Certificate in Accounting and Finance Stage Examination

February 20 , 2025
3 hour – 100 marks
Additional Reading Time – 15 minutes

TAX PRACTICES
Mock
Instructions to examinee
(i) Answer All nine Questions
(ii) Answer in Black pen only
(iii) Attempt each Question on new page.
(iv) After attempting, convert your answer script to PDF using CamScanner and upload on your LMS.

Question-1
Mr. Sheikh Suleman is a member in two AOPs Sun Lark (SL) and Venus Lence (VL). Both SL and VL are engaged in the
manufacturing and supply of chemicals. SL and VL is owned by two equal partners. Mr. Sheikh Suleman also owns a shop in the
name of Mars Lotus (ML). ML is engaged in the trading of packing materials and sells its products to individual customers.
Following information has been extracted from the records for the year ended 30 June 2012:
(i) SL VL ML
Rs. in ‘000
Net Profit/(loss) 3,700 (1,400) 1,300
(ii) The above profit/(loss) has been arrived at after inclusion/adjustment of the following:
In case of SL:
 Rs. 1,000,000 paid by SL towards a scientific research conducted in Belgium for business.
 Income of Rs. 150,000 on account of sale of securities within 5 months.
 Salary expenses include an amount of Rs. 40,000 each paid to two equal partners every month.
 Commission paid to Mr. Sheikh Suleman for attracting new clients amounted to Rs. 70,000.
 Gain of Rs. 100,000 on sale of building. The cost of building was Rs. 300,000 and it sold for Rs. 500,000. Its tax
written down value at the time of sale was Rs. 120,000.
 Donation expense of Rs. 10,000 in respect of amount donated to a non-profit organization.
In case of VL:
 Rs. 80,000 written off against a loan provided to an employee.
 Salary expenses include an amount of Rs. 30,000 each paid to two equal partners.
 Sales promotion expenses of Rs. 600,000 paid by VL to Moon Advertisers. The benefits are expected to extend to
three years.
 Professional tax paid at Rs. 200,000 to the Government of Punjab. The tax is payable annually irrespective of the
income of the company.
 Paid Rs. 500,000 on account of technical services, to an individual resident in the USA who remained in Pakistan
for one week. No tax was deducted.
In case of ML:
 Bad debt recovered against previous year debt amounted to Rs. 50,000. In previous tax year, against a total bad
debt claim of Rs. 200,000, the Commissioner of Inland Revenue allowed a deduction of Rs. 120,000 only.
 Gain of Rs. 300,000 on sale of car. The cost of car was Rs. 3,200,000 and it sold for Rs. 900,000. Its tax written
down value at the time of sale was Rs. 700,000.
 A gain of Rs. 400,000 on disposal of shares in a private company purchased 2 years back.
(iii) Accounting depreciation deducted in arriving profit of SL, VL and ML amounted to Rs. 760,000, Rs. 660,000 and Rs.
100,000 respectively.
(iv) Tax depreciation as per Third Schedule of ITO, 2001 on all assets of SL, VL and ML amounted to Rs. 495,000, Rs.
330,000 and Rs. 135,000 respectively.
(v) The assessed losses brought forward from tax year 2011 were as follows:

SL VL ML
---------Rs. in ‘000-------
Business loss 200 500 50
Unabsorbed tax depreciation 250 500 100
Capital loss 750 250 200
Required:
Compute the taxable income and tax for above three persons for tax year 2012. For calculating taxable income use three columns
on a single page and show amount to be carries forward. (22)
 Tax Practices Page 2 of 8

