Certificate in Accounting and Finance Stage Examination

November 4 ,2023
52 minutes – 29 marks
Additional Reading Time – 10 minutes

Tax Practices
Test-5
Instructions to examinee

(i) Answer All Questions

(ii) Answer in Black pen only
(iii) Attempt each Question on new page.

Question-1
For the purpose of this question, assume that the date today is 31 August 2022.
Basit, a senior manager at Master Limited (ML), resigned on 31 January 2022 after completion of three and a half
year of service. During the tax year 2022, he received the following emoluments from ML:
(i) Salary of Rs. 610,000 per month.
(ii) Allowance of Rs 60,000 per month for services of domestic servant. Out of which, he paid Rs. 36,000 per
month in respect of these services.
(iii) Allowance equal to 5% of salary solely expended in the performance of his duties of employment.
Additional information:
(i) On 1 July 2021, he leased a car having fair market value of Rs. 4,800,000 at a monthly rental of Rs.
120,000. He pays lease rentals from his own sources but has used this vehicle for both official and personal
purposes.
(ii) On 1 July 2021, 13000 shares of ML were allotted to Basit under an employee share scheme, against the
payment of Rs. 30 per share. According to the scheme, he was not allowed to sell / transfer the shares upto
31 December 2021. On 31 May 2022, he sold 5000 shares of ML at its fair market value (FMV). FMV of
each share on different dates are as follows:
1 July 2021 31 December 2021 31 May 2022
Rs. 50 Rs. 90 Rs. 80
(iii) On 15 February 2022, he received the following payments from ML, as final settlement:
• Rs. 320,000 on account of leave encashment.
• Rs. 2,200,000 under gratuity scheme approved by the Board.
• Rs. 700,000 salary arrears related to tax year 2021.
(iv) Withholding tax deducted by ML from Basit’s salary during the tax year 2022 amounted to Rs. 1,400,000.
Other information:
(i) On 31 January 2022, he received gold worth Rs. 200,000 as a gift from his old friend.
(ii) On 1 April 2022, he left for United Kingdom and joined Oliver Limited (OL) as an employee at a monthly
salary of GBP 3,200. He remained abroad till end of the tax year 2022. No withholding tax was deducted
by OL from his salary.
(iii) While residing in UK, Basit served as a visiting faculty member at a University. He earned GBP 1,500
from the university and incurred an expenditure of GBP 500 for providing services at the university.
Withholding tax deducted by the university amounted to GBP 225.
(iv) Average exchange rate during 1 April 2022 to 30 June 2022 was GBP 1 = Rs. 250.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder:
(a) compute the total income, taxable income and net tax payable by or refundable to Basit for the tax year
2022. (Show all relevant exemptions, exclusions and disallowances and ignore notional expense) (16)
(b) what other option is available to Basit for the taxation of salary arrears of Rs. 700,000 received from ML as
part of final settlement. (Revised computation is not required) (01)
 Tax Practices | Page 2 of 2

Question-2
Bisma has provided following information for TY 2008.
She has 2 agricultural lands. One is in Patoki (Punjab) and the other is in France.
Land in Patoki
On land in Patoki she grew rubber trees. During the year, she cultivated 3,000 kg of latex. Out of total
cultivation, 1,800 kg of latex was sold to a rubber shoe factory at a price of Rs. 70 per kg whereas the remaining
quantity was utilized in her own factory producing gloves. During the year, she also purchased 500 kg of latex
for her factory from an independent supplier at market price.
The sale of her factory was Rs. 300,000 whereas total expenses other than the raw material amounted to Rs.
15,000. The expenditure incurred on raw material (seed, pesticides etc.) for own produce is Rs. 40,000.
200 kg of latex is still appearing in closing stock of factory.
Land in France
During the year, she cultivated 5,000 kg of mangoes which were sold to China, America and Switzerland. The
total profit earned in this respect is 900,000 in pak rupees.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable income
of Bisma for the tax year 2008. (08)

Question-3
When an agent become a permanent establishment and when an agent does not become a permanent establishment
(04)

Rates of Tax for Individuals and

Association of Persons
(2) Where the income of an individual chargeable under the head “‘salary” exceeds seventy-five per
cent of his taxable income, the rates of tax to be applied shall be as set out in the following Table,
namely:—

S. No Taxable Income Rate of Tax

(1) (2) (3)
Where taxable income does not exceed 0%
1.
Rs. 600,000
2. Where taxable income exceeds 2.5% of the amount exceeding
Rs. 600,000 but does not exceed Rs. 600,000
Rs. 1,200,000
3. Where taxable income exceeds Rs. 15,000 + 12.5% of the
Rs. 1,200,000 but does not exceed amount exceeding Rs. 1,200,000
Rs. 2,400,000
4. Where taxable income exceeds Rs. 165,000 + 22.5% of the
Rs. 2,400,000 but does not exceed amount exceeding Rs. 2,400,000
Rs. 3,600,000
5. Where taxable income exceeds Rs. 435,000 + 27.5% of the
Rs. 3,600,000 but does not exceed amount exceeding Rs. 3,600,000
Rs. 6,000,000
6. Where taxable income exceeds Rs. 1,095,000 + 35% of the
Rs. 6,000,000 amount exceeding Rs. 6,000,000