Certificate in Accounting and Finance Stage Examination

December 16 ,2023
30 minutes – 14 marks
Additional Reading Time – 5 minutes

CAF-2 Tax Practices

Test-9
Instructions to examinee
(i) Answer All Three Questions
(ii) Answer in Black pen only

Question-1
Three individuals, X, Y, and Z, are partners of a firm (XYZ), resident in Pakistan, carrying on the business
of manufacturing and sale of agricultural implements for small individual farmers. X, Y and Z share the
profit and losses of the firm in the ratio of 3:2:1 respectively. For the tax year 2011, the net profit of the firm
is Rs. 400,000 after debiting the following:
Rs.
Commission paid to X 300,000
Performance bonus paid to Y 100,000
Salary paid to X 300,000
Interest paid to Z 200,000
Scrutiny of the accounts of the partnership, prepared on the accrual basis, reveal the following information:
(1) Amount contributed to unrecognized gratuity fund amounted to Rs. 100,000.
(2) The son of partner Y worked as an engineer in the firm for three months during the year ended 30
June 2011. In total, he was paid Rs. 150,000 as salary through a crossed cheque.
(3) Expenditure debited to the profit and loss account includes a fine of Rs. 25,000 paid to the
Engineering Development Board for an infraction of safety laws.
(4) An amount of Rs. 50,000 had been given as a loan to a farmer in 2003 which could not be recovered
and has been written off as a bad debt on 20 May 2011.
(5) An amount of Rs. 100,000 due to the partnership by some of its customers had been treated as
irrecoverable.
(6) In September 2010 the firm obtained Rs. 300,000 as advances, in cash, from two customers against
the supply of agricultural implements to be made by September 2011.
(7) One vehicle is used by a non-partner employee of the partnership, details of which are given below:
Cost of the vehicle Rs. 2,800,000
Date of purchase 1 January 2011
Depreciation claimed (charged in accounts) is Rs.280,000
Required:
(i) Compute the taxable income of the firm XYZ and the tax payable thereon for the tax year 2011.
Give brief reasons for the treatment of the items excluded from taxable income; (7)
(ii) Assuming X earned income from business of Rs. 700,000, compute his share of income from the
firm, taxable income and tax payable by X. (4)

Question-2
(a) In the light of the provisions of Sales Tax Act, 1990 and Rules made thereunder, briefly explain as to the
chargeability/adjustment of sales tax in respect of each of the following independent matters:
(i) Free provision of taxable goods to the company‘s CEO as per the terms of his employment.
(ii) Free replacement of defective parts in the case of taxable goods, sold under warranty.
(iii) Payment of machine fuel by one of the directors using his own credit card. The machine is used to
manufacture taxable goods.
(iv) Taxable goods sold on instalment to a customer at a price inclusive of mark up.
(v) Advance payment received against taxable goods to be supplied to a registered person in next month.
(vi) Local supplies of goods manufactured by a cottage industry.
(vii) Material purchased for the construction of office building.
(viii) Electronic cash register purchased for retail outlet. (08)f
 Tax Practices Page 4 of 2

Question-3
Mr Naveed, a registered person under the Sales Tax Act, 1990, made supplies, during May 2012, of the different
goods manufactured by him in the following manner:
(1) Goods, of which the market price was Rs. 500,000, were supplied to Superior Industries Ltd (SIL). SIL
settled the transaction by paying Rs. 400,000 in cash and by giving goods of Rs. 100,000 to Naveed‘s son on
his directions. The value of the supply was shown as Rs. 400,000 in the accounts.
(2) Consumed taxable goods at home and showed their sale value as zero in the accounts. The open market price
of the consumed goods is Rs. 78,000.
(3) Naveed supplied goods to a person at a discounted price of Rs. 2,500,000. The discount rate allowed was 18%
against the normal business practice of allowing a discount at 8%.
(4) Supplied goods to Mr Fareed, a consumer from the general public, on an installment basis at Rs. 900,000
inclusive of a mark-up of Rs. 50,000. At the time of supply, the open market price of the goods was Rs.
850,000. In the accounts, the value of the supply was recorded as Rs. 900,000.
Required:
In each of the above situations, state, with reasons, the correct value of the supply on which Mr Naveed would be
chargeable to sales tax under the Sales Tax Act, 1990. (6)
 Tax Practices Page 4 of 3

Rates of Tax for Individuals and

Association of Persons

S. No Taxable Income Rate of Tax

1. Where taxable income does not exceed 0%
Rs. 600,000
2. Where taxable income exceeds 7.5% of the amount exceeding Rs. 600,000
Rs. 600,000 but does not exceed
Rs. 800,000
3. Where taxable income exceeds Rs. 15,000 + 15% of the amount exceeding
Rs. 800,000 but does not exceed Rs. 800,000
Rs. 1,200,000
4. Where taxable income exceeds Rs. 75,000 + 20% of the amount exceeding
Rs. 1,200,000 but does not exceed Rs. 1,200,000
Rs. 2,400,000
5 Where taxable income exceeds Rs. 315,000 + 25% of the amount
Rs. 2,400,000 but does not exceed exceeding Rs. 2,400,000
Rs. 3,000,000
6 Where taxable income exceeds Rs. 465,000 + 30% of the amount
Rs. 3,000,000 but does not exceed exceeding Rs. 3,000,000
Rs. 4,000,000
7. Where taxable income exceeds Rs. 765,000 + 35% of the amount
Rs. 4,000,000 exceeding Rs. 4,000,000

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
 Tax Practices Page 4 of 4

Rates for disposal of immovable property

Gain
S.No. Holding Period Open Constructed Flats
Plots Property
(1) (2) (3) (4) (5)
1. Where the holding period does not exceed one year 15% 15% 15%
2. Where the holding period exceeds one year but does 12.5% 10% 7.5%
not exceed two years
3. Where the holding period exceeds two years but does 10% 7.5% 0
not exceed three years
4. Where the holding period exceeds three years but does 7.5% 5% -
not exceed four years
5. Where the holding period exceeds four years but does 5% 0 -
not exceed five years
6. Where the holding period exceeds five years but does 2.5% - -
not exceed six years
7. Where the holding period exceeds six years. 0% - -

Rates of tax for securities (2024 and onwards)

Holding Period Securities acquired on or Securities acquired
before 30.06.2022 on or after
(Between 1.7.13 – 30.6.22) 01.07.2022
1. Where the holding period does not exceed one year 15%
2. Where the holding period exceeds one year but does exceed
12.5%
two years
3. Where the holding period exceeds two years but does not
12.5% 10%
exceed three years
Where the holding period exceeds three years but does not [Irrespective of the holding 7.5%
4. period]
exceed four years
Where the holding period exceeds four years but does not 5%
5.
exceed five years
Where the holding period exceeds five years but does not 2.50%
6.
exceed six years
7. Where the holding period exceeds six years 0%
Future commodity contracts entered into by members of 5%
8.
Pakistan Mercantile Exchange

Rates to calculate Depriciation

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%