Certificate in Accounting and Finance Stage Examination

November 30,2024
45 minutes – 25 marks
Additional Reading Time – 5 minutes

CAF 2 -TAX PRACTICES

Test-7
Instructions to examinee
(i) Answer All 4 Questions
(ii) Answer in Black pen only
(iii) Attempt each Question on new page.
(iv) After attempting, convert your answer script to PDF using CamScanner and upload on your LMS .

Question-1
a)
Sweet Bakers (SB) is a bakery business owned by Mariam and her two brothers, Ehsan and Ghulam, who share
profits in the ratio of 60:20:20, respectively. SB has three retail outlets located in Karachi, and it also owns
agriculture land that is rented to a chicken farmer. SB is registered with sales tax authorities as a Tier-1 retailer.
The following information has been extracted from the records of SB for the year ended 30 June 2023:
Rs. in million
Net sales 500
Less: Cost of sales (350)
Gross profit 150
Less: Operating expenses (73)
Profit before tax 77
Additional information:
(i) Net sales include rental received from the chicken farmer, as detailed below:
 A monthly payment of Rs.0.5 million.
 Supply of 120 paitis of eggs (agriculture produce) every month. Each paiti holds a market value
of Rs.7,200. SB consumed these eggs in the production of various bakery items, but they are not
accounted for in the abovementioned cost of sales.
(ii) Cost of sales include:
 purchase of various raw materials worth Rs.24 million on which no withholding tax was deducted
at the time of payment. SB made total purchases of Rs.200 million during the year.
 purchase of milk powder worth Rs.10 million, of which 10% is delivered to the homes of the
three partners for their personal use.
 salaries of Rs.8.2 million, Rs.6 million, and Rs.4.8 million to Mariam, Ehsan, and Ghulam,
respectively.
 purchase of a new bakery plant worth Rs.15 million.
(iii) Operating expenses include:
 purchase of point-of-sale machines worth Rs.0.4 million which were installed on 1 July 2022 in
all outlets to integrate with FBR’s computerized system for real time reporting of sales.
 payment of Rs.5.5 million on 1 January 2023 to an IT company for the development of an
application to facilitate online orders from customers. The useful life of this application is
expected to be five years and is available for use from 1 October 2023.
(iv) On 1 February 2023, Mariam contributed her personal van to the business, which she had
purchased at a cost of Rs.6 million on 1 January 2022. The fair market value of the van at the
time of transfer was Rs.9 million.
Required:
Under the provisions of the Income Tax Ordinance, 2001 and Rules made thereunder, compute under the
correct head of income, the total income, taxable income, and tax liability of SB for the tax year 2023(16)
 Ignore minimum tax under section 113.
 Show all relevant exemptions, exclusions and disallowances.
 Tax Practices Page 2 of 5

b)
Under the provisions of the Income Tax Ordinance, 2001, the tax payable by women enterprises on profit and
gains derived from business chargeable to tax under the head ‘Income from Business’ shall be reduced by 25%.
Required:
Explain the term ‘Women enterprise’. Also, discuss whether the abovementioned reduction in tax liability is
available to Sweet Bakers. (03)

Question-2
How the WDV is calculated on disposal of Intangible asset?
(03)
Question-3
How the consideration received is determined is case of disposal of asset by leasing company?
(03)
 Tax Practices Page 3 of 5

Extracts from the Income Tax Ordinance, 2001

Rates of Tax for non-salaried Individuals andAssociation of Persons

S. No Taxable Income Rate of Tax

1. Where taxable income does not exceed Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not exceed 15% of the amount exceeding Rs. 600,000
Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000 but does not Rs. 90,000 + 20% of the amount exceeding Rs.
exceed Rs. 1,600,000 1,200,000
4. Where taxable income exceeds Rs. 1,600,000 but does not Rs. 170,000 + 30% of the amount exceeding Rs.
exceed Rs. 3,200,000 1,600,000
5. Where taxable income exceeds Rs. 3,200,000 but does not Rs. 650,000 + 40% of the amount exceeding Rs.
exceed Rs. 5,600,000 3,200,000
6. Where taxable income exceeds Rs. 5,600,000 Rs. 1,610,000 + 45% of the amount exceeding
Rs.prohibited
Provided that in the case of an association of persons that is a professional firm 5,600,000from incorporating by any law
or the rules of the body regulating their profession, the 45% rate of tax mentioned against serial number 6 of the Table shall
be 40%.
Surcharge for High Earners: 10% on Gross Tax Liability for Income Exceeding Rs. 10 Million
A surcharge shall also be payable by every individual (including salaried) and Association of person (AOP) @ 10% of the
Gross tax liability where taxable income exceeds Rs.10 million.

