TAX - Mock

Suggested Answers
Certificate in Accounting and Finance – spring 2024

Solution 1(a)
Jawad Mehmood.
Computation of total income taxable income & tax payable/Refundable
Tax year 2024

Income/loss from business (W-1) (201.72) marking

scheme
Income from capital gain (W-2) 47.2
Income from other source (W-3) 12.82
Total Income/Loss (141.7) .5
Gain on immovable property not adjustable against any loss 40
Taxable Income/Loss (101.7) .5
Tax on sale of immovable Property (Plot) (40 x 7.5%) 3.0 1

(W-1) Income from business

Loss before tax (174)
Add: Inadmissible expenses / admissible income
Commission expense disallowed due to sale to inactive tax payer 4.8 1
- Actual commission paid 5
- Allowed commission for in active tax payer (100×0.2%) (0.2)
Accounting depreciation 80.0 .5
Bad debts recovered from Sara [33.6-12(38.4 – 26.4)] 21.6 1
Outstanding payments for more than 3 years 28.0 .5
Financial charges waived by the bank 5.6 .5

Less: Admissible expenses and inadmissible / FTR income

Penalty (allowed as deduction) - .5
Freight charges paid in cash (allowed as deduction) - .5
Tax depreciation (96.0) .5
Insurance claim received (12.0) 1
Loss on disposal of vehicle (w-4) (0.92)
Reversal of Bad debts recovered recorded as other income (33.6+21.2) (54.8) 1
Bad debts recovered from Farah [21.2-28(57.6 – 29.6)] (6.8) 1
Rental income – Chargeable under income from other sources (43.2) 1
Income from non-speculation business (247.72)
Income from speculation business Net gain from derivative contract 46.0 1
Income from business (201.72)

W-2
Capital gain
Sale of property 40
Sale of private company shares 7.2
47.2 .5
W-3
Income from other sources
Rental income from leasing of property comprised of building and 2nd 1
hand locally purchased plant (3.6×12) 43.2
Less: Deductions
Repair and maintenance (actual) (6.4) .5
Depreciation of building (170×90%×90%×10%) (13.78) 1
Depreciation of plant (68×15%) (10.2) .5
12.82

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024

W-4: Loss / Gain on disposal of vehicle Rs.’m

Insurance claim (7.5/20 x 12) 4.5 1
Cost 7.5
Depreciation TY 2021 (7.5× 15%) (1.125)
TY 2022 (7.5-1.125)×15%) (0.956)
TY 2023 -
WDV 5.42 .5
Loss on disposal of vehicle (.92)
Notes
We assume that the vehicle is not plying for hire
Solution 2(a)
“Greenfield industrial undertaking” means-
 A new industrial undertaking which is:
 Setup on land which has not previously been utilized for any commercial, industrial or manufacturing
activity and is free from constraints imposed by any prior work; (1)
 Built without demolishing, revamping, renovating, upgrading, remodeling or modifying any existing
structure, facility or plant; (1)
 Not formed by the splitting up or reconstitution of an undertaking already in existence (1)
 Using any process or technology that has not earlier been used in Pakistan and is so approved by the
Engineering Development Board; (1)
 Is approved by the Comm.
Greenfield industrial undertaking falls within the definition of eligible persons and the benefit available to
the eligible person is a tax credit of 25% of the eligible investment. This tax credit will be available against
normal tax payable including minimum tax and final taxes. Unadjusted amount of tax credit may be carried
forward to 2 subsequent tax years. (1)
Solution 2(b)
Computation of tax liability of Golgappy & Co.
For the tax year 2024
Situation 1 Situation 2
--------- Rupees ---------
Income tax payable under normal tax regime
Taxable income 3,600,000 3,600,000
Income tax
(3600,000-3,000,000)*30%+465000 A 645,000 645,000 (1)
Income tax payable under minimum tax
Gross sales 122,500,000 111,000,000
Less: Sales tax (18/118) (18,686,440) (16,932,203) (1)
103,813,560 94,067,797
Turnover tax u/s 113 @ 1.25% B 1,297,670 *N/A (1)
Tax liability of GC (Higher of A and B) 1,297,670 645000
Carried forward of excess tax 652,670 - (1)

*Because turnover is less than Rs. 100 million.

