The Professionals’ Academy of Commerce

Pakistan’s Leading Accountancy Institute

Certified Finance and Accounting Professional Stage Mock Examinations

May 20, 2025
3 hours – 100 marks
Additional reading time - 15 minutes

Tax Planning & Practices

Q.1 On December 2024, Bakir Limited (BL) a tier one retailer purchased two point of sale machines
amounting to Rs. 120,000 and Rs.250,000 respectively for installation and integration with Board’s
computerized system. Taxable income for tax year 2025 was Rs.12,000,000. The income was arrived at
after adjustment of the following items:
(i) Stock consumed has been computed as follows:
Opening stock 5,000,000
Purchases 65,000,000
Closing stock (32,000,000)
38,000,000
The net realizable value of the closing stock is Rs.40,000,000 against its cost of Rs.35,000,000
(ii) An amount of Rs.2,500,000 received a compensation from Sui Northern Gas Limited (SNGP) for
partial loss of profits on account of disrupted gas supply, as per the terms of agreement.
(iii) Legal and other fees of Rs.200,000 paid in connection with acquisition of piece of land during
the year amounting to Rs.5,000,000.
(iv) Gain of Rs. 1,000,000 on sale of piece of land (sale value Rs.6,000,000) acquired during the year
at (iii) above. The entire sale proceed was received in cash.
(v) Sold a machine for total consideration of Rs.1,000,000. The machine had been purchased for
Rs.1,500,000 on 01 August 2023 and was used in manufacture of IT products. No gain or loss
has been recognized in the accounts as the sale proceeds were still recoverable by the company
on 30 June 2025.
(vi) Gain of Rs.200,000 on sale of locally manufactured 1500CC motor vehicle which was sold prior
to its registration. BL purchased the vehicle from local manufacturer in 2025.
(vii) Rs.1,000,000 as return on investment in sukuks from a special purpose vehicle.
(viii) Administrative expenses including the following:
(a) Rs. 1,000,000 paid as rent for an office for two years from 01 July 2024.
(b) Rs.50,000 as donation to a political party which is staunch supporter of lower taxation for
corporate sector.
(c) Rs.100,000 as legal expenses for filing a court case against a former employee for the
recovery of loan advanced
(d) Rs.200,000 to Karachi Port Trust (KPT) for not lifting imported goods from the docks within
the time stipulated in KPT rules.
Required:
(i) Compute correct taxable income and tax liability of BL under the appropriate heads of income for the
tax year 2025. (15)
(ii) Give comments/reasons for the inclusion or exclusion in the computation of taxable income of each
of the item listed above. (11)

Q.2 You are working as Tax Manager in Nomani and Co. Chartered Accountants and are looking after tax
affairs of over 15 clients. Your tax partner has sought your opinion of following issues confronted by
various clients for the year ended 30 June 2025:
Non furnishing of withholding statement within due date by ABC Limited
Withholding tax was deducted and deposited on due date for all eligible transactions during the year,
however the company failed to file withholding statement of last quarter.
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Withholding tax on foreign payment by XYZ Limited

Selling expenses include a payment of Rs.5 million for advertisement services to Wireless Operators
Dubai (WOD), a non resident media person relaying from outside Pakistan. No tax was deducted from
the payment on the ground that WOD has no permanent establishment in Pakistan.
Legal and professional charges by OMG Limited
An invoice of Rs. 2 million was kept in suspense and not accounted for in the accounts for year ended 30
June 2024 as management of OMG Limited was negotiating with lawyer to reduce their charges. It was
not claimed as expense in tax year 2024. The Rs. 2 million was paid to lawyer on 03 June 2025 and was
recorded as expenditure while preparing tax computation for tax year 2025.
Adjustment of losses by CPL Limited
Company has calculated its taxable income in the following manner:
Head of income Amount
Foreign income from business 50,000,000
Foreign loss from other source (20,000,000)
Local loss from business (30,000,000)
Local income from other source 30,000,000
Local loss from property (20,000,000)
Loss from agriculture income (5,000,000)
Taxable income 5,000,000
Loss to be carried forward Nil
Purchase of apartment by HSA Limited
Company has recently purchased an apartment amounting to Rs. 50 million for their corporate office,
however no withholding tax was deducted while making the payment.
Futures contracts and swap dealing by JSB Bank Limited
Bank has regular dealing in future contracts and swaps. CFO of the company is not sure about how income
of bank will be computed from dealing in future contracts/swaps.
Unamortized expenses by GAMA Limited
Company has incurred substantial expenditures on renovation of rented business premises when acquired
in tax year 1. Company was expecting that they will retain the premises for 5 years and accordingly
planned to amortize the expenditure over a period of 5 years. However, company has decided to vacate
the premise in tax year 4. CFO has asked your opinion regarding treatment of unamortized expenditure
representing 40% of total expenditure.
Required:
In the light of the provisions of the Income Tax Ordinance, 2001 read with Income Tax Rules, 2002
explain the correct treatment to be adopted including if necessary the computation of income or loss in
respect of each of the above independent transactions. (15)

