SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 1 of 8

BUSINESS TAXATION [G5] – GRADUATION LEVEL

Marks
Question No. 2
(a) (i) Definite Information:
02
Definite information includes information on sales or purchases of any goods made by the
taxpayer, receipts of the taxpayer from services rendered or any other receipts that may be
chargeable to tax under this Ordinance and on the acquisition, possession or disposal of
any money, asset, valuable article or investment made or expenditure incurred by the
taxpayer.

(ii) Permanent Establishment: 04

Permanent establishment in relation to a person, means a fixed place of business through
which the business of the person is wholly or partly carried on, and includes:
• a place of management, branch, office, factory or workshop, premises for soliciting
orders, warehouse, permanent sales exhibition or sales outlet, other than a liaison
office except where the office engages in the negotiation of contracts (other than
contracts of purchase);
• a mine, oil or gas well, quarry or any other place of extraction of natural resources;
• an agricultural, pastoral or forestry property;
• a building site, a construction, assembly or installation project or supervisory activities
connected with such site or project but only where such site, project and its connected
supervisory activities continue for a period or periods aggregating more than ninety
days within any twelve-months period;
• the furnishing of services, including consultancy services, by any person through
employees or other personnel engaged by the person for such purpose;
• a person acting in Pakistan on behalf of the person (hereinafter referred to as the
“agent”, other than an agent of independent status acting in the ordinary course of
business as such, if the agent –

has and habitually exercises an authority to conclude contracts on behalf of
the other person;

has no such authority, but habitually maintains a stock-in-trade or other
merchandise from which the agent regularly delivers goods or merchandise
on behalf of the other person; or
• any substantial equipment installed, or other asset or property capable of activity giving
rise to income

(b) Incomes/ Amounts to be Excluded from the Term Dividend:

04
• A distribution made by the company on its liquidation or reduction of its capital in respect of
any share for full cash consideration, or redemption of debentures or debenture stock, where
the holder of the share or debenture is not entitled in the event of liquidation to participate in
the surplus assets;
• Any advance or loan made to a shareholder by a company in the ordinary course of its
business, where the lending of money is a substantial part of the business of the company;
• Any dividend paid by a company which is set off by the company against the whole or any
part of any sum previously paid by it and treated as a dividend to the extent to which it is so
set off; and
• Remittance of after tax profit by a branch of Petroleum Exploration and Production (E & P)
foreign company, operating in Pakistan.
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suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 2 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
(c) Mr. Atif
Computation of Taxable Income and Tax Liability
for the tax year 2018
Rupees
Salary:
Basic salary (430,000 x 12) 5,160,000 ½
Medical allowance (70,000 x 12) 840,000 ½
Less: Exempt upto 10% of basic salary (516,000) 324,000 1
Utilities (38,000 x 12) 456,000 ½
Cost of living (25,000 x 12) 300,000 ½
Accommodation: Higher of:
FMV (185,000 x 12) 2,220,000 ½
45% of basic salary 2,322,000 2,322,000 1
Tax borne by employer 250,000 ½
Salary 8,812,000 ½
Tax Liability:
Salary (salaried case) [1,422,000 + (8,812,000 – 7,000,000) x 30%] 1,965,600 ½
Less: Tax credits
Tax credit on charitable donations
C = Lower of:
a) Amount of donations 600,000 ½
b) 30% of taxable income of year 2,643,600 ½
600,000 1
A ÷ B x C = 1,965,600 ÷ 8,812,000 x 600,000 (133,836)
Tax credit for investment in shares
C= Lower of:
a) Cost of acquiring shares 900,000 ½
b) 20% of taxable income of tax year 1,762,400 ½
c) Rs. 1,500,000 1,500,000 ½
900,000 ½
A ÷ B x C = 1,965,600 ÷ 8,812,000 x 900,000 (200,754) 1
Income tax payable 1,631,010 1

(d) Deductible Allowance for Profit on Debt:

Rupees
Lower of:
a) Actual amount (200,000 x 12) 2,400,000 ½
b) Rs. 2,000,000 2,000,000 ½
c) 50% of taxable income of the year (3,000,000 x 50%) 1,500,000 ½
Deductible allowance for profit on debt 1,500,000 ½

