Download Taxable Income, Tax Liability-Taxation-Exam Paper and more Exams Business Taxation and Tax Management in PDF only on Docsity!
Q.1 Mr. Mateen was employed with Melody Limited (ML) as an event organizer. On June 30, 20X1 he resigned from his employment without completion of notice period. On July 01, 20X1 he joined another company Rock Star Limited (RSL) as a senior event organizer. Following information is available relating to his assessment for the tax year 20X2:
(a) On July 01, 20X1 RSL paid Rs. 280,000 to ML as compensation in lieu of un-served notice period by Mr. Mateen.
(b) On July 15, 20X1 Mr. Mateen received a gratuity of Rs. 350,000 from an unrecognized gratuity fund maintained by ML. He also received Rs. 150,000 as leave encashment.
(c) In accordance with the terms of his employment with RSL, Mr. Mateen was provided with the following emoluments / benefits during the tax year 20X2:
(i) Basic salary of Rs. 245,000 per month and utility allowance of Rs. 21,000 per month. (ii) A reimbursement of personal medical expenses up to 15 % of the annual basic salary and Rs. 250,000 on account of hospitalization charges of his daughter were made after procuring hospital bills showing the national tax number of the hospital. These bills were also attested and certified by RSL. (iii) For the first two months of his employment, a pick and drop facility was provided to Mr. Mateen at a monthly rent of Rs. 25,000. On September 01, 20X1 RSL provided a company maintained 1300 cc car which was partly used for private purposes. The cost of the car was Rs. 1,500,000. (iv) Monthly salary of Rs. 6,000 was paid to Mr. Mateen’s house keeper. Mr. Mateen however, reimbursed 20% of the house keeper’s salary to RSL. (v) A special allowance of Rs. 50,000 was paid to meet expenses necessarily to be incurred in the performance of his official duties. Actual expenditure was Rs. 40,000. (vi) On January 01, 20X2, he was provided an interest free loan of Rs. 1,500,000. The prescribed benchmark rate is 11% per annum. (vii) A commission of Rs. 500,000 was paid for introducing new clients to the company. Withholding tax was deducted by RSL at the rate of 10% from such payments. (viii) The tax deducted at source from his salary by RSL for the tax year 20X2 amounted to Rs. 550,000.
(d) Apart from his employment with RSL, Mr. Mateen also organized events for private clients. He received a total of Rs. 1,000,000 from such clients. No tax was deducted from such receipts. However, he incurred an overall loss of Rs. 350,000 on organizing these events. (e) On May 31, 20X2 he received Rs. 180,000 from Mr. Ali as consideration for vacating his bungalow. (f) He also received a share of profit from a business in Malaysia equivalent to Pak. Rs. 535,000. He paid Rs. 130,000 in taxes in Malaysia on such income. (g) Mr. Mateen acquired 10,000 shares of a listed company from the Privatization Commission of Pakistan at a price of Rs. 100 per share on May 31, 20X1. He was allowed a tax credit of Rs. 100,000 in tax year 20X1 against this investment. On May 20, 20X2 he sold all the shares for Rs. 1,000,000. (h) He paid Zakat of Rs. 250,000 to an approved organization, through cross cheque.
Required: Compute the taxable income, tax liability and tax payable / refundable, if any, by Mr. Mateen for the tax year 20X2. (Tax rates are given on the last page) (20 marks)
Q.2 (^) (a) Samad Corporation (SC) supplies specialized material to various industrial concerns. The company has entered into following transactions during the month of February 2011.
(i) Supply of material costing Rs. 3 million to AB Limited (ABL). It has been agreed that ABL would settle the transaction by paying Rs. 1.5 million in cash and the balance amount by way of allowing SC to use ABL’s import quota. The market price of the supply is Rs. 3.5 million. (ii) Supply of material to DM Limited (DML) at a discounted price of Rs. 6.8 million. Due to particular relationship, DML has been allowed a special discount of 15% as against the normal business practice of 8%. (iii) Supply of 20 tons of material, falling under third schedule, to BML at a wholesale price of Rs. 138,000 per ton. The retail price of the material is Rs. 150,000 per ton.
Required: In each of the above situation, advise the management about the value of supply on which sales tax would be levied under the provisions of Sales Tax Act, 1990 (07 marks)
(b) List down the particulars to be mentioned on the debit note issued by the supplier in the event of change in the value of supply, under the Sales Tax Rules, 2006. (04 marks)
Q.3 Carrot Ltd (CL) is engaged in the manufacture, import and sale of electronic appliances for the past twenty years. When reviewing the company’s tax provisions, you noticed the following amounts appearing in the tax calculation for the year ended June 30, 20X2.
