CAF-02 Tax Practices Test-4 Solution

Test 5 – Suggested Solution

Answer-1
a)
Mr. Basit
Computation of tax liability 0.5
For tax year 2022
Pakistan Source Incomes: Rs.
Income from salary (W-1) 8,603,500 0.5
Income from other source (W-3) 200,000 0.5
Income from capital gain – separate block (W-2) - 0.5
Foreign Source Incomes:
Income from salary – Exempt (3,200 x 3-month x 250) 2,400,000 01
Income from Other Source (W-4) 250,000 0.5
Total Income 11,453,500
Less: Foreign source salary – exempt (2,400,000) 0.5
Taxable income 9,053,500
Tax liability [1,095,000 + 35% x 3,053,500] 2,163,725 0.5
Less: Foreign tax credit (lower of) (56,250) 1.5
Foreign tax (225 x 250) = 56,250
Pakistani tax (2,163,725/9,053,500 x 250,000) = 59,748
Net tax liability – NTR 2,107,475
Less: Tax already deducted (1,400,000) 0.5
Tax payable/ (refundable) 707,475
(W-l) Income from salary
Salary (610,000 x 7) 4,270,000 0.5
Allowance for services of domestic servant (60,000 x 7) 420,000 0.5
Allowance @ 5% of salary for official duties (4,270,000×5%) 213,500 0.5
Acquired car on lease (no benefit is given by employer) - 0.5
Shares acquired under employee share scheme: 1
FMV of shares on the date restriction is lifted (13,000 x 90) 1,170,000
Less: Cost of shares (13,000 x 30) (390,000) 780,000
Leave encashment 320,000 01
Gratuity approved by Board 2,200,000
Less: Exempt (300,000) 1,900,000 01
Salary arrears of tax year 2021 700,000 0.5
8,603,500
(W-2) Income from capital gain (Disposal of securities)
Consideration received (5,000 x 80) 400,000 0.5
Less:
Cost of shares 390,000
Amount charged under the head salary 780,000 01
1,170,000
(1,170,000/13,000 x 5,000) (450,000) 0.5
Loss (50,000)
(W-3) Income from other source
Gift received from friend - gold 200,000
200,000 0.5

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 CAF-02 Tax Practices Test-4 Solution
(W-4) Foreign source income GBP Rs.
Gross receipt 1,500 01
Deductions (500)
1,000
Profit (1,000 x 250) 250,000 0.5
b) Where any salary is paid to an employee in arrears; and because of this employee’s income is charged at
higher rate as compared to the rate that was applicable if the salary was paid in the year he rendered the
services, he may, give notice to the Commissioner, and elect the rate applicable in the year in which he
earned salary i.e., tax year 2021.
(1 mark)

Answer-2
Bisma
Taxable income
Tax year 2008
Income from Business – Pakistan Source Rs in '000' 0.5
Agricultural income (Rs. 70 x 1,800) = Rs. 126,000 – Exempt 126,000 1
Gloves selling factory (W-1) 180,000 1

Income from Business – Foreign Source 900,000 1

Total income 1,206,000
Less: Agricultural income (126,000) 0.5
Total/Taxable income 1,080,000

(W-1) Income from business (Gloves)

Gross revenue 300,000 0.5
Less: Cost of sales
Opening stock - 0.5
Produced (1,200 x 70) 84,000 1
Purchased (500 x 70) 35,000 1
Less: Closing stock (200 x 70) (14,000) 1
(105,000)
Less: Other expenses (15,000) 0.5
180,000

Answer-3

Permanent Establishment” includes-

a) a person acting in Pakistan (the agent) [other than an independent agent acting in the ordinary course of
business] on behalf of the person if the agent –
i. -exercises an authority to conclude contracts on behalf of the other person or
-plays the principal role and conclude contracts without material modification and these contracts are-
(a) in the name of the person; or
(b) for the transfer of ownership of (or granting of the right to use) property owned by that enterprise;
or
(c) for providing services by that person; or
ii. has no authority but habitually maintains stock (merchandise) for regular deliveries on
behalf of the other person:

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