Q.3 (a) Mahad Limited (ML) is a manufacturer of high-quality surgical tools. ML has one main manufacturing
site in Lahore. The main head office is located on the same site as the factory, with a second office in
Islamabad used primarily for meetings.
ML sells surgical tools all over the world, with 90% of items being exported, and invoiced in the
customer’s domestic currency. ML has a world class reputation for the quality of its surgical tools.
In a bid to improve margins, the board is considering outsourcing manufacture of most of its product
range to a reputable manufacturer in Malaysia. The Malaysian provider will be required to invest in
machinery and training, but ML have agreed in principle to lend them the money of Rs. 500 million @
10% per annum to enable them to invest.
Required:
In the light of the provisions of the Income Tax Ordinance, 2001 read with Income Tax Rules, 2002
briefly discuss the income tax implications of outsourcing the products to the manufacturer in Malaysia.
(05)

(b) As part of group restructuring, a resident holding company has set up a wholly owned subsidiary outside
Pakistan. The control and management of the subsidiary affair’s is situated wholly in Pakistan. Shares
held by the holding company in different subsidiaries and associated companies have been transferred to
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offshore subsidiary at breakup values being higher than their respective costs.
Required:
In the light of the provisions of the Income Tax Ordinance, 2001 briefly explain whether holding company
is required to pay any tax on the difference between the breakup value of shares and their respective cost
prices. (05)

(c) In the light of the provisions of the Income Tax Ordinance, 2001 explain the withholding tax implications
for each of the following transactions:
(i) Payment to non resident for goods acquired through internet from outside Pakistan.
(ii) A company purchasing airline tickets from a travel agent .
(iii) Distribution of profit by a joint venture to its members.
(iv) Payment of lease rentals to a non resident company having no permanent establishment (PE) in
Pakistan.
(v) Rental payment by resident company who has acquired land from the Federal Government to
explore for precious stones and mineral deposits.
(vi) Payment of copyrights and patents.
(vii) Company executive acquiring goods and services through credit card payments that are later
reimbursed to them by company.
(viii) A company who intends to issue ordinary shares to its creditors in lieu of settlement of their
accounts. (08)

Q.4 (a) In the light of the provisions of Sales Tax Act, 1990 and relevant rules made thereunder, briefly explain
the sales tax implications in respect of each of the following independent situations:
(i) On 01 December 2024, ABC Limited sold taxable goods worth Rs.300,000 and purchased taxable
goods worth Rs.200,000 from single party XYZ Limited. Net payment of Rs. 100,000 along with
relevant sales tax was received by ABC Limited on 10 April 2025 to settle their account. On 19
May 2025, ABC Limited received a notice from Tax department for disallowance of input tax on
purchase of taxable goods of Rs.200,000.
(ii) Abdullah Private Limited (APL) is engaged in the business of manufacturing and sale of electricity
and is registered with Inland Revenue authority in Lahore. Company has received five notices under
various different sections of the Sales Tax Act, 1990 for audit of their sales tax affairs. CFO of the
company is of the opinion that a person can be selected for audit under one section only and there
is no need to respond to other four notices. (06)
(b) Jelly Enterprise (JE), a sales-tax registered person, failed to file its sales tax return despite receiving a
notice from the Commissioner of Inland Revenue (CIR).
Required:
Under the provisions of the Sales Tax Act, 1990 and the Rules made thereunder, discuss the action(s) CIR
may take against JE. Also, discuss the course of action available to JE against the action(s) of CIR.
(03)
(c) Ali Enterprise (AE), a registered person, sold taxable goods worth Rs. 16 million to Bali Enterprise (BE)
on 15 February 2025.
Required:
Under the provisions of the Sales Tax Act, 1990 and the Rules made thereunder, discuss whether AE is
entitled to claim the related input tax against above mentioned supply assuming BE is a retailer. (03)
(d) Ravi Ltd. is engaged in the manufacture and sale of fertilizers. It has recently set up a cogeneration plant
for the generation of electrical energy from oil and fuel to be used in the factory. Further the Company
has also purchased a boiler for use in the cogeneration plant. You are the tax advisor of the Company.
Required:
Write a letter to the Finance Director explaining the sales tax implication of the above transaction. (05)

