SKANS School of Accountancy

Tax Practices
Mid Term
Spring 2024 11th December, 2023
Tutor: Khalid Mehmood, FCA 3 Hours – 100 Marks
CAF LEVEL EXAMINATION Additional reading time – 15 minutes
INSTRUCTIONS
Each new question shall be started from a new page. Otherwise question will not be checked.
Using any pen other than black shall result in cancellation of paper.
Use of mobile phone during paper shall also result in cancellation of paper.
Writing name and Roll No. is compulsory. Otherwise marks will be deducted.
QUESTION – 01
Shakoor is working as a Commercial Manager in Airmen Engineering Limited (AEL), an unlisted public company,
for the past many years. He derived following emoluments during the tax year ended 30 June 20X5:
Rupees
Basic salary (per month) 250,000
Medical allowance (per month) 37,500
Housing allowance (per 25,000
month)
Travel allowance (per month) 11,500
In addition to above, Shakoor was also provided the following:
(i) A used company maintained car for both business and personal use. This car was provided
to him on 1 July 20X4 in replacement of his previous car. This car was purchased three years
ago at a price of Rs. 1,000,000. However, the fair market value of the car on 1 July 20X4 was
Rs. 800,000. On 1 September 20X4, in accordance with the terms of his employment, AEL
transferred the previous car to Shakoor free of cost. The market value of the car at the time of
transfer was Rs. 400,000 whereas its book value was Rs. 200,000. On 1 June 20X5, Shakoor
sold this car to his neighbor at a price of Rs. 350,000.
(ii) Performance related bonus of Rs. 500,000. The bonus was however, paid to him on 5 July
20X5.
(iii) Two free buffet dinner coupons per month, one each for Shakoor and his wife in a five-star
hotel. The coupons were provided in line with AEL’s policy for its management employees.
The dinner costs AEL Rs. 2,000 per person.
(iv) Reimbursement of Rs. 20,000 in respect of telephone and internet charges. 20% of this
amount was spent by Shakoor in performance of his official duties.
(v) Two air-conditioners and a washing machine for use at home. The combined book value of
these appliances was Rs. 300,000. The appliances are returnable to AEL after three years’
time. AEL charged 10% depreciation on these appliances.
(vi) An option to purchase 20,000 shares in AEL on 1 May 20X5 at Rs. 25 per share. The break-
up value of AEL on that date was Rs. 85 per share.
Other information relevant to tax year 20X5 is as under:
(a) On 1 April 20X5, Shakoor sold a diamond ring to his brother Zohaib for Rs. 250,000. The
ring was purchased on 1 January 20X3 at a price of Rs. 280,000.
(b) On 31 May 20X5 a painting was destroyed by heavy rains. Shakoor had purchased the
painting on 30 June 20X2 for Rs. 100,000. However, due to constant increase in the value of
the painting, he had insured it at a premium of Rs. 15,000. He received insurance claim of Rs.
275,000 on 15 June 20X5.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder,Compute
the taxable income of Shakoor for tax year 20X5. (20)
Note: show all relevant exemptions, exclusions and disallowances.
QUESTION – 02
Mr. Asad owns some buildings which are given on rent. The following information is available;
Rupees