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 3 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
Question No. 3
(a) (i) For the tax year ended June 30, 2018, the relevant period is July 01, 2017 to June 30,
2018. Therefore, the stay of Mr. David for the purpose of tax year 2018 is 107 days.
Since his stay in Pakistan is less than 183 days in tax year 2018, he is a non-resident for tax
purposes. 02

(ii) Since Mr. Danish never travelled abroad in his life before proceeding to Canada for
assuming his job responsibilities, the number of days he spent in Pakistan for the tax year
2018 is 213 days.
The day he spent in Pakistan on June 28, 2018, while in transit, would not be counted as
day of his presence in Pakistan. Even then, Mr. Danish is a resident person as his total stay
in tax year 2018 is more than 183 days. 03

(iii) In case of Mr. Alexander, it is immaterial where he stayed in Pakistan. The calculation will
be made from the day of his arrival in Pakistan to the day of his departure from Pakistan.
Therefore, the total number of days he spent in Pakistan during the tax year 2018. He
stayed total 185 days, so he is resident for tax purpose. 02

(b) (i) No, notice of deficiency shall be issued after the expiry of 180 days from the end of the
financial year in which return was furnished. The return was furnished on September 30,
2017 which is tax year 2018, while notice was received on April 15, 2018 which is also tax
year 2018. Therefore, CIR is justified in issuing this notice as time period has not lapsed as
yet. 02

(ii) The Commissioner may further amend the assessment where: 04

• The Commissioner have definite information on the basis of audit or otherwise and he
is satisfied that:
 Any income chargeable to tax has escaped assessment;
 Total income has been under-assessed, or assessed at too low rate, or has been
the subject of excessive relief or refund; or
 Any amount under a head of income has been mis-classified.
• The Commissioner considers that the assessment order is erroneous in so far as it is
prejudicial to the interest of revenue.

(iii) No order shall be amended after the expiry of five years from the end of the financial year in
which the commissioner has issued or treated to have issued the assessment order to the
taxpayer.
In the case stated above, the return has been treated to be issued the assessment order on
September 30, 2017 which is tax year 2018. Therefore CIR has 5 years from end of tax year
2018, i.e. ending on June 30, 2023. 03
(c) Taxable Gain:
Rupees
Consideration received on the sale of 20,000 shares on December 14, 2017 600,000 ½
Less: Shares purchased (10,000 x 18) (180,000) ½
Bonus allotted (10,000 x 22) (220,000) ½
Incidental charges (15,000) ½
Capital Gain 185,000 ½
Since the disposal of the shares was made after holding them for more than a year, only 75% of
the capital gain is taxable:
185,000 x 75% = Rs. 138,750 1½
DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 4 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
Question No. 4
(a) Mr. Faraz
Computation of Taxable Income and Tax Liability
for the tax year 2018
Rupees
Income from Property:
Normal rent (2,400,000 ÷ 12 x 8) 1,600,000 ½
Non-adjustable deposit (7,200,000 ÷ 10) 720,000 2, 320,000 ½
Income from business:
Profit before tax 3,445,000 ½
Add:
Financial charges 90,000 ½
Accounting depreciation 320,000 ½
Accounting depreciation in cost of sales (2,400,000 x 15%) 360,000 ½
Vehicle running expense (345,000 x 40%) 138,000 ½
Provision for bad debts 33,000 ½
Salary of Mr. Faraz (65,000 x 12) 780,000 ½
Salary of Mr. Faraz's brother – ¼
Gifts to clients – ¼
Gifts to wife 45,000 ½
Donation to The Citizens Foundation – 1,766,000 ½
5,211,000 ¼
Less:
Lease rental paid 290,000 ½
Tax depreciation machinery:
– Initial allowance (2,400,000 x 25%) 600,000 ½
– Normal depreciation (2,400,000 – 600,000) x 15% 270,000 (1,160,000) ½
Income from business 4,051,000 ¼
Less: Unabsorbed brought forward losses
– Business losses 720,000 ¼
– Depreciation losses 655,000 (1,375,000) ½
Income from business after adjustment of losses 2,676,000 ¼
Capital Gain:
Disposal of shares:
– Consideration received 550,000 ½
– Less: Cost on disposal (Rs. 35 per share x 8,000 shares) (280,000) ½
270,000
Capital gain 270,000 ¼