Question-2
Ms Xiang, a Chinese citizen born on 8 January 1973, came to Pakistan on 20 June 2013 on her appointment as an engineer by
Media Appliances (Pvt) Ltd (MAPL), a company incorporated under the Companies Ordinance, 1984. Ms Xiang started her
employment with MAPL on 1 July 2013. For the year ended 30 June 2014, her income/receipts are as detailed below:
(a) Basic salary of Rs. 200,000 per month. Other perquisites given in cash or kind were:
(i) MAPL paid her fixed medical allowance of Rs. 400,000 for the whole year in cash (her actual expenditure on
medical treatment for the year is 210,000).
(ii) MAPL provided her with a car for business and personal use. MAPL had obtained the car under a finance lease
and its fair market value at the time of lease was Rs. 1,800,000. The total amount of lease rentals to be paid over
the whole lease term was Rs. 2,000,000. Lease rentals paid during the year ended 30 June 2014 were Rs. 250,000.
Ms Xiang was also provided with a fuel allowance of Rs. 12,500 per month to cover fuel expenses for her
company allocated car.
(iii) MAPL provided her with accommodation. Had she not been provided with the accommodation she would have
been entitled to receive a house rent allowance at 40% of her basic salary. MAPL also provided her with the
services of a security guard for which MAPL paid Rs. 18,000 per month. Rs. 10,000 was deducted every month
from Ms Xiang’s salary to pay for the security guard.
(iv) She purchased 50,000 shares in MAPL on 1 July 2013 under an employee share scheme at Rs. 10 per share
against a fair value of Rs. 15 per share. She had the option to transfer the shares on or after 1 June 2014 on which
date the fair value was Rs. 30 per share. However, she did not sell any of the shares during the year ended 30 June
2014.
(v) MAPL reimbursed her Rs. 25,000 per month for nine months during the year, being the school fees of her child.
(vi) MAPL gave her a loan of Rs. 500,000 on 1 August 2013 at a markup of 6% per annum. She used the loan for
furnishing her apartment in China.
(vii) MAPL provided her with a return ticket to Beijing on the eve of Chinese new year in February 2014. The total
cost incurred by MAPL on this account was Rs. 150,000.
Additional information about Ms Xiang’s employment
(i) She paid Rs. 50,000 for her annual subscription to the Institute of Engineers in China.
(ii) MAPL deducted tax of Rs. 940,000 from her salary during the year.
(iii) Ms Xiang donated Rs. 100,000, through a crossed cheque drawn on her foreign currency account in Pakistan, to
the Beijing University, China.
Required:
Compute Ms Xiang’s taxable income, and her total tax payable for the tax year 2014. (12)

Question-3
Queen Limited (QL), a registered importer, exporter and manufacturer, is primarily engaged in the manufacture and export of a
wide range of goods. Following activities were carried out by the company during the year:
(i) QL being exporter for sales tax purposes, filed an application for refund of Rs. 186,000 on account of input tax paid on
raw material exported to Iran. The refund is expected to be received soon. QL is also required to pay a default surcharge
of Rs. 25,000 to the income tax department for late filing of monthly withholding tax statement.
(ii) In July 2017 QL sold certain taxable goods worth Rs. 535,000 to an un-registered wholesaler at a wholesale price of Rs.
50 per pack and collected further tax at the rate of 4% of the value of supplies. In November 2017, the internal auditor
pointed out that these goods had an actual sale price of Rs. 65 per pack to which customer agreed also.
Required:
In the light of the provisions of Sales Tax Act, 1990 advise the management of the company as to the chargeability/ adjustment
of sales tax in each of the above situations. (5)

Question-4
(a)
What are the consequences of collusion or deliberate actions leading to unpaid sales tax or unlawful refunds?
(2)
(b)
Who can authorize a sales tax audit, and what are the key reasons involved?
(4)
 Tax Practices Page 3 of 8

Question-5
Ghumman Associates (GA), a sole proprietor business, is registered under the Sales Tax Act, 1990 and is engaged in multiple
businesses. GA has a factory located in Faisalabad. GA has allocated 20% of its factory area for the residences of its workers.
Following information has been extracted from GA’s records for the month of February 2023:
Rupees
Supplies
Taxable goods to registered customers 5,000,000
Exempt goods to registered customers 800,000
Taxable goods to un-registered customers 1,500,000
Exports of taxable goods to South Africa 1,800,000
Exports of exempt goods to Malaysia 500,000

