Overall performance of the candidates was satisfactory.  However, in some questions, the candidates failed to comprehend the exact requirement of the question. The candidates are advised that they only get marks for the portion of the answer which is relevant. They don’t get any credit whatsoever for displaying the knowledge of any areas which is irrelevant. Hence, they should refrain from giving irrelevant details.

Question-wise comments are given hereunder:

Q.1

This was an easy question and many candidates were able to secure good marks.  As many constituents of the question were a replication of questions asked in previous examinations, the candidates did not find problem in attempting the same correctly.

However, the following were observed in many cases and are illustrated here for guidance:

·      Salary income was computed for 12 months instead of 11 months. 

·      Exemption for house rent allowance was considered at 45% of salary whereas it should have been restricted at Rs 270,000. 

·      Notional value for use of car was added when no such addition was required since the car was used exclusively for business purposes. 

·      Sale of residential plot was incorrectly taken as taxable event.

·      Winning of cash prize was not considered as part of Final Tax Regime. 

·      The fee for preparing research paper, in most cases, was allocated over 24 months. It actually was chargeable in one year. 

·      Loss from disposal of a painting was deducted from total income while no loss shall be recognized on the disposal of such capital asset under section 38 (5)(a) of the Income Tax Ordinance 2001. 

·      The candidates were instructed to give brief explanation for the items which were not included in taxable income. Very few candidates gave such explanations.

Q.2

(a)

This was a simple question and well attempted by most of the candidates. However, many candidates described the depreciable assets in general accounting sense instead of elucidating the requirements of the Income Tax Ordinance, 2001.

(b)

Most of the candidates failed to understand the requirement of the question.  Answers were rather seen specifying as to how minimum tax is computed for different trades instead of giving the required definition. 

Q.3

(a)

This question was fairly attempted by many candidates. However a considerable number of candidates were not aware that:

·      limits defined for payment through cash are not applicable in the case of freight payments and as such cash payments do not result in disallowability of freight charges.

·      if tax on salary is paid by the employee himself then salary expenditure becomes allowable. 

(b)

Majority of the candidates explained the valuation of stock-in-trade through FIFO and average cost method instead of explaining the basis of computation i.e. prime cost method or absorption cost method as referred to in section 35 (5).

(c)

This portion of question was confined to the recovery of bad debts in subsequent years. However, many candidates wasted a lot of time in explaining the entire section 29 and few even explained in detail the requirement of section 29A regarding consumer loan provision, which were not required.

Q.4

(a)

The overall performance of the candidates was very poor in this question. Majority of the candidates were not aware of the fact that the technical services and royalty are not taxable under the Final Tax Regime when (i) these are given through or have connection with, a permanent establishment of a non resident in Pakistan or (ii) they are exempt from tax.

(b)

This was a slightly difficult question but many candidates were able to give a reasonable explanation on the tax implication on income earned in UAE and Pakistan.

Q.5

(a)

This was a straight forward question from section 87 of the Income Tax Ordinance, 2001 and well attempted by most of the candidates.

(b)

Very few candidates were able to provide a correct answer of this part of question in light of section 85. Most of the candidates got confused with the term “associated undertakings” as defined in the Companies Ordinance, 1984 and thus lost marks.

Q.6

This was an easy question and was attempted well by most of the candidates, however very few candidates were able to mention all the circumstances under which the commissioner can issue a notice requiring a person to file a return for a period of less than twelve months.

Q.7

(a)

The candidates were required to comment on the chargeability of income tax on dividends and bonus shares if there is a restriction on the transferability of shares. Majority of candidates were unable to secure marks as they went on explaining the chargeability of income tax on shares under employees share scheme as explained under section 14 of the Income Tax Ordinance, 2001.

(b)

Response to this question was very poor. Most of the candidates were unable to demonstrate that tax was still leviable on the dividend because of applicability of Final Taxation Regime on dividend.  Candidates were also unable to work out the portion of loss related to ‘other sources’ by adjusting the amount of dividend.

Q.8

This again highlighted the poor grasp of the candidates on the subject. The question required the time limits for giving the appeal effects viz within one year after the close of current financial year for question (a), and two months on receipt of order in question (b).  Most candidates could not give the correct answer as above.

Q.9

This was a simple question and well attempted by most of the candidates.

Q.10

It was also a simple question and the performance of the candidates was quite satisfactory. However, very few candidates were able to secure full marks as most of the candidates were unable to explain the full tax implication on voluntary revision of a return (i.e. deposit of evaded amount of tax, imposition of default surcharge and penalty) during an audit and failed to distinguish between revision before and after the issuance of a show cause notice.

Q.11

Most of the candidates were unable to answer this question correctly. The candidates did not know that in case of pay order and bank draft, the date on which these are tendered to the bank is considered as the date of payment.

Q.12

Many candidates answered this question quite satisfactorily with the exception of part (c).

In part (c), the candidates failed to explain the concepts of provisional adjustment. The input tax claimed in the monthly return by apportionment between taxable and exempt supplies is considered as a provisional adjustment. Final adjustment is made at the end of each year based on full year’s figures.