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 5 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
Rupees
Total Income:
– Sum of all heads 5,266,000 ½
– Exempt income – 5,266,000 ¼
Taxable Income:
– Sum of all heads 5,266,000 ½
– Less: Deductible allowance – 5,266,000 ¼
Tax Liability:
Income from property (separate rates)
[210,000 + (2,320,000 – 2,000,000) x 20%] 274,000 ½
Others (Non-salaried case)
[344,500 + {(5,266,000 – 2,320,000) – 2,500,000} x 25%] 456,000 ½
Tax liability 730,000 ¼
Less: Tax credits
Tax credit on Health Insurance Policy
A ÷ B x C = 730,000 ÷ 5,266,000 x C
C = Lower of:
a) Premium paid 65,000 ¼
b) 5% of taxable income of year 263,300 ¼
c) Rs. 150,000 150,000 ¼
65,000 (9,011) ½
Tax credit for investment in approved pension fund
A ÷ B x C = 730,000 ÷ 5,266,000 x C
C = Lower of:
a) Contribution Paid 100,000 ¼
b) 20%+2%*14years of taxable income of
current tax year 2,527,680 ¼
c) 30% of taxable income of preceding tax
year 630,150 ¼
100,000 (13,863) ½
Adjustable Withholding Tax:
– Cash withdrawal u/s 231A 12,000 ½
– Electricity consumption u/s 235 7,000 ½
– Telephone u/s 236 9,000 (28,000) ½
Advance tax u/s 147 (200,000) ½
Income tax payable 479,127 ½

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 6 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
(b) (i) A moveable asset in the personal use of the taxpayer is not a capital asset. Therefore, the
gain of Rs. 300,000 is taxable. 01

(ii) The amount of Rs. 6,000,000 forfeited by Mr. Faraz in accordance with the terms of the
contract for the sale of his house to Mr. Raza is to be treated as rent received and taxed
under normal tax regime while no deductions are allowed to him being individual u/s 15A. ½
Transaction with Mr. Nazir:
Rupees
Consideration for the sale of the house on December 31 45,000,000
Less: Market value on June 25, 2014, the date of inheritance by Mr. Faraz (39,000,000)
Capital gain 6,000,000 01
Since the disposal was made after holding the house for more than three years and it was
acquired before July 01, 2016, therefore no gain is taxable under the law. ½

(iii) An antique is a capital asset. However, loss is not recognized on an antique. 01

(iv) Since Mr. Salman was not entitled to claim depreciation on this machine, the machine falls
within the definition of a capital asset. Discarding an asset is also treated as a disposal of
the asset. The capital gain is determined as: ½
Rupees
Consideration received from shipping company 1,050,000
Scrap value 300,000
Less: Cost of machine (2,000,000)
Documentation charges (35,000)
Capital loss (685,000) 1
This capital loss is allowed to be adjusted against any other capital gain. While, if the same
isn’t adjusted in the same tax year then it is allowed to be adjusted in next 6 years against
capital gain only. ½

Question No. 5
Hemani Technologies (Pvt.) Limited (HTL)
Computation of Sales Tax Payable/ (Refundable)
for the tax period December 2017
Rupees
Output tax (W-2) 537,540 ¼
Less: Input tax
Lower of:
– Actual (W-3) 390,087 ¼
– 90% of output 483,786 (390,087) ½
Sales tax liability 147,453 ¼
Add: Further tax
– Cottage industry (2%) 4,300 ¼
– End consumers (exempt from further tax) – 4,300 ½
Sales tax payable 151,753 ¼
Sales tax refundable on zero rated supplies (W-3) 209,724 ¼

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 7 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
Workings:
W-1: Computation of Input Tax:
Rupees
Amounts Tax Rate Input Tax
Imports – Raw materials 1,500,000 17% 255,000 ¾
Exempt goods from registered suppliers 1,200,000 - - ¾
Taxable goods from registered suppliers 2,500,000 17% 425,000 ¾
Taxable goods from cottage industry 450,000 - - ¼
Machine on operating lease 4,200,000 - - ¼
680,000 ¼

W-2: Computation of Output Tax:

