additional records are required to be kept by sole proprietor whose
business income exceeding Rs. 500,000 as compared to a sole proprietor whose
business income is upto Rs. 500,000.
▪ In case of a wholesaler, distributor, dealer and commission agent, where a
single transaction exceeds Rs. 10,000, the name and address of the customer ;
▪ Cash book and/or bank book;
▪ General ledger or annual summary of receipts, sales, payments, purchases
and expenses under distinctive heads;
▪ Where a single transaction exceeds Rs. 10,000 with the name and address
of the payee; and
▪ Where the taxpayer deals in purchase and sale of goods, quarterly inventory of stock-
in-trade showing description, quantity and value.
4) An appeal may be filed with the Commissioner if a person is dissatisfied with the
order passed as follows:
A best judgment assessment (ex-parte assessment) based on any available information or
material to the best of the Taxation Officer’s / Commissioner’s judgment.
(i) A best judgment assessment (ex-parte assessment) based on any available
information or material to the best of the Taxation Officer’s / Commissioner’s
judgment.
(ii) An amendment of assessment issued by the Commissioner
(iii) An order holding an individual personally liable to pay the amount of tax which was required
to be collected or deducted by him/her or because of failure to pay the collected or deducted
amount as required by the law.
(iv) An order declaring or treating a person as a representative of a non-resident person.
Answer-4
objectives
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;
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Answer-5
Sakina Garments Limited
a) Definite Information
Definite information includes information on sales or purchases of any goods made by the
taxpayer, receipts of the taxpayer from services rendered or other receipts chargeable to tax
under the Ordinance on the acquisition / possession / disposal of any money / asset /
valuable article, or investment made or expenditure incurred by the taxpayer.
b)
▪ Commissioner is empowered to amend further the original assessment order as
many times as may be necessary on the basis of audit or definite information that:
any taxable income has escaped assessment;
total income has been under assessed or assessed at too low tax rate or has
been the subject of excessive relief or refund; or
any amount under a head of income has been misclassified.
The Commissioner may also amend the original assessment order if he considers that
the assessment order is erroneous in so far as it is prejudicial to the interest of revenue.
However, the Commissioner can make amendment in the original assessment order
within the later of:
five years from the end of the financial year in which the original assessment
order is issued or treated as issued by the Commissioner; or
one year from the end of the financial year in which the amended assessment
order is issued or is treated as issued.
▪ Considering the above provisions of law, SGL’s position is as follows:
Five year period will be completed on 30-06-2025 as the original assessment
order was filed on 30-09-2018 (financial year 30-06-2019)
One year would be completed on 30-06-2024 as the amended assessment
order was issued on 24 February 2023 (financial year 30-06-2023).
Therefore, the Commissioner still have time to further amend the assessment order.
However, no further amendment can be made by the Commissioner unless the SGL has
been provided with an opportunity of being heard.
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Answer-6
Saud bakers (SB)
Computation of total income,
taxable income and tax liability For tax year 2023
Rs. in million
Income from business:
Profit before tax 127.00
Less: Rental income
- in cash (0.7×12) (8.40)
- in kind (120×7,200×12) (10.37)
(18.77)
Less: Market value of eggs received as a rent and used as a raw
Material (10.37)
Add: Purchase of various raw material on which no withholding tax was
deducted [27 or 40 (20% of 200 i.e. total purchase, whichever is lower]
27.00
Add: Purchase of milk powder for personal use (10×10%) 1.00
Add: Salaries to partners (8.2+6+4.8) 19.00
Add: Purchase of new bakery plant 15.00
Less: Initial allowance (15×25%) (3.75)
Less: Normal depreciation [11.25(15–3.75)×15%] (1.69)
Add: Purchase of POS machines 0.50
Less: Depreciation on POS machines (cost of POS machines are
allowed as a tax credit) -
Add: Payment to IT company for development of an app. 5.60
Less: Amortization expense (App is available to use subsequent to the
year-end) -
Less: Depreciation of van (*9×15%) (1.35)
160.17
Exempt income:
Rent from agriculture land 18.77
Total income 178.94
Less: Rent from agriculture land (18.77)
Taxable income 160.17
Tax liability:
- On Rs. 5.6 million 1.610
- On excess amount @ 45% 69.56
71.17
Less: Tax credit u/s 64D [Amount invested
Lesser of: Rs. 0.5 million or (0.45)
Rs. 0.45 million (0.15 million × 3)
70.72
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Answer-7
Tax Avoidance:
▪ Make donations to an approved charity organization to claim a tax credit.