Rates of Tax for salaried Individuals

S. No Taxable Income Rate of Tax
1. Where taxable income does not exceed Rs. 600,000 0%
2. Where taxable income exceeds Rs. 600,000 but does not 5% of the amount exceeding Rs. 600,000
exceed Rs. 1,200,000
3. Where taxable income exceeds Rs. 1,200,000 but does not Rs. 30,000 + 15% of the amount exceeding
exceed Rs. 2,200,000 Rs. 1,200,000
4. Where taxable income exceeds Rs. 2,200,000 but does not Rs. 180,000 + 25% of the amount exceeding
exceed Rs. 3,200,000 Rs. 2,200,000
5. Where taxable income exceeds Rs. 3,200,000 but does not Rs. 430,000 + 30% of the amount exceeding
exceed Rs. 4,100,000 Rs. 3,200,000
6. Where taxable income exceeds Rs. 4,100,000 Rs. 700,000 + 35% of the amount exceeding
Rs. 4,100,000

Salaried Person
An individual whose income from salary exceeds 75% of taxable income in a tax year will be considered as a salaried person.
Surcharge for High Earners: 10% on Gross Tax Liability for Income Exceeding Rs. 10 Million
A surcharge shall also be payable by every individual (including salaried) and Association of person (AOP) @ 10% of the
Gross tax liability where taxable income exceeds Rs.10 million.
 Tax Practices Page 4 of 5

Capital Gain on disposal of Securities

Holding Period Securities acquired between Securities acquired Rate of Tax on disposal of
01 July 2013 to 30 June 2022 on or after securities acquired on or
01.07.2022 after 1st day of July,2024
1. Where the holding period Active taxpayers
15%
does not exceed one year 15% for persons appearing on
2. Where the holding period the Active Taxpayers List on
exceeds one year but does 12.5% the date of acquisition and the
exceed two years 12.5% date of disposal of securities
3. Where the holding period [Irrespective of the holding
exceeds two years but does period] 10% Non-active taxpayers
not exceed three years Progressive rates specified in
Where the holding period 7.5% Division I for individuals and
4. exceeds three years but does association of persons and
not exceed four years (29%) Division II for
Where the holding period 5% companies. However, the rate
5. exceeds four years but does of tax shall not be less than
not exceed five years 15% in any case.
Where the holding period 2.50%
6. exceeds five years but does
not exceed six years
Where the holding period 0%
7.
exceeds six years
Future commodity contracts 5% 5%
entered into by members of
8.
Pakistan Mercantile
Exchange
The rate of 0% tax shall be charged on capital gain arising on disposal where the securities are acquired before the first day
of July, 2013.

Gain on disposal of immovable proprty

Rate of Tax on properties acquired
on or before 30th day of June, 2024 Rate of Tax on properties
S. No Holding Period Open Constructe Flats acquired on or after 1st day of
Plots d Property July, 2024
(1) (2) (3) (4) (5) (6)
1. Where the holding period does not 15% 15% 15% Active taxpayers
exceed one year 15%
2. Where the holding period exceeds one 12.5% 10% 7.5% Non-active persons
year but does not exceed two years At the progressive slab rates
3. Where the holding period exceeds two 10% 7.5% 0 specified in Division I for
years but does not exceed three years individuals and AOP (this rate
4. Where the holding period exceeds three 7.5% 5% - shall not be less than 15% in any
years but does not exceed four years case)
5. Where the holding period exceeds four 5% 0 -
years but does not exceed five years
6. Where the holding period exceeds five 2.5% - -
years but does not exceed six years
7. Where the holding period exceeds six 0% - -
years.
 Tax Practices Page 5 of 5

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%