Purchases
Taxable goods from registered suppliers 1,900,000
Taxable goods from un-registered suppliers 900,000
Imports (exclusive of 20% custom duty) 4,000,000
Additional information:
(i) Supplies of taxable goods to registered customers include:
 80 units of product Alpha sold to a registered customer on 5 February 2023 at a price of Rs. 500 per unit but
after 3 days a dispute arose and GA agreed to:
- Accept the return of 30% of goods on 12 Feb and
- Reduce the price of remaining units by Rs. 80 per unit
 20 cartons of 40 Kg tea to a registered customer for Rs. 150 per kg. The customer will pay cheque of Rs.
40,000 and hand over a license having fair value of Rs. 65,000.
 Discounted price of Rs. 450,000 which were supplied to Shaukat Industries at a trade discount of 15%. GA
normally provides discount at same percentage.
 Goods worth Rs. 200,000 were supplied to un-registered distributor, Abbas. However, his NTN/NIC was not
demanded from him at the time of sale.
(ii) Supplies of taxable goods to unregistered customers include sales of Rs. 250,000 to a person who will use these goods
for decorative purposes in his house.
(iii) Purchases from registered suppliers include:
 Goods worth Rs. 500,000 purchased from Jatt Brothers. The goods were delivered to GA on 15 December
2022. However, input could not be claimed in December due to non-availability of invoice. The invoice was
received on 5 February 2023.
 Purchase of sulphuric acid worth Rs.100,000 which is used in exempt goods exported to Malaysia.
 Purchase of electronic items for sale amounting to Rs. 70,000. 30% were of inferior quality and were returned.
(iv) Rs. 90,000 of balances had been outstanding since 12 August 2022. 70% of these were settled on 15 February 2023 and
the remaining will be paid on 15 March 2023.
(v) A debit note of Rs. 230,000 was issued to a supplier from whom purchases of Rs. 800,000 were made on 12 March
2022.
(iv) A machine was acquired for Rs. 2,800,000. The machine is solely used for making exempt goods for local sale.
(v) Sales tax of Rs. 150,000 has been paid for the supply of electricity to the factory of GA.
(vi) Construction material of Rs. 2,000,000 has been purchased during the month. 60% of the material was used for
renovation of the factory building and the remaining was sold at a mark-up of 20% on cost. The goods are ready;
however the customer has not yet picked up the goods due to an emergency.
All the above figures are exclusive of sales tax, except where it is specified otherwise. Sales tax is payable at 18%.
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 GA and input tax to be carried forward, if any, for the tax period February 2023. (18)
 Tax Practices Page 4 of 8

Question-6
(a)
The tax authorities issued a notice to Mr. Ali under subsection (4) of section 114 for furnishing a return of income for the tax
year 2015. The notice was issued on 15 August 2023.
By what date must the best judgment assessment order be issued in accordance with the tax law? Justify your answer with the
relevant provisions.
(2)
(b)
If a best judgment assessment order is issued to Mr. Ali on 11 June 2026, what remedies are available to him under the law?
(2)
(c)
The High Court has decided a question of law in favor of Mr. Ahmed, and the Commissioner is filing an appeal in supreme
Court. Similar cases for Mr. Ahmed are pending for other tax years.
1. Can the Commissioner apply the High Court’s decision to these pending cases despite the appeal?
2. If the decision is later reversed against Mr. Ahmed, can the Commissioner modify previous assessments, and what is
the time limit for such modifications? (2)

Question-7
Khalida and Nasreen (K&N) started business to manufacture beauty soaps and detergents in 2020 with the capital of Rs. 60
million. Khalida and Nasreen will share profits in the ratio of 70:30 respectively. Following information is extracted from the
records of K&N for financial year ended 30 June 2023.
Rupees in mill.
Total turnover (Excluding sales tax) 400
Cost of sales (180)
Gross profit 220
Operating expenses (78)
Interest expense (10)
Donation (12)
Other income 4
Profit before tax 124
(i) All sales are made to sales tax registered distributors except a sale of Rs. 158.6 million (inclusive of sales tax @ 18%
and further tax @ 4%) to Kabir Limited, an un-registered distributer.
(ii) Operating expenses include:
 salary of Rs. 5 million to Nasreen.
 Rs. 8 million loss on disposal of a machine. Machine was imported in TY 2021 for
Rs. 30 million (including Rs. 10 million custom duty and Rs. 5 million withholding tax). A loan of 80,000
Pound was obtained on 1 March 2021 to finance the purchase and it was fully repaid in same year on 1 May
2021. The disposal transaction took place on 1 March 2023 and the consideration received on disposal
comprise of Rs. 20 million in cash and a piece of land having fair value of Rs. 3 million. The fair value of
machine at time of disposal was Rs. 21 million.
(iii) Interest expense represent amount payable to Khalida on a loan utilized for business under an agreement.
(iv) 20% Donations were made to charitable educational institutes, included in the Thirteenth schedule of the Income Tax
Ordinance, 2001. Remaining amount was given to Baji Saira a mutal friend of the two who will help earthquake
affected people in Turkey.
(v) Relevant exchange rates were as follows:
1 March 2021 1 Pound = PKR 315
1 May 2021 1 Pound = PKR 330
30 June 2021 1 Pound = PKR 325

