Download Calculation of Tax Part 8-Taxation-Exam Paper and more Exams Business Taxation and Tax Management in PDF only on Docsity!
ADVANCED TAXATION (MARKS 100)
(3 hours)
Q.1 Mr. and Mrs. Adil are equal partners in Burq Enterprises (BE). The firm is engaged in the import and supply of electric generators. It also provides project consultancy services to various corporate customers. Following figures have been extracted from the accounting records of the firm for the tax year 2010:
Rs. in ‘ Sales of imported generators 574, Receipts from consultancy services 55, Total revenue 629, Cost of sales (generators) (429,520) Gross profit 199, Administrative and selling expenses (96,300) Finance cost (9,000) Profit before taxation 94,
Following further information is also available from the records:
(i) The generator sales are inclusive of 16% sales tax. (ii) Cost of sales includes customs duty of Rs. 50.0 million, sales tax Rs. 63.0 million and withholding taxes paid at import stage @ 4% of the value of goods of Rs. 413. million. (iii) Administrative and selling expenses are common in nature. These include salary of Rs. 500,000 paid to each partner every month and withholding taxes deducted @ 6% on receipts from consultancy services. (iv) Finance cost is related to commercial imports except interest of Rs. 1.20 million paid to Mrs. Adil on her capital account. (v) On January 01, 2010 Adil started using one of the office equipment at his residence. The market price of the equipment at that time was Rs. 1.5 million with a written down value of Rs. 1.0 million. (vi) On July 01, 2009 Adil let out his apartment to a close relative at a monthly rent of Rs. 10,500. The fair market rent in the area was Rs. 12,250. He also received a non- adjustable deposit of Rs. 110,000. Another non-adjustable deposit of Rs. 85, received from an earlier tenant in July 2007 was refunded. (vii) Adil purchased 50,000 shares of Rs. 10 each, of an unlisted public company in July 2005 at the rate of Rs. 150 per share. In August 2006 he received bonus shares, ranking pari passu, in the ratio of 1 bonus share for every 5 shares held. In May 2010 he sold 80% of his bonus shares at a price of Rs. 135 per share.
Required: In the light of the provisions of Income Tax Ordinance, 2001, compute the taxable income and tax liability of the following for the tax year 2010: (a) Burq Enterprises (10) (b) Mr. Adil (09)
Q.2 Big Pharma Limited (BPL) is engaged in the manufacturing of pharmaceuticals products. The Company has three branches in Pakistan and one branch each in Qatar and Oman. BPL sells its products through various distributors. Assume that the company’s profit and loss account and the related details for the period ending June 30, 2010 are as under:
Rs. in ‘ Sales 96, Cost of sales (66,850) Gross profit 29, Administrative and selling expenses (10,600) Finance cost (3,100) Other charges ( including WWF of Rs. 0.350 million) (2,400) Other income 4, Profit before taxation 17,
Cost of sales includes: Rs. in ‘ Accounting depreciation 3, Provision for slow moving stock 1, Demurrage paid to custom authorities 100 Royalty paid against manufacturing rights to a non resident 1,
Administrative and selling expenses include: Rs. in ‘ Accounting depreciation 800 Damages paid to distributors on breach of contract 300 Provision for bad debts 1, Small items of office equipment charged off ( Useful life is more than 1 year) 1,
Opening and closing balance of provision for bad debt account was Rs. 2.50 million and 3. million respectively. Bad debts written off during the year include an interest free loan of Rs. 0.20 million provided to Oman branch.
Finance cost includes unrealized exchange loss of Rs. 1.35 million and interest of Rs. 1. million paid on a working capital loan acquired from a non resident foreign bank. No tax was deducted by the company on payment of interest considering the bank did not have any permanent establishment in Pakistan.