Solution 2(c)
The number of days Xing Ping (citizen of china) spent in Pakistan is 183 days so his status will be non-resident.
(1 )

Months Days
December 2023 (15-12-16 is also included) 17 (.5)
January 2024 31
February 2024 29 (.5)
March 2024 (21+2) 23 (.5)
April 2024 (12+10) 22 (.5)
May 2024 31
June 2024 30
Total 183

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024

Solution 3
Mr. Asif
COMPUTATION OF TAXABLE INCOME AND TAX LIABILITY
TAX YEAR 30 JUNE 2024
Income from salary (w-1) 8,390,000 marking
scheme
Capital gain (w-2) 11,000,000
Income from business (W-3) 1,716,484 (2)
Total Income 21,106,484
Less: Capital gain taxable as SBI (11,000,000) (.5)
Taxable income 10,106,484
Tax liability under NTR (1,095,000 +35% x 4,106,484) 2,532,269
Less: Full time teacher Allowance (1,931,500 x 25%) (482,875) (1)
2,049,394
Less: Foreign Tax Credit -Lower of (154,483) (2)
Average Rate (2,049,394/10,106,484 x 1716,484) = 348,069
Actual (5500 x 284)/.91 x 9%) = 154,483
Tax liability after foreign tax credit 1,894,911
Tax credit on Donation (1,894,911/10,106,484 x 3,031,945) (568,473) (1)
*Lower of
30% of 10,106,484 3,031,945
Actual 3,500,000
VILLA holding period 1-2 years (1,000,000 x 10%) 100,000 (.5)
PLOT holding period 5-6 years (10,000,000 x 2.5%) 250,000 (.5)
Tax withheld by KL (200,000)
Tax Payable 1,476,438
Capital loss on securities c/f for 3 years (W-2.1) 85,000 (1)
(W 1) salary
Basic salary (400,000 × 12) 4,800,000 (.5)
Medical allowance (40,000 × 12) 480,000 (.5)
Accommodation Higher of 2,400,000 (1)
- Fair market value (200,000*12) = 2,400,000
- 45% of basic salary (45% x 4,800,000) =
2,160,000
Health insurance (medical facility given by employer is exempt) - (.5)
ER contribution to provident fund 360,000 210,000 (1)
Less: exempt upto lower of (150,000)
(1/10*4,800,000)480,000 or 150,000
Employee share scheme (w-1.1) 300,000
Interest free loan N-1 - (1)
Leave Encashment 200,000 (.5)
Income under the head salary 8,390,000
(W-1.1) Employee share scheme
Fair market after the restriction period (162x10,000) 1,620,000 (.5)
Cost of option (200,000) (.5)
Exercise price (112x10,000) (1,120,000) (.5)
300,000
(W 2) Capital Gain
Gain on sale of VILLA in Karachi [15M-14M (21-7)] 1,000,000 (1)
Gain on sale of residential plot in FSD (28M-18M) 10,000,000 (1)
11,000,000

(W-2.1) Sale of Shares

Sale Proceed (145x5,000) 725,000
Cost of Option (100,000)
Cost of Shares (112 x 5,000) (560,000)
Amount already taxed under the head Salary (300,000/2) (150,000)
Capital Loss c/f (85,000)

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024
(W-3) Income from business [(5,500 x 284)/.91] = 1,716,484

N-1 As Asif has agreed to waive interest receivable on his provident fund balance maintained with KL. Therefore,
interest on loan obtained from KL will be exempt.
N-2 A penalty pf 5% on the amount of cash given to purchase the immovable property will be imposed. i-e
(7,000,000 x 5%) 350,000

Solution 4(a)
i. Shubina can file an appeal with APPELATE TRIBUNAL within 60 days from the date of service of decision
of Comm.(appeal).
ii. In disposing of an appeal, the APPELATE TRIBUNAL may:
 Where the appeal relates to an assessment order, the Appellate Tribunal may make an order to
- affirm, modify or annul the assessment order;
Where appeal relates to decision other than assessment, Tribunal may make an order to affirm, vary
or annul the decision.
The Tribunal can only increase an assessment or decrease refund after opportunity of showing cause
is provided to taxpayer.
iii. On receiving application, if Tribunal considers that the recovery of tax (which is also upheld by the Comm.
(Appeals)), shall cause undue hardship to taxpayer, the Tribunal may stay recovery of tax up to 180 days
and will cease to have effect on the expiration of 180 days. It will be done after providing Comm. an
opportunity of being heard.
iv. Shubina may refer this case to high court within the 90 days of the order of the Appellate Tribunal.
However, If the order relates to question of fact, the decision of the Appellate Tribunal shall be final.
v. The Appellate Tribunal shall consist of a chairperson and judicial and accountant members appointed by
the Prime Minister. ( 1 mark per member)
Person may be appointed as a judicial member if he
- Has exercised the powers of a District Judge and is qualified to be a Judge of a High Court;
- Is or has been an advocate of a High Court and is qualified to be a Judge of the High Court;
Person may be appointed as an accountant member if he is:
- OIR equivalent to the rank of Chief Comm.
- Comm. or Comm. (Appeals) having at least 3 years’ experience.
- CA/CMA if he has practiced professionally for at least 10 years.
Federal Govt. shall appoint a member of Tribunal as Chairperson and, except in special circumstances, he
should be a judicial member.