Required: Calculate taxable income and tax payable by AOP for year ended 30 June 2023. Your computation should start from
sales figure. (11)
 Tax Practices Page 5 of 8

Question-8
(a)
ABC Ltd., a Pakistani company, issues approved debt securities to Mr. John Smith, a UK resident, with interest paid to his
offshore account. The funds are used in ABC Ltd.'s business in Pakistan. Is the interest income exempt from tax in Pakistan?
Justify your answer taking necessary assumptions
(3)
(b)
Mr. David, a citizen of the UK, works in Pakistan under an Aid Agreement between the Government of Pakistan and the UK
Government. He became a resident of Pakistan solely due to his employment under this Aid Agreement. His salary is paid from
funds provided to Pakistan by the UK Government. Is Mr. David's salary exempt from tax in Pakistan? Justify your answer
(3)
(c)
Mr. Ahmed, a citizen of Pakistan, came to Pakistan after 10 years of his stay in China. He derived foreign-source income in
China in Tax year 2024, 2025 and 2026.
Under two independent scenarios discuss the taxability of foreign income for Tax year 2024, 2025 and 2026:
1. Mr. Ahmed came to Pakistan on 5 December 2023.
2. Mr. Ahmed came to Pakistan on 5 January 2024.
In both of above cases he has brought only 60% of foreign income in Pakistan.
(5)
Question-9
(a)
Specify with reasons, whether the following independent acts may be considered as a tax evasion or tax avoidance:
(i) In order to reduce his tax liability, Mr. Jaffer, a resident individual, paid a donation of Rs. 100,000 to non-profit
organanisation.
(ii) Sakhi Limited (SL) paid 50% of Ahmad’s salary i.e. Rs. 50,000 in cash whereas the remaining 50% of his salary was
credited to his bank account. SL claimed Rs. 50,000 as admissible deduction in its return of income.
(iii) In order to reduce her tax liability, Mrs. Shamim who runs her own business, paid higher salary to her self, keeping in
view that lower slab rates are applicable on salary income as compared to income from business (4)
(b)
Explain the provisions in constitution relating to Natural gas and hydro-electric power? (5)

(THE END)
 Tax Practices Page 6 of 8

Extracts from the Income Tax Ordinance, 2001

Rates of Tax for non-salaried Individuals andAssociation of Persons

S. No Taxable Income Rate of Tax

1. Where taxable income does not exceed Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not exceed 15% of the amount exceeding Rs. 600,000
Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000 but does not Rs. 90,000 + 20% of the amount exceeding Rs.
exceed Rs. 1,600,000 1,200,000
4. Where taxable income exceeds Rs. 1,600,000 but does not Rs. 170,000 + 30% of the amount exceeding Rs.
exceed Rs. 3,200,000 1,600,000
5. Where taxable income exceeds Rs. 3,200,000 but does not Rs. 650,000 + 40% of the amount exceeding Rs.
exceed Rs. 5,600,000 3,200,000
6. Where taxable income exceeds Rs. 5,600,000 Rs. 1,610,000 + 45% of the amount exceeding
Provided that in the case of an association of persons that is a professional firmRs. 5,600,000
prohibited from incorporating by any law or
the rules of the body regulating their profession, the 45% rate of tax mentioned against serial number 6 of the Table shall be
40%.
Surcharge for High Earners: 10% on Gross Tax Liability for Income Exceeding Rs. 10 Million
A surcharge shall also be payable by every individual (including salaried) and Association of person (AOP) @ 10% of the Gross
tax liability where taxable income exceeds Rs.10 million.

