Certificate in Accounting and Finance Stage Examination

Tax Practices
Test
Total Marks: 40
Time Allowed: 75 minutes

Instructions:
(i) Answer all questions.
(ii) Answer in black pen only.
(iii) Start a new question on a new page
(iv) Write the page number on top of your answer scripts.

Q1.
Afridi, a resident individual, is working as researcher at Khawaja Institute (KI) which is a non-profit
research institution and is duly recognized by Higher Education Commission. KI is entirely owned and
funded by Burger Limited (BL), a company listed on the Pakistan Stock Exchange.
Details of his monthly remuneration during the year ended 30 June 2024 are given below:
Rupees
Basic salary 100,000
Medical allowance 10,000
Fair market rent of 50,000
accommodation
In addition to the above, he was also provided the following
 Health insurance for Afridi and his dependents as per the terms of employment. For
this purpose, KI is paying annual insurance premium of Rs. 20,000.
 Provident fund contribution of Rs. 7,500 per month to a recognized provident fund.
An equal amount was also contributed by Afridi to the fund.

Additional information
i. On 1 July 2023, Afridi was granted an option to acquire 10,000 shares in BL at a price of Rs. 52.5
per share under an employee share scheme. Afridi bought the option on the same date by paying
Rs. 87,500 to KI when the fair market value of the option was Rs. 100,000. He exercised the option
on 30 September 2023 when the fair market value was Rs. 65 per Share.
As per the scheme, he was not allowed to sell or transfer the shares before 31 December 2023. On
31 December 2023, the fair market value of BL’s shares was Rs.71. On 30 May 2024, he sold 5,000
of these shares at Rs. 67.5 per share.
ii. On 1 July 2023, Afridi obtained an interest free loan of Rs. 2,500,000 from KI in exchange
for which he agreed to waive the interest receivable on his provident fund balance maintained with
KI. Interest provided on provident fund balance for the year was 8%. The prescribed benchmark
rate is 10%.
iii. On 31 August 2024, he received leave encashment of Rs. 50,000 relating to previous year.
iv. During the year, tax of Rs. 80,000 was deducted at source by KI.

Other information relevant to tax year 2024:

i. On 15 January 2024. He sold a shop situated in Karachi for Rs. 15,000,000. He had purchased
this shop in 2022 for Rs. 19,000,000 out of which Rs. 5,000,000 was paid in cash.
ii. On 1 March 2024, he sold a residential plot situated in Faisalabad for Rs. 9,000,000. The plot
was inherited from his father in December 2018. The plot was purchased for Rs. 3,500,000.
iii. In June 2024, Afridi independently developed learning courses for sale through a web-based
marketplace managed by company situated outside Pakistan.
On 25 June 2024, he received USD 2,130 into his dollar account from sale of these courses.
Withholding income tax @ 8% was deducted from the receipt as per the income tax laws of the
foreign country.
Relevant exchange rate were as follows:
25 June 2024 USD 1 = PKR 168
30 June 2024 USD 1 = PKR 169
Average exchange rate for the June 2024 USD 1 = PKR 168.5
iv. On 1 June 2024, Afridi paid Rs. 1,250,000 as donation to a non-profit organization listed in the
13th schedule of the Income Tax Ordinance, 2001.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute the taxable
income and net tax payable by or refundable to Afridi for the year ended 30 June 2024.
Show all relevant exemptions, exclusions and disallowances. (20)

Q2.
James Bond owns an industrial undertaking under the name and style of James & Company
(JC) which is engaged in the business of manufacturing pharmaceutical products. Following
information is available for the year ended 31 December 2024:
Rs. In ”000”

