Taxation Management Exam.docx

TAXATION MANAGEMENT Exam QUESTION 1: A Differentiate between the following with examples: [11] a) Tax & fee b) Progressive tax & Proportional tax c) Inclusive & Exclusive definition a) Difference between tax and fee: Tax is a charge levied upon persons or things by a government. The main difference between tax and fee is the entitlement of counter benefits. Tax are compulsory levy by the Government in order to finance its projects or the basic way governments raise the revenue necessary to carry out their functions, including administration of justice, defense, and construction of infrastructure, such as canals, roads, and public buildings and other activities while fee is the charge in which one becomes entitle to claim counter benefit once it paid. Examples of taxes are Income tax; Sales Tax and Fee includes any fee paid like school fee or doctor fee etc. b) Progressive tax & Proportional tax: Progressive tax system is of such type in which tax burden falls more heavily on the wealthy or high-income person than on the poor or low-income person. The effective tax rate increases as the amount to which the rate is applied increases. It may be frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. While proportional tax is an income tax that takes the same percentage of income from everyone regardless of how much (or little) an individual earns. These taxes are levied with the same percentage. For example, sales tax is levied at the rate of 15%. c) Inclusive & Exclusive definition: Exclusive definition is one which excludes all the literal or dictionary meanings and meant for the meaning that is explained in the given statute or law. However inclusive definition follows both dictionary meanings as well as the definition set out by any law or statute. In simple words, the area of exclusive definition is just concerned with the subject matter and inclusive convey both general meaning of the word as well as the subject matter. Examples of exclusive definitions are Appellate Tribunal, Commissioner and Inclusive are employment, dividend etc QUESTION 1: B) Determine tax year in the light of following information: (4) a) Mr. D, a salaried person received salary during the period from 1st July 2003 to 30th June 2004. b) Mr. A, a manufacturer of shawls deriving income during the period from 1st April 2004 to 31st March 2005. c) Mr. B, a rice exporter deriving income during the period from 1st January 2004 to 31st December 2004. d) M/S XYZ, an Insurance Company having an accounting period from 1st January 2006 to 31st December 2006. Answer to Question 02: a) b) c) d) Tax year 2004 Tax year 2005 Tax year 2005 Tax year 2007 Question 1: C: (5) Determine the status of the following persons under section 80 of the ordinance. 1. Mr. Ali director in Private Company (Individual) 2. Edhi Welfare Trust (Company) 3. Federal Government (Person) 4. Virtual University of Pakistan (Company) 5. A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons Mr. Kumar & Mr. Deepak (Hindu Undivided Family) QUESTION 2 A: What do you understand from the following? 1. Minimum of Time Scale ( MTS) (1.5+1.5=3) 2. Initial Thresh hold of income for taxation of a salaried individual for tax year 2007. 1. Concept of MTS (Minimum of Time Scale) This is the starting point or minimum amount which is available to an employee under a time scale for example if time scale is:-- $ 20,000--2000—30000 Here $20,000 is the Minimum of time scale. 2. Initial threshold for salaried individual is Rs. 150,000 Proviso Provided that where income of a woman tax payer is covered by this clause, no tax shall be charged if taxable income does not exceed $. 200,000. QUESTION 2 B: Compute the taxable income and tax liability thereon of Mr. Kamal, a salaried individual. The data pertaining to tax year 2007 is given below. 1 Basic salary $. 20,000 pm 2 Utilities paid by employer $. 50,000 for tax yr. 3 Bonuses $. 60,000 for tax yr. 4 House rent allowance $. 5,000 pm 5 Medical Allowance $. 5,100 pm 6 Free hospitalization services availed under terms of employment. $. 40,000 for tax yr. 7 Driver’s salary paid by employer $. 8,000 pm 8 Dearness Allowance $. 6,000 pm SOLUTION: Tax payer: Mr. Kamal Residential Status: Resident Individual Computation of taxable income of Mr. Kamal Tax year: 2007 NTN: 000111 In Rs. Particulars Basic Salary Utilities paid by employer Bonuses House rent allowance Medical allowance Free Hospitalization under terms of employment Driver’s salary Dearness Allowance Total Taxable Income Tax Liability: Total income 240,000 50,000 60,000 60,000 61,200 40,000 96,000 72,000 Exempt income Nil Nil Nil Nil Nil 40,000 Nil Nil Taxable income 240,000 50,000 60,000 60,000 61,200 Nil 96,000 72,000 639,200 Tax rate of 6.0 percent shall apply as given at serial #9 for taxable income exceeding Rs. 600,000 but does not exceed Rs. 700,000. = $. 639,200 x 6% = $. 