Annual rent received from tenants 1,800,000

Depreciation on building under the tax laws 400,000
Property tax 100,000
Municipal/local government taxes 100,000 (Agreement with tenants provide that tenants should
pay the taxes,)
General and administration expenses 200,000
Rent received includes Rs. 600,000 for three years commencing from July 01 of the current tax
year.Mr. Asad follow accrual basis of accounting and its income year is July-June 2024.
Required:
Compute the income of Mr. Asad under the heading ‘income from property’ for the tax year 2024.
(08)
QUESTION – 03
Mr Bilal, aged 45 and resident in Pakistan, disposed of the following assets during the year ended
30 June 2024:
Immovable asset
(1) 10 August 2023: Sold a flat in Karachi for Rs. 5,000,000 which he had bought on
1 January 2022 for Rs. 4,000,000
Others
(1) 30 June 2024: Sold 5,000 shares in Turbo Motors Limited, an unlisted
company in which 50% of the shares are held by the Government of
Balochistan, at Rs. 170 per share. He had purchased these shares on 1
November 2020 at Rs. 120 per share and paid commission of Rs. 0·10 per share
on each side of the trade.
(2) 1 January 2024: Sold 150,000 shares in Farid Sugar Mills (Pvt) Ltd (FSM) at a
gain of Rs. 1,125,000. Holding period is less than 1 year.
Required:
Compute the tax payable by Mr Bilal for the tax year 2024. (12)
QUESTION – 04
NOTE: FOR THE GIVEN SCENARIO ASSUME TODAY IS 25TH OF June, 2024
Mr. Akhtar Lawa started a business in July 2021. He placed plant & Machinery on 1 st August 2021
inbusiness premises. He has wide range of products and are very famous among the locals. One
of his most Famous item in the market is " Fraggy Soap " because of the fragrance he use while
making such soaps.
His business is growing day by day and he is curious about the registration of his business for
the tax purposes. For tax year-2024, total Turnover and Taxable income of the business is Rs.
180 million & Rs. 110 million respectively.
Required:
(a) Being a Tax Advisor, what would you advise Mr. Akhtar Lawa regarding registration of
the business? (05)
(b) Mr Akhtar also wants to claim deduction for unpaid rent on a property located in Gulberg
Lahore. List down the points that he should fullfill to claim such deduction. (05)
QUESTION – 05
Jahangir tareen resigned from his employment with Chinaar Industries Limited (CIL) with effect
from 31 December 2023.
He received following amounts in final settlement:
 Rs. 150,000 as Leave Encashment and
 Rs. 4,000,000 under a Golden Handshake Scheme.
 Jahangir tareen had received a salary of Rs. 350,000 per month for a period of six
 months upto December 2023.
His taxable income and tax liability during the preceding five tax years from 2019 -2023 were
Rs. 2,000,000, Rs.2,450,000, Rs. 2,700,000 , Rs. 3,100,000 and Rs. 3,650,000 respectively and tax
paid were Rs. 90,000, Rs.100,000, Rs.273,000, Rs. 130,000 and Rs.185,000 respectively.
Required:
As a tax consultant, advise Jahangir tareen about the amount of income tax payable by him for the tax
year 2024, under the Income Tax Ordinance, 2001. (10)

QUESTION – 06
Mr. TAHA is working as a senior manager in Toys ltd, an American Company. Toys ltd had
established its branch office in Pakistan and had sent Taha as Country head for looking after the
Pakistan operations.

 Taha came to Pakistan for the first time on 15th of December 2023
 He was sent to Karachi office on 28th of December till then he was in Lahore
 From 15th of March to 24th of March, He visited Canada to attend official meetings
 From 21st of April to 30th of April, he went to Bangkok for Vacations
 From 15th of June to 20th of June, he went to Swat & Kalam on trip
Required:
In view of the provisions of the Income Tax Ordinance, 2001 and related Rules thereunder, comment on the
residential status of Mr. TAHA for the tax year 2024. (07)
QUESTION – 07
Under an Employee Share Scheme, Mr. Asad purchased rights to buy 20,000 shares by paying
Rs. 20,000 on 15th of August 2022. The value of rights on that date was Rs 25,000. On 15 Sep 2022 he
sold half of the rights for Rs. 15,000. On 1st January 2023, he exercised the remaining rights bypaying
Rs. 75 per share. There was a restriction on transfer of shares for 1 year. However, he sold 5,000
shares on 25th of May 2023 for Rs. 90 per share. FMV of shares were as follows:

1st Jan 2023 Rs. 85/share

25th May 2023 Rs. 95/share
30th June 2023 Rs. 100/share
31st Dec 2023 Rs. 105/share
30th June 2024 Rs. 115/share
Required:
Compute amount to be included in income of Mr. Asad under relevant head of income for the Tax
Year 2023 & 2024. (05)
QUESTION – 08
(a) What is the differences between a Public Company and a Private Company within the meaning
of the Income Tax Ordinance, 2001? (05)
(b) Taxation system of every Country has a vital role in planning it`s Economic Strategy. Since our
country is suffering from financial Crisis. What major Characteristics you willsuggest that will
help us to develop Good Taxation System. (06)
(c) Rizwan, ACA is a Manager Taxation at a large consultancy firm and reports to Babar Azam, FCA
who is one of the partner of firm.
Rizwan is presently engaged in the preparation of the income tax return of Digital Systems
Limited (DSL), an IT company. During the review of tax workings, he discovers that DSL has
Charged certain expenses against which no supporting documents are available. He brings
matter to the attention of Babar Azam who has responded to him that since this is not a
audit engagement, it is not our responsibility to highlight such Matters.
Required:
Briefly discuss how Babar Azam may be in breach of fundamental principles of ICAP ,s code
of ethics. (04)
QUESTION – 09
(a) List any five taxes which can be imposed by the Federal Government. (05)
(b) Enumerate the expenditures which are charged upon the provincial consolidated fund. (04)
(c) State non-revenue objectives which the government achieves by imposing taxation. (04)
 TAX RATES FOR INDIVIDUALS
Salary / Business Income (Rs) Tax Rates

1 Up to Rs. 600,000
2 Rs. 600,001 to Rs. 1,200,000
3 Rs. 1,200,001 to Rs. 2,400,000
4 Rs. 2,400,001 to Rs. 3,600,000
5 Rs. 3,600,001 to Rs. 6,000,000
6 Above 6,000,000
0%
2.5% exceeding 600,000
15,000 + 12.5% exceeding 1,200,000
165,000 + 22.5% exceeding 2,400,000
435,000 + 27.5% exceeding 3,600,000
1,095,000 + 35% exceeding 6,000,000

TAX RATES FOR AOPs and NON-SAL ARIED INDIVIDUALS

Business Income (Rs) Tax Rates

1 Up to Rs. 600,000 NIL

2 Rs. 600,001 to Rs. 800,000
3 Rs. 800,001 to Rs. 1,200,000
4 Rs. 1,200,001 to Rs. 2,400,000
5 Rs. 2,400,001 to Rs. 3,000,000
6 Rs. 3,000,001 to Rs. 4,000,000
7 Above 4,000,000
7.5% exceeding 600,000
15,000 + 15% exceeding 800,000
75,000 + 20% exceeding 1,200,000
315,000 + 25% exceeding 2,400,000
465,000 + 30% exceeding 3,000,000
765,000 + 35% exceeding 4,000,000

TABLE

S. No. Holding Period Rate of Tax

Open Plots Constructed Flats

Property
(1) (2) (3) (4) (5)
1. Where the holding period 15% 15% 15%
does not exceed one year
2. Where the holding period 12.5% 10% 7.5%
exceeds one year but does not
exceed two years
3. Where the holding period 10% 7.5% -
exceeds two years but does
not exceed three years
4. Where the holding period 7.5% 5% -
exceeds three years but
does not exceed four years
5. Where the holding period 5% - -
exceeds four years but does
not exceed five years
6. Where the holding period 2.5% - -
exceeds five years but does
not exceed six years
7. Where the holding period 0% - -
exceeds six years
Rates for Tax year 2024 (If Securities are acquired on or after 01/07/2022)
S. No. Holding Period Rate of Tax for
Tax year
2023 and
onwards
(1) (2) (3)
1. Where the holding period does not exceed one year 15%

2. Where the holding period exceeds one year but does 12.5%
not exceed two years
3. Where the holding period exceeds two years but does 10%
not exceed three years
4. Where the holding period exceeds three years but 7.5%
does not exceed four years
5. Where the holding period exceeds four years but does not exceed five years 5%

6. Where the holding period exceeds five years but 2.5%

does not exceed six years
7. Where the holding period exceeds six years 0%

Rates for Tax year 2024 (If Securities are acquired on or before 30/06/2022)
12.5% (if purchased after 1-7-2013