Turnover 162,425
Cost of goods sold (108,599)
Gross profit 53,827
Administrative and Distribution (44,490)
expenses
Marketing expenses (9,883)
Other income 1,780
Profit before tax 1,234
Additional information:
i. Cost of goods sold includes:
 Raw materials of Rs. 3,900,000. No withholding tax was deducted at the time
of payment.
 Accounting depreciation of Rs. 1,050,000 on plant and machinery.
 Provision for slow moving inventory of Rs. 900,000.
ii. Administrative and distribution expenses include:
 Rs. 338,250 paid to a local hotel for holding annual Eid-Milan party for the
employees and their families.
 Rs. 617,500 paid as penalty to a customer in settlement of his claim for damages
under a contract for the supply of a batch of vaccines. Laboratory tests and in-
house investigations revealed that the level of impurities in the vaccines
exceeded the acceptable level as agreed in the contract.
 Rs. 1,150,000 paid as donation to a hospital established by the local government.
iii. Marketing expenses include a reward of Rs 250,000. The reward was paid in cash to
one of the salesmen for exceeding his sales target.
 iv. Other income includes:
 Dividend of Rs. 87,000. This amount was received from a listed company after
deduction of income tax at the rate of 15% and Zakat of Rs. 15,000 deducted
under the Zakat and Usher Ordinance, 1980.
 Gain of Rs. 330,000 on sale of shares in Akash (Pvt) Limited (APL) in November
2024. 60% of the shares in APL are owned by the Federal Government. AC
purchased these shares in June 2023.
Other information:
i. A second-hand plant was imported from France at a cost of Rs. 1,250,000. Withholding
tax of Rs. 75,000 was deducted at import stage. The plant was installed in the month of
September 2024. AC incurred Rs. 187,500 on the installation of plant which is included in
administrative and distribution expenses.
ii. Pre-commencement expenditures of Rs. 1,700,000 were charged to accounting profit and
loss for the year ended 31 December 2023. However, for tax purposes, it has to be
amortized over the period of five years.
iii. Tax depreciation other than imported plant amounted to Rs. 950,000.
iv. Income tax deducted by the customers u/s 153 and advance income tax paid u/s 147 during
the year amounted to Rs. 700,000 and Rs. 100,000 respectively.

Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute
total income, taxable income and net income tax payable by or refundable to JC for the tax year
2024. (20)
 ANNEXURE 4.1

Division1. For individual non-salaried case/AOP i.e. where taxable salary is less than or equal to 75% of
taxable income and for AOP

Taxable Income Rate of Tax

1. Up to Rs. 600,000 0%

2. Rs. 600,001- Rs. 1,200,000 15% of the exceeding Rs. 600,000

3. Rs. 1,200,001 - Rs. 1,600,000 90,000 + 20% of the amount exceeding Rs. 1,200,000

4. Rs. 1,600,001 - Rs. 3,200,000 170,000 + 30% of the amount exceeding Rs 1,600,000

5. Rs. 3,200,001 - Rs. 5,600,000 650,000 + 40% of the amount exceeding, Rs. 3,200,000

6. Over Rs. 5,600,000 1,610,000 + 45% of the amount exceeding Rs 5,600,000

Tax Rate for a Professional Firm: If an AOP is a professional firm that cannot incorporate due to legal or
regulatory rules, tax rate of 45% listed in Slab 6 above will be reduced to 40%.

Division 2 For individual salaried case i.e Where taxable salary exceeds 75% of taxable income

Taxable Income Rate of Tax

1. Up to Rs. 600,000 0%

2. Rs. Rs. 600,001- Rs. 1,200,000 5% of the exceeding Rs. 600,000

3. Rs. Rs. 1,200,001- Rs. 2,200,000 30,000 + 15% of the amount exceeding 1,200,000

4. Rs. Rs. 2,200,001- Rs. 3,200,000 180,000 + 25% of the amount exceeding 2,200,000

5. Rs. 3,200,001 - Rs. 4,100,000 430,000 + 30% of the amount exceeding, 3,200,000

6. Exceed Rs. 4,100,000 700,000 + 35% of the amount exceeding 4,100,000

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.
Capital gains arising on disposal of securities are chargeable to tax at the following rates: Tax year
2025 - Where securities acquired on or after 01 July 2022
Holding period Rate of Tax for
active taxpayers
Less than one year 15%
More than one year but less than two years 12.5%
More than two years but less than three years 10%
More than three years but less than four years 7.5%
More than four years but less than five years 5%
More than five years but less than six years 2.5%
More than 6 years 0%

S.no Holding period Open plot Constructed Flats

property
1. does not exceed 1 year 15% 15% 15%
2. Exceeds 1 year but up to 2 years 12.5% 10% 7.5%
3. Exceeds 2 years but up to 3 years 10% 7.5% 0%
4. Exceeds 3 years but up to 4 years 7.5% 5% -
5. Exceeds 4 years but up to 5 years 5% 0% -
6. Exceeds 5 years but up to 6 years 2.5% - -
Exceeds 6 years 0%

ASSETS Dep.
Rate
Building 10 %
Computer/IT products/aircrafts 30 %
Others (vehicles, P&M, furniture, ships, Technical or professional books) 15 %
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.
Offshore platform and production Installations. 20%
Ramp build to provide access to disabled up to Rs 250,000 100 %
*The depreciation rate will be given in the examination