Other income includes: Rs. in ‘ Profit from Qatar branch 2, Loss from Oman branch (3,400)
Tax depreciation for the year was Rs. 6.00 million. There was also a carried forward tax loss of Rs. 6.10 million and an unadjusted foreign tax credit of Rs. 0.12 million from tax year
- Following taxes were paid by the company during the year:
Rs. in ‘ Deducted and paid by distributors 2, Paid on import of raw material 2, Taxes paid in Qatar 225 Unadjusted minimum tax for prior years 450
Required: Compute the income tax liability of the company for the tax year 2010. Tax rate applicable to the company is 35%. (13)
Q.6 Olive Limited (OL) is registered at the Large Taxpayer Unit of the Inland Revenue Department. It is engaged in the manufacture and trading of FMCG in the country. During the month of May 2010 following activities were carried out by the company:
Rs. in ‘ Purchases: (Items subject to sales tax and special excise duty): Import of raw material for in-house consumption 15, Import of finished products 8, Packing material manufactured locally 6, Supplies: Manufactured products:
- local sales (subject to sales tax and special excise duty) 20,
- Exempt goods 4,
- Export to Bangladesh 4, Commercial imports 10,
Following information is also available:
(i) In order to meet the high consumer demand, OL purchased a new machinery for Rs. 1,200,000. The machinery was put to use during the same month. A motor vehicle of Rs. 1,500,000 was also acquired for the sales department. (ii) Sales tax of Rs. 20,000 was paid under Provincial Sales Tax Ordinance on services provided by clearing agents for imports. (iii) Rs. 650,000 were paid against advertisement services. (iv) Sales tax of Rs. 60,000 was deducted from payments to suppliers of packing material. (v) Sales tax withheld by customers amounted to Rs. 238,000. (vi) Sales tax credit of Rs. 325,000 was brought forward from previous month.
Sales tax and special excise duty are payable at the rate of 16% and 1% respectively. All the above amounts are exclusive of sales tax and special excise duty, wherever applicable.
Required: In view of the provisions of Sales Tax Act, 1990 and Federal Excise Act, 2005, compute the following for the tax period May 2010. Show computation wherever necessary.
(a) Sales tax liability and net sales tax payable with return. (15) (b) Special excise duty payable (05)
Q.7 (a) In the light of the provisions of Federal Excise Act, 2005, fill in the following blanks with the appropriate answers.
(i) Every person who for any reason whatever has collected any duty in excess of the duty actually payable and the incidence of which has been passed on to the consumer, shall pay the amount so collected to __________ (ii) __________ means Azad Jammu and Kashmir, Northern Areas and such other territories or areas to which the Federal Excise Act does not apply. (iii) __________ includes an undertaking, firm or company, whether incorporated or not, an association of persons and an individual. (iv) __________ means a person appointed by a manufacturer in or for a specified area to purchase goods from him for sale to a wholesale dealer in that area. (02)
(b) Explain the following with reference to the provisions of Federal Excise Act, 2005. (i) Applicable value and rate of duty. (04) (ii) Supply (^) (02) (THE END)
RATES OF TAX
Division I Rates of Tax for Individuals and Association of Persons
S. No. Taxable Income Rate of Tax (1) (2) (3)
- Where the taxable income does not exceed Rs. 100,000 0.00%
- Where the taxable income exceeds Rs. 100,000 but does not exceed Rs. 110,000 0.50%
- Where the taxable income exceeds Rs. 110,000 but does not exceed Rs. 125,000 1.00%
- Where the taxable income exceeds Rs. 125,000 but does not exceed Rs. 150,000 2.00%
- Where the taxable income exceeds Rs. 150,000 but does not exceed Rs. 175,000 3.00%
- Where the taxable income exceeds Rs. 175,000 but does not exceed Rs. 200,000 4.00%
- Where the taxable income exceeds Rs. 200,000 but does not exceed Rs. 300,000 5.00%
- Where the taxable income exceeds Rs. 300,000 but does not exceed Rs. 400,000 7.50%
- Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 500,000 10.00%
- Where the taxable income exceeds Rs. 500,000 but does not exceed Rs. 600,000 12.50%
- Where the taxable income exceeds Rs. 600,000 but does not exceed Rs. 800,000 15.00%
- Where the taxable income exceeds Rs. 800,000 but does not exceed Rs. 1,000,000 17.50%
- Where the taxable income exceeds Rs. 1,000,000 but does not exceed Rs. 1,300,000 21.00%
- Where the taxable income exceeds Rs. 1,300,000 25.00%
DIVISION VI
Income from property
S. No. Gross amount of rent Rate of taxes
- Where the gross amount of rent does not exceed Rs. 150,000.
NIL
- Where the gross amount of rent exceeds Rs. 150,000 but does not exceed Rs. 400,000.
5 percent of the gross amount exceeding Rs. 150,000.
- Where the gross amount of rent exceeds Rs. 400,000 but does not exceed Rs. 1,000,000.
Rs. 12,500 plus 7.5 percent of the gross amount exceeding Rs. 400,000.
- Where the gross amount of rent exceeds Rs. 1,000,000.
Rs. 57,500 plus 10 percent of the gross amount exceeding Rs. 1,000,000.