38,352 Note: Medical allowance exempt up to 10% of Basic salary, if free hospitalization services or reimbursement of medical expenses not provided by employer. Since free hospitalization services provided in this case, hence entire amount of medical allowance has been added as taxable income. QUESTION 3: Determine tax year in the light of following information Mr. A, a salaried person received salary during the period from 1st July 2002 to 30th June 2003. Mr. X, an individual derived income during the period from 1st July 2004 to 30th June 2005. Mr. Z, an individual derived income during the period from 1st July2005 to 30th June 2006. Mr. B, a rice exporter deriving income during the period from 1st January 2005 to 31st December 2005 QUESTION 4: Determine the status of the following persons under section 80 of the ordinance. ABC Cooperative Housing Society Mr. R, a Director in Private Company Askari Bank Limited Edhi Welfare Trust Federal Government Virtual University of Pakistan A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons Mr. Kumar & Mr. Deepak. Nishat Mills Ltd. QUESTION 5: Write short notes on the following: Exemption on account of “President’s Honour” Exemptions on account of “Profit On Debt” Exemptions on “Scholarships” Taxation Management Assignment #02 Please read the following Instructions carefully before attempting the assignment solution. • You can consult the concerned chapters. • Make sure that you have uploaded the Assignment before due date. No assignment will be accepted through E-mail after the due date. • Cheating or copying of assignment is strictly prohibited; No credit will be given to copied assignment. Total Marks=15 Question 01: Differentiate between the following with examples: a) Tax & fee b) Progressive tax & Proportional tax c) Inclusive & Exclusive definition a) Difference between tax and fee: (3x2=6) Tax is a charge levied upon persons or things by a government. The main difference between tax and fee is the entitlement of counter benefits. Tax are compulsory levy by the Government in order to finance its projects or the basic way governments raise the revenue necessary to carry out their functions, including administration of justice, defense, and construction of infrastructure, such as canals, roads, and public buildings and other activities while fee is the charge in which one becomes entitle to claim counter benefit once it paid. Examples of taxes are Income tax; Sales Tax and Fee includes any fee paid like school fee or doctor fee etc. b) Progressive tax & Proportional tax: Progressive tax system is of such type in which tax burden falls more heavily on the wealthy or high-income person than on the poor or low-income person. The effective tax rate increases as the amount to which the rate is applied increases. It may be frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. While proportional tax is an income tax that takes the same percentage of income from everyone regardless of how much (or little) an individual earns. These taxes are levied with the same percentage. For example, sales tax is levied at the rate of 15%. c) Inclusive & Exclusive definition: Exclusive definition is one which excludes all the literal or dictionary meanings and meant for the meaning that is explained in the given statute or law. Taxation Management However inclusive definition follows both dictionary meanings as well as the definition set out by any law or statute. In simple words, the area of exclusive definition is just concerned with the subject matter and inclusive convey both general meaning of the word as well as the subject matter. Examples of exclusive definitions are Appellate Tribunal, Commissioner and Inclusive are employment, dividend etc Question 02: Determine tax year in the light of following information: (4) a) Mr. D, a salaried person received salary during the period from 1st July 2003 to 30th June 2004. b) Mr. A, a manufacturer of shawls deriving income during the period from 1st April 2004 to 31st March 2005. c) Mr. B, a rice exporter deriving income during the period from 1st January 2004 to 31st December 2004. d) M/S XYZ, an Insurance Company having an accounting period from 1st January 2006 to 31st December 2006. Answer to Question 02: a) b) c) d) Tax year 2004 Tax year 2005 Tax year 2005 Tax year 2007 Question 03: (5) Determine the status of the following persons under section 80 of the ordinance. 