▪ A partnership firm may be converted into a small company to avail benefit in tax rate of
such company.
Tax Evasion Measures to prevent tax evasion
Mr. B earned an income of Rs. 10 million. Cash inflow/outflow shall be made through a
However, he only declared Rs. 6 million declared bank account.
which is verifiable from the banks. He has
hidden the remaining amount in a separate
bank account.
Mr. C earned a turnover of Rs. 10 million. Only those expenses shall be admissible which
However, he kept it as cash in his locker are paid through banking channel / Cash
and hid it from tax authorities. He paid all expenses shall not be admissible
related expenses from this cash.
Answer-8
Hashim Associate
Computation of Sales Tax Payable / Refundable
For the tax period February 2023
Taxable Sales tax
amount @ 18%
SALES TAX CREDITS (INPUT TAX) -------- Rupees --------
Taxable goods from registered customers 1,880,000
Less: Goods purchased from Haq Enterprises – (150,000)
Suspended
Goods purchased in cash (85,000)
Goods purchased from AB traders, not (50,000)
declared in its return
1,595,000 287,100
Taxable goods from un-registered customers 1,020,000 -
Packing material from un-registered person 415,000 -
Sales tax paid on electricity bill - September 2022 92,000 13,030
300,130
Fixed assets purchased 2,700,000 486,000
Total input tax 786,130
Add: Credit brought forward from previous month 425,000
Less: Inadmissible / un-adjustable input tax (196,388)
1,014,742
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(w-1)SALES TAX DEBITS (OUTPUT TAX)
Taxable goods to registered customers 3,750,000
Add: Discount given to associated undertaking 85,000
Less: Goods against which payment was (130,000)
received in Nov 22
3,705,000 666,900
Taxable goods to un-registered customers 1,250,000 225,000
Export - taxable goods (Zero rated) 1,700,000
Taxable supplies goods used for business 150,000 27,000
Promotion
Total supplies / output tax for the month 6,805,000 918,900
Admissible credit (90% of output tax i.e. Rs. 827,010 or input tax
excluding fixed assets (648,153) whichever is lower. (648,153)
Sales tax payable 270,747
Less: Input tax on fixed assets – machine [Taxable supplies portion (364,589)
only(W-1)]
Sales tax to be carried forward – fixed assets (93,842)
Sales tax to be carried forward [ 827 , 010 - 648 , 153 ] (178,857)
(272,699)
Further tax payable on sale to un-registered person (1,250,000 – 40,800
230,000 = 1,020,000 × 4%)
Sales tax refundable [121,411+74,977 (W-1)] 196,388
No adjustment would be made in the sales tax return on account of slow moving
stocks
Apportionment of input
W-1: Total supplies tax relating to
Fixed assets Taxable
supplies
-------------------- Rs. --------------------
Local taxable goods 5,105,000 364,589 223,153
Export – goods 1,700,000 121,411 74,977
6,805,000 486,000 300,130
Answer-9
1) All manufacturers of taxable supplies are required to be registered under the Sales Tax
Act, 1990, unless the manufacturer falls in the category of cottage industry. A
manufacturer located in residential area of Korangi, Karachi shall be considered to fall
under cottage industry if it also fulfills the following conditions:
▪ it does not have an industrial gas or electricity connection;
▪ Is located in a residential area;
▪ it does not have a total labour force of more than ten workers; and
▪ its annual turnover from all supplies does not exceed eight million rupees.
2) Tier 1 retailer is required to register while other than Tier 1 is not required to register.
3) Distributors of exempt supplies is not required to register.
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4) An exporter of taxable goods who intends to obtain sales tax refund against his zero rated
supplies is required to register.
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