Rates of Tax for salaried Individuals

S. No Taxable Income Rate of Tax
1. Where taxable income does not exceed Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not 5% of the amount exceeding Rs. 600,000
exceed Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000 but does not Rs. 30,000 + 15% of the amount exceeding
exceed Rs. 2,200,000 Rs. 1,200,000
4. Where taxable income exceeds Rs. 2,200,000 but does not Rs. 180,000 + 25% of the amount exceeding
exceed Rs. 3,200,000 Rs. 2,200,000
5. Where taxable income exceeds Rs. 3,200,000 but does not Rs. 430,000 + 30% of the amount exceeding
exceed Rs. 4,100,000 Rs. 3,200,000
6. Where taxable income exceeds Rs. 4,100,000 Rs. 700,000 + 35% of the amount exceeding
Rs. 4,100,000

Salaried Person
An individual whose income from salary exceeds 75% of taxable income in a tax year will be considered as a salaried person.
Surcharge for High Earners: 10% on Gross Tax Liability for Income Exceeding Rs. 10 Million
A surcharge shall also be payable by every individual (including salaried) and Association of person (AOP) @ 10% of the Gross
tax liability where taxable income exceeds Rs.10 million.
 Tax Practices Page 7 of 8

Capital Gain on disposal of Securities

Holding Period Securities acquired between 01 Securities acquired Rate of Tax on disposal of
July 2013 to 30 June 2022 on or after securities acquired on or
01.07.2022 after 1st day of July,2024
1. Where the holding period Active taxpayers
15%
does not exceed one year 15% for persons appearing on
2. Where the holding period the Active Taxpayers List on
exceeds one year but does 12.5% the date of acquisition and the
exceed two years 12.5% date of disposal of securities
3. Where the holding period [Irrespective of the holding
exceeds two years but does period] 10% Non-active taxpayers
not exceed three years Progressive rates specified in
Where the holding period 7.5% Division I for individuals and
4. exceeds three years but does association of persons and
not exceed four years (29%) Division II for
Where the holding period 5% companies. However, the rate
5. exceeds four years but does of tax shall not be less than
not exceed five years 15% in any case.
Where the holding period 2.50%
6. exceeds five years but does
not exceed six years
Where the holding period 0%
7.
exceeds six years
Future commodity contracts 5% 5%
8. entered into by members of
Pakistan Mercantile Exchange
The rate of 0% tax shall be charged on capital gain arising on disposal where the securities are acquired before the first day of
July, 2013.

Gain on disposal of immovable proprty

Rate of Tax on properties acquired
on or before 30th day of June, 2024 Rate of Tax on properties
S. No Holding Period Open Constructe Flats acquired on or after 1st day of
Plots d Property July, 2024
(1) (2) (3) (4) (5) (6)
1. Where the holding period does not 15% 15% 15% Active taxpayers
exceed one year 15%
2. Where the holding period exceeds one 12.5% 10% 7.5% Non-active persons
year but does not exceed two years At the progressive slab rates
3. Where the holding period exceeds two 10% 7.5% 0 specified in Division I for
years but does not exceed three years individuals and AOP (this rate
4. Where the holding period exceeds three 7.5% 5% - shall not be less than 15% in any
years but does not exceed four years case)
5. Where the holding period exceeds four 5% 0 -
years but does not exceed five years
6. Where the holding period exceeds five 2.5% - -
years but does not exceed six years
7. Where the holding period exceeds six 0% - -
years.
 Tax Practices Page 8 of 8

The depreciation is calculated by applying the following rates:

Assets Rate of
depreciation
Buildings (All types) 10%
Furniture and fittings, Plant and machinery – general, Motor vehicles and ships, Technical and 15%
professional books
Computers and allied items including printer, monitor and IT related plant and machinery 30%
Aircrafts and aero engines 30%
In case of mineral oil concerns the income of which is liable to be computed in accordance with the rules
in Part-I of the Fifth Schedule. 20%
Offshore platform and production installations.
A ramp built to provide access to persons with disabilities not exceeding Rs. 250,000 each. 100%