1. Mr. Ali director in Private Company (Individual) 2. Edhi Welfare Trust (Company) 3. Federal Government (Person) 4. Virtual University of Pakistan (Company) 5. A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons Mr. Kumar & Mr. Deepak (Hindu Undivided Family) Taxation Management Total Marks=15 Question 01: Differentiate between the following with examples: a) Tax & fee b) Progressive tax & Proportional tax c) Inclusive & Exclusive definition a) Difference between tax and fee: (3x2=6) Tax is a charge levied upon persons or things by a government. The main difference between tax and fee is the entitlement of counter benefits. Tax are compulsory levy by the Government in order to finance its projects or the basic way governments raise the revenue necessary to carry out their functions, including administration of justice, defense, and construction of infrastructure, such as canals, roads, and public buildings and other activities while fee is the charge in which one becomes entitle to claim counter benefit once it paid. Examples of taxes are Income tax; Sales Tax and Fee includes any fee paid like school fee or doctor fee etc. b) Progressive tax & Proportional tax: Progressive tax system is of such type in which tax burden falls more heavily on the wealthy or high-income person than on the poor or low-income person. The effective tax rate increases as the amount to which the rate is applied increases. It may be frequently applied in reference to income taxes, where people with more disposable income pay a higher percentage of that income in tax than do those with less income. While proportional tax is an income tax that takes the same percentage of income from everyone regardless of how much (or little) an individual earns. These taxes are levied with the same percentage. For example, sales tax is levied at the rate of 15%. c) Inclusive & Exclusive definition: Exclusive definition is one which excludes all the literal or dictionary meanings and meant for the meaning that is explained in the given statute or law. However inclusive definition follows both dictionary meanings as well as the definition set out by any law or statute. In simple words, the area of exclusive definition is just concerned with the subject matter and inclusive convey both general meaning of the word as well as the subject matter. Examples of exclusive definitions are Appellate Tribunal, Commissioner and Inclusive are employment, dividend etc Question 02: Determine tax year in the light of following information: (4) a) Mr. D, a salaried person received salary during the period from 1st July 2003 to 30th June 2004. b) Mr. A, a manufacturer of shawls deriving income during the period from 1st April 2004 to 31st March 2005. c) Mr. B, a rice exporter deriving income during the period from 1st January 2004 to 31st December 2004. d) M/S XYZ, an Insurance Company having an accounting period from 1st January 2006 to 31st December 2006. Answer to Question 02: a) b) c) d) Tax year 2004 Tax year 2005 Tax year 2005 Tax year 2007 Question 03: (5) Determine the status of the following persons under section 80 of the ordinance. 1. Mr. Ali director in Private Company (Individual) 2. Edhi Welfare Trust (Company) 3. Federal Government (Person) 4. Virtual University of Pakistan (Company) 5. A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons Mr. Kumar & Mr. Deepak (Hindu Undivided Family) Taxation Management 1. Agriculture income means an income derived by a person from: a. Agri-business b. land situated in Pakistan and used for any purpose c. land situated outside Pakistan d. land situated in Pakistan and used for agriculture purpose 2. Which of the following is the best treatment of any “Pakistan Source Income” of a resident of Pakistan? a. Wholly Taxable b. Wholly Exempt c. Partially exempt d. None of the given options 3. Which one of the following condition must be satisfied for a resident AOP? a. AOP must be registered in Pakistan b. Owners of AOP must be resident of Pakistan c. Control and management of AOP is situated wholly or partly in Pakistan d. Control and management of AOP lies outside Pakistan 4. Which one of the following sources of income of a Non-resident is taxable in Pakistan? a. Pakistan Source Income only b. Foreign Source Income only c. Both Pakistan and Foreign Source Income d. Receipt of any Income in Pakistan 5. Mr. Kamran is a pilot in air force; his salary will be taxed from a separate block, which one of the following rates will be applied to him? a. 2.0% b. 2.5% c. 3.0% d. 3.5% 6. Which one of the following conditions must be fulfilled by XYZ Co. in order to become Pakistan Resident Company under Income Tax Ordinance 2001? a. Most of it’s branches located in Pakistan b. Control and management is situated wholly in Pakistan c. Control and management is situated partly in Pakistan d. Owners of the company must be resident of Pakistan Taxation Management Assignment #04 7. For the calculation of residential status of an individual, which of the following day is considered as whole day? a. Day of arrival b. Day of departure c. Day of leave including sick leave d. All of the given options 8. Under which one of the following conditions a profit can be Pakistan Source Income? a. It is paid by Non-resident Person b. It is received by Resident Person through permanent establishment outside Pakistan c. Borne by Non-resident through permanent establishment in Pakistan d. It is paid to non resident person through permanent establishment out side Pakistan 9. Under which one of the following conditions a Business Income can be “Pakistan Source Income”? a. Income derived from any business carried on in Pakistan b. Income derived by Non resident through permanent establishment in Pakistan c. Any remuneration paid by resident of Pakistan d. All of the given options 10. ____________ means a fixed place of business through which the business of an enterprise is wholly or partly carried on. a. Franchise b. Permanent establishment c. Small Business Units (SBU) d. Venture Choose the best right option. 