Certificate in Accounting and Finance Stage Examination

December 02,2023
23 minutes – 12 marks
Additional Reading Time – 5 minutes

CAF 2 -TAX PRACTICES

Test-8
Instructions to examinee
(i) Answer All Questions
(ii) Answer in Black pen only

Question-1
Anwar, aged 55 years, is resident in Pakistan. He commenced business as a sole proprietor on 1 July 2020,
manufacturing ready-made garments. Anwar's income statement, prepared using accrual-based accounting, for the
year ended 30 June 2021 is as follows:
Notes Rupees
Sales 1 8,000,000
Cost of sales 2 (5,200,000)
Gross profit 2,800,000
Less: Administration and selling expenses 3 1,500,000
Less: Financial charges 4 400,000
(1,900,000)
900,000
Add: Agricultural income 200,000
Profit before tax 1,100,000
Additional information:
1) The sales figure of Rs. 8,000,000 includes Rs. 200,000 received from customers in advance of sales to be
made in September 2021.
2) The cost of sales figure of Rs. 5,200,000 includes Rs. 1,500,000 for purchasing used sewing machines
Imported from China on 1 August 2020, for use in Anwar's business. The cost includes customs duty of Rs.
75,000 paid at the import stage to the Collector of Customs. No depreciation has been charged by Anwar on
these imported machines.
3) Administrative and selling expenses are comprised of the following:
a) Rs. 790,000 paid for the purchase of computer software on 1 August 2020, the software is likely to be
used for four years.
b) Salary to Anwar's brother who has been employed in Anwar's business as the assistant manager for
marketing since 1 July 2020. His brother's monthly salary is Rs. 30,000. The salary was paid in cash and
no deduction of tax was made from the salary.
c) Rs. 350,000 paid to a customer according to an order from the District Consumer Court for damages. This
was on account of supplying defective goods to the customer. Anwar has appealed against this order to
the Lahore High Court which is still pending.
4) Financial charges are comprised of:
a) Car lease rental payments of Rs. 220,000 in total, paid to an approved leasing modaraba for a lease on a
car used for business purposes. The value of the car is Rs. 1,550,000. No depreciation has been claimed
on the car.
b) Rs. 180,000 profit paid on a loan of Rs. 1,500,000. The loan was used for paying tuition fees for Anwar's
children.

Required: Compute the taxable income of Anwar for the tax year 2021. (12)
 Tax Practices Page 3 of 2

Rates of Tax for Individuals and

Association of Persons
(1) Subject to clause (2), the rates of tax imposed on income of every individual and association of persons
except a salaried individual shall be as set out in the following Table, namely:—

TABLE
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

(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
 Tax Practices Page 3 of 3

Tax 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 for purpose of calculating Depreciation

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%