Solution 4(b) ( 1 mark per POINT)

Treatment in wealth statement Treatment in wealth reconciliation
Cash and bank balance of Rs. 5,628,000 Gain on sale of Rs. 528,000 (5,628,000–
being sale proceeds are shown. 5,100,000) is reflected as inflow.
Loan outstanding at 30 June 2021 of Rs.1200,000 No effect
(3,000,000–1800,000) is shown as liability.
Investment in AOP is shown as Rs.20,100,000 Share of profit in AOP of Rs. 4,200,000 is
(15,900,000 + 4,200,000).However, car being provided reflected as inflow.
by AOP is not shown in wealth statement.
10 tola gold at value of Rs. 1,500,000 is shown. Current No effect
market value is ignored in wealth statement.

Solution 4(c)
Special Audit Panel (.5 mark per bullet)
 Board may appoint as many special audit panels as may be required to conduct an audit, including a forensic
audit of the income tax affairs of any person and class of person & the scope of such audit shall be as
determined by the Board or the Comm.
 The panel shall comprise of any two or more members from an OIR, firm of CA or CMA or any other person
as directed by the Board.
 The Panel is headed by Chairman who shall be an officer of IR.;

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024
 Powers for the purpose of conducting an audit shall only be exercised by an OIR who is member of the panel
& authorized by the Comm.
 Where a person fails to produce any, documents and records, required to be maintained for audit the Comm.
may make best judgment assessment & Assessment already made or treated to have been made shall be of
no legal effect.
 If any member of the panel other than Chairman, is absent from conducting an audit, the audit conducted by
the special audit panel shall not be invalid or be called into question merely on account of such absence;
 Functions performed by the OIR as members of special audit panel to conduct audit, shall be treated to be
performed by special audit panel
 Board may prescribe the mode and manner of constitution, procedure and working of the special audit
panel.
Solution 5 (1 mark per bullet up to 5 points)
 one immovable property owned by the resident person
 self-owned business premises from where the business is carried out by the persons appearing on the active
taxpayers’ list at any time during the year
 self-owned agriculture land where agriculture activity is carried out by person excluding farmhouse and
land annexed thereto
Note: Farmhouse means a house constructed on a total minimum area of 2000 square yards
with a minimum covered area of 5000 square feet used as single dwelling unit.
 immovable property allotted to:
 a shaheed or dependents of a shaheed belonging to Pakistan Armed Forces.
 a person or dependents of the person who dies while in the service of Pakistan armed
forces or Federal or provincial government.
 a war wounded person while in service of Pakistan armed forces or Federal or provincial
government or
 an ex-serviceman and serving personnel of armed forces or ex-employees or serving
personnel of Federal and provincial governments, being original allottees of the capital
asset duly certified by the allotment authority.
 Any property from which income is chargeable to tax under the Ordinance and tax leviable is paid thereon
(for example property subject to rental income).
 Immovable property in the first tax year of acquisition where withholding tax on the acquisition has been
paid.
 Where the fair market value of the capital assets in aggregate excluding the capital assets mentioned above
does not exceed Rs 25 million.
 Immovable property owned by a provincial government or a local government.
 Immovable property owned by a local authority, a development authority, builders and developers for land
development and construction.
Solution 6 (a)
 Where a person files application for sales tax registration as a manufacturer without having installed
machinery, for the purpose of import of machinery to be installed by him, temporary registration as
manufacturer shall be allowed to him for a period of 60 days subject to furnishing of the complete list of
machinery to be imported along with Bill of Lading (BL) or Goods Declaration (GDs). (1)
 The temporary registration shall be issued by the computerized system within 72 hours of filing of the
complete application. (1)
 After receiving temporary registration, the person shall be allowed to import plant, machinery and raw
materials, etc.as a manufacturer, subject to submission to the customs authorities of a post-dated cheque
equal to the difference in duties and taxes to be availed as a manufacturer. (.5)
 If the above requirements are not fulfilled within 60 days of issuance of the temporary registration, such
temporary registration shall be disabled and the post-dated cheques submitted shall be encashed. (.5)
 Person holding temporary registration shall file monthly return but shall not issue a sales tax invoice and if
such invoice is issued, no input tax credit shall be admissible against such invoice. (1)
 No sales tax refund shall be paid to the person during the period of temporary registration and the amount
of input tax may be carried forward to his returns for subsequent tax periods. (1)