(i) Profit on debt of Rs. 500,000 paid on a working capital loan obtained from a foreign bank. CL did not deduct withholding tax while paying profit on debt considering the bank does not have a Permanent Establishment in Pakistan. (ii) Expenditure of Rs. 450,000 on promotion of a product which is expected to generate revenue for twelve years. (iii) Bad debt in respect of a staff loan, Rs. 25,000. (iv) Reimbursement of expenses of Rs. 300,000 to CL by the parent company. This amount was incurred by CL in 20X1 on marketing a new product imported from Dubai. (v) Initial allowance of Rs. 4,000,000 on a used equipment acquired locally from MSD Limited. (vi) Financial charges amounting to Rs. 100,000 and depreciation amounting to Rs. 300,000 on a vehicle acquired on finance lease from Radish Leasing. Lease rentals paid during the year amounted to Rs. 400,000.
Required: Under the provisions of Income Tax Ordinance, 2001 discuss the admissibility of the above amounts for tax purposes. (15 marks)
Q.4 (a) The tax collected on imports by large import houses is considered as a final tax unless they fulfill certain conditions specified under the Income Tax Ordinance, 2001. You are required to list those conditions. (09 marks)
(b) Every taxpayer whose income was charged to tax for the latest tax year is liable to pay advance tax in the manner prescribed under the Ordinance. Specify the incomes which are not considered for the purpose of ascertaining advance tax, under the Income Tax Ordinance,
- (07 marks)
(c) Mr. Laiq is an accountant in an association of persons and wants to pay advance tax for the first quarter of the year. Under the provisions of Income Tax Ordinance, 2001 advise him about the method of computing the amount of advance tax. (05 marks)
EXTRACT FROM THE FIRST SCHEDULE OF THE INCOME TAX ORDINANCE, 2001
RATES OF TAX
Division I Rates of Tax for Salaried Individuals
S. No. Taxable Income Rate of Tax (1) (2) (3)
- Where the taxable income does not exceed Rs. 300,000 0%
- Where the taxable income exceeds Rs. 300,000 but does not exceed Rs. 350,000 0.75%
- Where the taxable income exceeds Rs. 350,000 but does not exceed Rs. 400,000 1.50%
- Where the taxable income exceeds Rs. 400,000 but does not exceed Rs. 450,000 2.50%
- Where the taxable income exceeds Rs. 450,000 but does not exceed Rs. 550,000 3.50%
- Where the taxable income exceeds Rs. 550,000 but does not exceed Rs. 650,000 4.50%
- Where the taxable income exceeds Rs. 650,000 but does not exceed Rs. 750,000 6.00%
- Where the taxable income exceeds Rs. 750,000 but does not exceed Rs. 900,000 7.50%
- Where the taxable income exceeds Rs. 900,000 but does not exceed Rs. 1,050,000 9.00%
- Where the taxable income exceeds Rs. 1,050,000 but does not exceed Rs. 1,200,000 10.00%
- Where the taxable income exceeds Rs. 1,200,000 but does not exceed Rs. 1,450,000 11.00%
- Where the taxable income exceeds Rs. 1,450,000 but does not exceed Rs. 1,700,000 12.50%
- Where the taxable income exceeds Rs. 1,700,000 but does not exceed Rs. 1,950,000 14.00%
- Where the taxable income exceeds Rs. 1,950,000 but does not exceed Rs. 2,250,000 15.00%
- Where the taxable income exceeds Rs. 2,250,000 but does not exceed Rs. 2,850,000 16.00%
- Where the taxable income exceeds Rs. 2,850,000 but does not exceed Rs. 3,550,000 17.50%
- Where the taxable income exceeds Rs. 3,550,000 but does not exceed Rs. 4,550,000 18.50%
- Where the taxable income exceeds Rs. 4,550,000. 20.00%
Provided that where the total income of a taxpayer marginally exceeds the maximum limit of a slab in the table, the income tax payable shall be the tax payable on the maximum of that slab plus an amount equal to-
(i) 20% of the amount by which the total income exceeds the said limit where the total income does not exceed Rs. 550,000. (ii) 30% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 1,050,000. (iii) 40% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 2,250,000. (iv) 50% of the amount by which the total income exceeds in each slab but total income does not exceed Rs. 4,550,000. (v) 60% of the amount by which the total income exceeds in each slab but the total income exceeds Rs. 4,550,000.
