TAXATION

General: Owing to a comparatively easy paper, overall performance of the candidates was good. There were, however, some students who despite having good knowledge failed to perform well because of not comprehending the exact requirements of the question and committing careless mistakes. It is emphasized that the students should be very careful in understanding the requirements of a particular question. Question-wise comments are given hereunder:

Q.1	The general response in respect of definitions of Income Tax was good. There were, however, few instances where the candidates were unable to emphasize that the definition of ‘profit on debt’ specifically excludes return of capital.

Q.2	Overall, the candidates showed good understanding about the common rules; however, a large number of candidates omitted to mention that those persons whose shares are definite and ascertainable; in respect of part ownership of a property are not to be assessed as an Association of Persons. Furthermore, most of the candidates did not understand that they were required to discuss the common rules on disposal of assets in a non-arm’s length transaction in Part (c) and not the circumstances under which a transaction is to be considered as non-arm’s length transaction. This shows that the requirement of the question were not properly understood.

Q.3	It was a very easy question as the candidates were merely required to describe any five types of expenses that are not allowed to be deducted under the head “income from business”. As expected, the performance of the candidates was very good and most of them were able to secure full marks.

Q.4	The question was attempted well. However, the candidates failed to mention the correct terms which were relevant like for initial depreciation, the term “road transport vehicle” was rarely used instead examinees wrote “motor vehicle”.

Q.5	This question was aimed at testing the candidates’ knowledge regarding the taxation of professional firms prohibited under the law to incorporate. Whilst most of the candidates were aware that it is not taxable and as such the members pay tax on their respective shares, there were very few candidates who were able to address the following aspects: · Significance of residential status of members with regard to determination of their share in the total income of the firm; · The right to set-off and / or carry forward any loss sustained by a firm is only available to a member when the same could not have been set-off against other income of the firm.

Q.6	This was an easy question The question was answered satisfactorily by a large number of candidates, however, most of them failed to specify that the loss surrendered by a subsidiary company can only be claimed by the holding company for set off against its income under the head “income from business”.

Q.7	It appeared that a large number of candidates were not aware of concept of ‘allocation of expenditure’. Most of the examinees were not able to portray the circumstances which necessitate the allocation of expenses like involvement of different heads of income, applicability of presumptive tax regime etc. resulting in the allocation of a common expense. In general the candidates presumed that the involvement of personal use of an asset warranted allocation of expenses.

Q.8	This question tested the technical competence of candidates, requiring them to give their views as to what will happen if a complete return is filed. It is implied that if a complete return is filed, the Commissioner is bound to accept it and the same is to be taken as deemed assessment with the amount of income, tax liability and refund as per return. Instead of focusing the reply on this aspect, they proceeded to specify the prerequisites of a complete return of income.

Q.9	The candidates showed good comprehension about the definitions, except that majority of the candidates gave the definition of “supply” instead of “taxable supply”.

Q.10	This question was not responded well by a large number of candidates. They merely gave generalized answers by stating that the increase in sales tax rate will enhance the cost of the item to the person. Through this question they were merely asked to give the requirements of Sales Tax Act with regard to the change in rate of sales tax.

Q.11	A common question generally asked in professional examinations. It was noted that candidates failed to mention that for claiming input tax, the relevant supports should show the name and registration number of the buyer.

Q.12	Most of the candidates were able to secure full marks in this easy question.

Q.13	The most common mistake committed in this question was with regard to the determination of value of supply where the consideration is partly in cash and partly in kind. In such a case, value of supply is to be taken as open market price of the supply excluding the amount of tax. Whereas most of the candidates stated the same to be the sum of cash consideration and fair market value of consideration in kind. In respect of trade discount, the candidates were aware that value is to be taken at discounted price, however many were not able to specify conditions need to be fulfilled in this regard i.e. Tax invoice shows the discounted price and the related tax. Discount allowed is in conformity with the normal business practice.

Q.14	There were very few candidates who were able to answer this question correctly, stating that the final tax return is to be filed by those who apply for de-registration. Furthermore, the same is to be filed at the time specified by the Collector of Sales Tax.

Q.15

A simple and straight computational question enabling candidates to secure a major part of their passing marks.

The following were observed for guidance:

The new Ordinance does not provide for ‘vacancy allowance’. Besides, there is no concept of ‘annual letting value’.

Tax rates should have been applied according to the Tax Year mentioned in the question.

The basis of valuation for use of car and accommodation was to be specified with answer.

Interest income is no more taxable under Presumptive Final Tax Regime.

It was observed that candidates had unnecessarily presumed that property tax of Rs. 35,000 was paid as part of rent, when there is no mention or inference of this in the question. Furthermore, candidates presumed that profit credited is to be grossed-up with tax withholding although the amount of tax withheld was exactly 10% of the amount given as profit on debt.

The most notable point in the question was that of the implication of tax borne by the employer. Majority of the candidates did not mention that it is a part of salary as per law so the amount of tax borne is to be added to the taxable income. Further, it needs to be grossed-up to the full amount so that after application of the tax rate the net amount after tax remains the same.