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024

Solution 6 (b)
Cottage industry means a manufacturer concern, which fulfils each of following conditions namely:
 Does not have an industrial gas or electricity connection (.5)
 Is located in a residential area (.5)
 Does not have a total labor force of more than 10 workers; and (.5)
 Annual turnover from all supplies does not exceed Rs 8 million (.5)
Local supplies of goods made by cottage industry are exempt from sales tax (6th schedule). (1)

Solution 6 (c)
Where a Regd. person receiving a taxable supply from another Regd. person is in the knowledge or has
reasonable grounds to suspect that some or all of the tax payable in respect of the goods supplied would go
unpaid, such person as well as the person making the taxable supply shall be jointly and severally liable for
payment of such unpaid amount of tax. The burden to prove this shall be on the tax department.
The Board may exempt any transaction or transactions from the provisions of this section. (3)

Solution 7
Atif Abidi Association
Computation of Sales Tax Payable/Refundable
For the tax period August 2023
Output tax (W-1) 3,715,560
Input tax: Lower of:
b/f 2,275,160
For the period (1,460,143 +(586000x18%) (.5) 1,565,623
3,840,783
90% of output tax (3,715,560 × 90%) 3,344,004 (3,344,004)

Input tax on PPE (W-4) (924,192)

Sales tax refundable (552,636)
Further tax payable to FBR (3,120,000 - 948,000) ×4% (2) 86,880
Export refund (452,714+720,000 + [1,350,000 × 18%]) (3) (1,415,714)
c/f input tax (3,840,783-3,344,004) (1) 496,779
W-1) OUTPUT TAX
Supplies to registered person 17,390,000
Supplies to unregistered person 3,120,000
3rd schedule (1800-1580) × 600 132,000 (1)
Total taxable supplies 20,642,000
Sales tax @ 18% 3,715,560

W-2) COMMON INPUT TAX

Purchase from registered suppliers 9,920,000
Material for taxable supplies (586,000) (.5)
Material for export (1350,000) (.5)
Purchase in cash (300,000) (.5)
1000 Kg of Tea [1000×1,800(1,800,000 - 720,000)] 1,080,000 (1)
Sales for a unregistered person without NTN & CNIC (550,000) (1)
Total purchase 8,214,000
Sales tax @ 18% 1,478,520
Input tax related to purchase made in Feb 372,000 (1)
Sales tax on electricity bill 308,500 (1)
Common input tax 2,159,020

W-3) INPUT TAX ON PPE

Machine Alpha for export 4,000, 000
Sales tax @ 18% 720,000
Machine Beta for taxable & exempt supplies 6,000,000
Sales tax @ 18% 1,080,000

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 TAX - Mock
Suggested Answers
Certificate in Accounting and Finance – spring 2024
W-4) APPORTIONMENT
Adjusted value of supply Common Input tax Input tax on PPE (1.5)
Taxable 20,642,000 1,460,143 924,192
Exempt 3,480,000 246,163 155,808
Zero rated 6,400,000 452,714 -
Total 30,522,000 2,159,020 1,080,000
Note: Input tax cannot be claimed on furniture for office (.5)

Solution 8 (a)
(i) Discourage use of cigarettes (.5)
(ii) Encourage exports (.5)
(iii) Fair distribution of wealth (.5)
(iv) Documentation of economy (.5)
(v) Encourage construction in the country (.5)
(vi) Encourage online transactions, with the aim to document the economy. (.5)
(vii) Reducing unemployment in the country (.5)
(viii) Encourage research and development for business purposes (.5)

Solution 8 (b)
 The President shall constitute NFC consisting of the Minister of Finance of the Federal Govt., the Ministers
of Finance of the Provincial Govts, and such other persons as may be appointed by the President after
consultation with the Governors of the Provinces. (1)
 It shall be the duty of the NFC to make recommendations to the President as to:
- Distribution between the Federation and the Provinces of the net proceeds of the taxes. (.5)
- Making of grants-in-aid by the Federal Govt. to the Provincial Govts; (.5)
- Exercise by the Federal Govt. and the Provincial Govts of the borrowing powers conferred by the
Constitution; (.5)
- Any other matter relating to finance referred to the Commission by the President. (.5)

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