1. Under the head “Income from Property” any rental income received from a trust or welfare institution as provided in sub clause (2) and (3) of clause (58) is: 1. Wholly exempted 2. Partly exempted 3. Wholly Taxable 4. None of the given options 2. _____________ on account of cancellation of sale agreement of building shall be treated as rental income and fully taxable. a. Fair market rent b. Forfeited amount c. Rent collection charges d. Penalty 3. If income of an individual received under the head income from property, is Rs. 470,000, then his tax liability is: a. $. 23,500 b. $. 47,000 c. $. 70,500 d. $. 94,000 4. Rates of Tax for Banking Companies for Tax Year 2007 is: 1. 44% 2. 41% 3. 38% 4. 35% 5. ____________ means a fixed place of business through which the business of an enterprise is wholly or partly carried on. a. Franchise b. Permanent establishment c. Small Business Units SBU d. Venture 6. Which of the following is the tax treatment for Income from property received as a rent for the year 2007? a. 1 /4 of the rent is deduct able as repairs allowance b. 1 /2 of the rent is deduct able as repairs allowance c. 1 /5 of the rent is deduct able as repairs allowance d. No deduction is allowed 7. In case of non adjustable advance received from a building as income from property. Such rent will be spread in how much of the following years? a. 5 years b. 6years c. 8 years d. 10 years 8. Suppose non-adjustable advance received from a building as income from property is Rs. 500,000 in the year 2006. The amount adjustable for each coming year will be? a. Rs. 100,000 b. Rs. 62,500 c. Rs. 50,000 d. Rs. 500,000 9. Mr. A had constructed a property after availing loan from a commercial bank and paid mark-up amounting $ 40,000 during the tax year 2006. What is the treatment of this mark-up in calculating the total taxable income from property as per Income Tax Ordinance 2001? a. Mark-up is allowed as admissible deduction in the year 2006 b. Mark-up is not allowed as admissible deduction in the year 2006 c. Mark-up is allowed as admissible deduction in the year 2007 d. Half amount of mark up is allowed as admissible deduction in the year 2006 10. Mr. Ali let out a building to M/S XYZ and received gross total rent amounting $ 1,600,000 during the tax year 2006. He has also hired staff for the collection of rent the salary paid to employees in this context is $ 120,000 in the tax year 2006. What is the treatment of this collection charges in calculating the total taxable income from property as per Income Tax Ordinance 2001? a. 60,000 b. 80,000 c. 96,000 d. 120,000 11. Under clause (93 A) of the Part 1 of second schedule of Income Tax Ordinance 2001 which of the following’s Business income is exempted from tax? a. Income of a Text-Book Board. b. University or Educational Institution established not for profit purpose. c. Recognized Vocational Institute. d. Income of Recognized Sports Board. 12. A loss sustained under the head Capital Gain can be carried forward for the following period: a. Up to 8 years b. Up to 10 years c. Up to 7 years d. Up to 6 years 13. Capital gain shall be treated a gain: a. On international transaction b. On domestic transaction c. On disposal by way of gift of an asset d. On disposal of a capital asset 14. A person shall be entitled to a tax credit in respect of any sum given as a donation in a tax year shall be computed according to which of the following formula: a. (A/B) x C b. (A/C) x B c. (A + B) x C d. (A - B) x C 15. Members of income tax appellate tribunal are appointed by: a. Collector of Income Tax b. Commissioner of Income Tax c. Federal Government d. Judicial Commission Fill in the Blanks 1. Section 17 of the income Tax Ordinance 2001 has been omitted by Finance Bill 2006. 2. Section 17 of Income Tax Ordinance 2001, Income from property the rent collection charges should not to exceed 6% of gross rental income. 3. In case of discontinuance of business, return to be file within 15 days of discontinuance. 4. Pension from Pakistan Government but received outside in Kenya, is taxable in case of resident individual. 5. Income of a woman tax payer is not taxable income if it does not exceed $. 200,000.