Rupees
Tax Output
Amounts Status
Rate Tax
Taxable goods to unregistered
customers – Cottage industry 215,000 17% 36,550 Taxable supplies ½
Taxable goods to unregistered
customers – End consumers 535,000 17% 90,950 Taxable supplies ½
Taxable goods to registered customers 1,400,000 17% 238,000 Taxable supplies ½
Exempt supplies 650,000 – – Exempt supplies ½
Exports to France 1,700,000 0% – Zero-rated supplies ½
Insurance claim 890,000 17% 151,300 Taxable supplies ½
Goods sold on credit 67,000 17% 11,390 Taxable supplies ½
Debit note to Jawwad Enterprises 55,000 17% 9,350 Taxable supplies ½
537,540 ½

W-3: Apportionment of Input Tax:

Rupees
Supplies Input Tax Status
Taxable supplies 3,162,000 390,087 Adjustable ½
Zero-rated supplies 1,700,000 209,724 Refund ½
Exempt supplies 650,000 80,189 Lapsed ½
5,512,000 680,000 ½

DISCLAIMER: These suggested answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA Pakistan members, students and faculty members only. No part of it can be reproduced,
stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.
 SUGGESTED SOLUTIONS/ ANSWERS – FALL 2017 EXAMINATIONS 8 of 8
BUSINESS TAXATION [G5] – GRADUATION LEVEL
Marks
Question No. 6
(a) (i) The Federal Board of Revenue deems it necessary it may, by notification in the official
Gazette, fix the value of any imported goods or taxable supplies or class of supplies and for
that purpose fix different values for different classes or description of same type of imported
goods or supplies. The value of supply in that case shall be value fixed by Board, unless the
value supplied in actual is higher than the value fixed.
Therefore, in this case the value of supply shall be Rs. 3,268,000 (7,600 x 430). 01

(ii) On Third Schedule items, sales tax is charged on the retail price of goods excluding the
amount of retail tax. Therefore, sales tax would be charged @ 17% on Rs. 1,735,500
(780 kg x Rs. 2,225 per kg) i.e. Rs. 295,035. 01

(iii) In case the consideration for a supply is in kind or is partly in kind and partly in money, the
value of supply shall mean the open market price of the supply excluding the amount of tax.
Therefore, value of supply shall be Rs. 4.2 million and not the consideration received. i.e.
Rs. 3.522 million. 01

(b) Under the given circumstances, the value of supply and the amount of sales tax mentioned in the
invoice has decreased therefore; Sultan Associates shall issue a Credit Note to Yousuf
Enterprises in duplicate.
The original copy of the Credit Note shall be sent to Yousuf Enterprises and the duplicate shall be
retained for record.
Yousuf Enterprises shall issue a Debit Note with reference to the Credit Note issued by Sultan
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. 03

(c) (i) Although payment is made through crossed cheque drawn on the business bank account of
the seller yet the transaction is inadmissible for the purpose of claiming input tax as the
payment was made after 180 days of the issuance of tax invoice. 01

(ii) Sales tax paid along with an electricity bill is an admissible input tax only when the electricity
was used to produce taxable goods. Further, in the case of utility bills, payment in cash
does not disentitle a claim of input tax paid thereon. Therefore, input tax of Rs. 348,750
(Rs. 775,000 x 45%) would be admissible, while input tax of Rs. 271,250 (Rs. 775,000 x
35%) shall be refunded for zero rated supplies, whereas, balance sales tax of Rs. 155,000
(Rs. 775,000 x 20%) paid in respect of exempt supplies would not be allowed as input. 02

(iii) The free replacement of defective parts of taxable goods (open market value of
Rs. 375,000) during the warranty period is considered as equivalent to the value of the
original supply and not a separate supply. Such replacement is not chargeable to tax. While,
no rate is charged in case of exempt supply. Further, the same is part of the cost, therefore
in either case couldn’t result in supply. 01

THE END

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stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA Pakistan. The
suggested answers provided on and made available through the ICMA Pakistan’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. The ICMA Pakistan has
provided suggested answers on the basis of certain assumptions for general guidance of the students and there may be other possible answers/ solutions based on different assumptions and understanding. The ICMA Pakistan and its
Council Members, Examiners or Employees shall not be liable in respect of any damages, losses, claims and expenses arising out of using contents of these suggested answers. It is clarified that the ICMA Pakistan shall not be liable
to attend or receive any comments, observations or critiques related to the suggested answers.