Q.5 Mr. Junaid has intentionally created an offshore entity in a Dubai where there is no taxation due to
presence of double taxation treaty with Pakistan.
Required:
In the light of the provisions of the Income Tax Ordinance, 2001 briefly explain whether this will be
treated as tax avoidance or tax evasion. What powers does Commissioner have to counter any such tax
avoidance/evasion. (04)
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Q.6 Alpha Limited (AL) a company listed on PSX is engaged in variety of businesses across Pakistan. Various
divisions of AL are registered with federal and provincial sales tax authorities as manufacturer, importer,
wholesaler-cum-retailer. AL is also registered with Engineering Development Board. Following
information has been extracted from AL’s records for the month of May 2025.
Particulars Rupees in Million
Taxable supplies to registered person 100
Taxable supplies to un-registered person 85
Purchases from registered suppliers 350
Import of raw material 50
Machinery having no compatible substitute purchased from registered 20
supplier
(i) Taxable supplies to registered person include the following:
• Natural gas worth Rs.20 million supplied to chemical plant in Karachi.
• Natural gas worth Rs.10 million supplied to fertilizer plants in Faisalabad for urea manufacturing.
• Phosphoric acid worth Rs.5 million supplied to fertilizer plants in Lahore for manufacturing of
DAP.
• Locally manufactured laptops worth Rs. 5 million to a distributor.
(ii) Taxable supplies to un-registered person consist of the following:
• Supply of taxable goods worth Rs. 30 million to a distributor Mr. Hamza.
• Supply of taxable goods worth Rs. 20 million to Mr. Bilawal which is a cottage industry.
• Supply of taxable goods worth Rs. 15 million to Federal Government.
• Supply of taxable goods worth Rs. 20 million to wholesaler Daga Limited.
(iii) Raw material import consists of laptop batteries and adopters of Rs.30 million for manufacturing of
laptop and edible fruits of Rs.20 million.
All the above figures are exclusive of sales tax, except where it is implied otherwise.
Required:
In the light of the provisions of the Sales Tax Act, 1990 and Rules made thereunder, compute the amount
of sales tax payable by or refundable to AL and input tax to be carried forward, if any, for the tax period
May 2025. (14)

Q.7 Musharaf Limited (ML) is engaged in the business of manufacturing and import of cigarettes and is
registered under the Federal Excise Act, 2005. ML sells two different brands of cigarettes viz. A and B in
retail packing. Following information is available from ML’s records for the month of May 2025:
Brand A: Import of 195,000 packs of cigarettes from Greece. The value assessed by customs authorities
at import stage amounted to Rs. 39,000,000. ML sold 160,000 packs at a wholesale price of Rs.
220 per pack to a large distributor in Lahore whereas the remaining packs were sold on one-
month credit to a departmental store in Karachi at a retail price of Rs. 250 per pack of 10
cigarettes.
Brand B: Purchase of 3,900 kg of unmanufactured WP tobacco worth Rs. 323,700 from district Swabi.
The tobacco was provided to an independent manufacturer, Parwaz Limited (PL), in Peshawar
for the manufacture of brand B cigarettes. PL manufactured 390,000 packs of cigarettes and
invoiced gross conversion charges of Rs. 7,800,000 to ML. All the packs were sold by ML to
various stores at a retail price of Rs. 38 per pack of 10 cigarettes. ML paid the conversion charges
on 2 June 2025.
Required:
Under the provisions of the Federal Excise Act, 2005 compute the amount of duty payable by or
refundable to ML for tax period May 2025. (06)

(THE END)