General:

The candidates did not perform well in this paper although the questions were relatively easy. Selective study seems to be one of the main reasons of poor performance. It is apparent that besides knowledge, the students also suffer from lack of practice and presentation skills. Another important issue is that the candidates fail to understand the requirements of the question and do not know how to approach logically.

Question wise comments are given hereunder:

Q.1

This question tested the basic concept of claiming depreciation on different types of assets. The performance in this question was very good. The common mistakes were as under:

Very few students knew that how the restriction on value of car for claiming depreciation has been withdrawn

Most examinees did not know that software is to be classified as “intangibles”.

Q.2

This question had two parts. In the first part, candidates were supposed to express their knowledge of universal self assessment scheme and the parameters of audit spelled by it. To that extent, performance was satisfactory with the exception that the examinees were mixing up the law laid down for amendment of assessment with audit. In the second part of the question, the situation was too generalized. The scope of the question was too wide and the candidates expressed their views on how tax audit should be conducted and many of them offered good comments. However many candidates could not properly understand the requirements of the question. They wasted their time in proposing parameters to select cases for tax audit.

Q.3

The question of preparing wealth statement of an individual again proved  difficult for the candidates. The main twist of the question was to work out additions to net wealth on account of income from business. Since the income from business is assessable under the Final Tax Regime (FTR), a deemed income was required to be computed by working back FTR tax liability. This aspect was touched by very few candidates. Many candidates restricted themselves to preparing the cash book. Proper computation of tax liability on account of income from property and other income and consequential decrease in net wealth on account of tax liability was also missing in many answer scripts. It is in fact recommended that the examinees should learn the mechanics of preparing wealth statement. In fact, its preparation was not very complicated and required the use of basic accounting techniques.

Q.4

The scope of this question was also not properly understood by many candidates. It was very clearly specified that rules relating to acquisition and disposal of depreciable assets are required to be discussed. However many candidates not only wasted their time but also lost very precious marks as they discussed  other aspects such as rules relating to cost of assets, allowability of depreciation and computation of gain / loss on disposal of assets. The answer to this question lies in common rules of section 75 of the Ordinance wherein the basic principles relating to acquisition and disposal of assets have been laid down.

Q.5

This question carried 15 marks and it was important for the students to attempt this question carefully and score good marks. Many candidates attempted this question at the end of the paper and could not comprehend the fundamentals of the question properly. Computation of FTR tax liability relating to commercial imports and local trading has often been asked at Final Examination level and it was disappointing to note in many answer scripts that the candidates still find it difficult to apply the basic concepts.

The only new thing in the question was allocation of expenses between various sources of income including foreign source income. Allocation of expenses is based on the principle that expenses related to particular activity are allocated on actual basis whereas only common expenses are allocated in the ratio of sales. It was however seen in many answer scripts that allocation of expenses which are identified and relatable to particular actively e.g. commercial import activity were also made part of common expenses for apportionment purposes. In many scripts, examinees were seen setting-off losses attributable to income from presumptive tax regime to normal income from toll manufacturing.

Q.6

This question was very poorly performed as most of the students had not studied this area. The question specifically required them to elaborate the prescribed  rules for valuing non-cash items given as donation for calculating tax credit thereof against tax liability. However almost all the students mentioned the names of institutions to whom donation paid are eligible for claiming tax credit.

Q.7

This was a straightforward question but the candidates made lot of mistakes while answering it. Many student mixed the sales tax special audit with the tax audit conducted under the Income Tax Ordinance, 2001. It was evident that the students had not studied the law and the answers were based on their general understanding of the subject.

Q.8

This question involved application of knowledge of sale tax relating to input tax claims for the relevant period as well as of prior periods. Candidates were also required to apply their knowledge relating to rectification of various types of errors generally made in the computation of sale tax liability. The performance in this question was very bad mainly for the following reasons:

Input tax claim relating to immediately preceding period can be claimed in the subsequent month’s tax return, however input tax claim related to second and third month prior to relevant month’s tax return can be claimed through revision of return. In both the situations, Collector of Sales Tax needs to be apprised of the reasons for late claim of input tax. The students however mixed up both the situations and made calculations of unclaimed input tax in aggregate terms.

The students also did not properly present the effect of different errors and their rectification in the relevant months to work out the net position of every month. The calculation was made in aggregate terms thus not meeting the requirement of the question as well as the provisions of the Sales Tax Act, 1990.

Q.9

The last question related to Excise Law and the performance of students in this part, as usual, was unsatisfactory. Particularly, in the second part where students were expected to elaborate the adjustments of input sales tax and input excise duty against excise duty payable at output stage. Almost all the students who answered this part applied their general knowledge of sales tax law relating to input / output adjustment and did not specifically refer to excise law.