MIDTERM EXAMINATION
Spring 2009
FIN623- Taxation Management (Session - 2)
Question No: 1 ( Marks: 1 ) http://vuzs.net
Which of the following is opposite to the literal meanings of Tax?
Burden
Strain
Load
Relieve
REF:
Literal meanings ----- Burden, Strain
Question No: 2 ( Marks: 1 ) http://vuzs.net
Which of the following is the main source of revenue generation of the state?
Taxes & Tariffs
Internal Borrowing
External Borrowing
Penalties & Fines
Question No: 3 ( Marks: 1 ) http://vuzs.net
_____ is paid to the government on goods and services and can be reclaimed by
retailers.
Income Tax
Value Added Tax
Capital Value Tax
Wealth Tax
Ref: by ZAIGHUM
value added tax is the tax that is only refundable and apply of the good and services.
Question No: 4 ( Marks: 1 ) http://vuzs.net
Which of the following is not an employment tax?
Social Security Tax
Federal Excise Tax
Federal unemployment compensation tax
State unemployment compensation tax
Ref: by ZAIGHUM
for above mcqs is correct because after reading the definiation of federal excise tax you should be able to differencete from the aboe. it the tax that government ampossed on the import of a good and services thats why it has no connection with employment tax.
Question No: 5 ( Marks: 1 ) http://vuzs.net
How many Schedules are contained in the Income Tax Ordinance 2001?
Three Schedule
Fifth Schedule
Seven Schedules
Nine Schedules
Ref:
Basic Features of Income Tax Ordinance 2001
Scheme of the Ordinance is given below:
There are thirteen chapters
Chapters are divided into:
ƒParts &
ƒDivisions
There are 240 Sections
This ordinance comprises of seven Schedules
Schedules are integral part of the Ordinance.
Question No: 6 ( Marks: 1 ) http://vuzs.net
Under which of the following sections of Income Tax Ordinance 2001 vested the
powers to CBR in order to formulate the IT rule 2002?
Section 206
Section 213
Section 237
Section 238
Ref:
IT rules 2002
These were promulgated by CBR on 1st July 2002 in exercise of powers granted under section 237 of theOrdinance.
Question No: 7 ( Marks: 1 ) http://vuzs.net
Which one of the following is the Internal aid and help in the interpretation of
Punctuation marks
CBR’s circulars
Definitions in other statutes
Departmental manuals
Ref:
Internal Aids:
These are available in the Act:
ƒ Explanation to the section
ƒ Marginal notes
ƒ Punctuation marks
ƒ Preamble
ƒ Title of a chapter
ƒ Non-Obstinate clause
ƒ Proviso
ƒ Context
Question No: 8 ( Marks: 1 ) http://vuzs.net
Section 2(13) of Income Tax Ordinance 2001 defined:
“Commissioner” means a person appointed as a Commissioner of Income Tax
yle="text-align: left; direction: ltr; margin: 0px;" dir="ltr">under section 208, and includes a taxation officer vest ed with all or any of the
powers, and functions of the Commissioner;
In which criteria the above definition falls?
Exclusive definition
Inclusive definition
Both Exclusive and Inclusive definitions
Statutory definition
Ref:
Question No: 9 ( Marks: 1 )
Under which of the following conditions a tax payer can adopt a special tax year?
Whenever he decides so
After seeking approval from Tax Office
After seeking approval from Commissioner of income tax
After seeking approval from High Court
Ref:
Special Tax Year:
In case a person has a different accounting period from normal tax year or adopted such aperiodafter seeking approval from commissioner under section 74(3) it is called special tax year.
Question No: 10 ( Marks: 1 ) http://vuzs.net
Mr. A & B Joint Owners of a Building, Which of the following is the legal status
under the provisions of Section 80 of the Ordinance?
Company
Association of Persons
Hindu Undivided Family
Ref:
• “An association of persons”—includes a firm, a Hindu Undivided Family, any artificial juridical personand anybody of persons formed under a foreign law, but doesn’t include a company.
Question No: 11 ( Marks: 1 ) http://vuzs.net
Which of the following is the legal status of Mr. Z, a Director in Private Company
under section 80 of the Income tax ordinance 2001?
Individual
Company
Firm
Hindu Undivided Family
Ref:
Person—Sec. 2(42) read with section 80. Person includes:
• An individual
• • A company or association of persons incorporated or formed in Pakistan or elsewhere; and
• The federal Government,
• a foreign government,
• • a political sub division of foreign government, or
• Public international organization
Question No: 12 ( Marks: 1 ) http://vuzs.net
Which of the following is NOT an example of deemed income?
Golden hand shake
All of the given options
Loan through cross cheque
Gifts through proper transaction
Ref:
Deemed Income at Par with real income
Cash Basis Vs Accrual Basis
Illegal Income
Lump Sum Receipts
Tax-free income
Question No: 13 ( Marks: 1 ) http://vuzs.net
If the land situated in Pakistan and used for agriculture purposes then which of
the following factor make distinction between agriculture and non-Agriculture
Income?
Nationality of Pakistan
Quantity of the product
Time period
Human effort
Question No: 14 ( Marks: 1 ) http://vuzs.net
Suppose a merchant acquired Profit from the purchase of standing crops and
resale of it after harvesting.
The profit of the merchant will be treated in which of the following way?
Agriculture Income
Income from Business
Income from Property
Capital Gain
Ref: answer required
Following Incomes are held to be “Non-Agricultural Income”
Profit accruing from the purchase of standing crops and resale of it after harvest by a merchant having no interest in land except a mere license to enter upon the land and gather upon the produce, land is not direct, immediate or effective source of income
Question No: 15 ( Marks: 1 ) http://vuzs.net
Mr. Ali being citizen of Pakistan of 60 years old, if his total taxable income is
Rs.400,000. His tax liability will be reduced by ______ under Part 3 of second
schedule.
10%
25%
50%
75%
Ref:
Reduction in Tax Liability under Second Schedule Part 3
• Any amount received as flying allowance by pilots etc. and junior commissioned officers or other ranks shall be taxed @2.5% as separate block.
• Senior citizen-age 60 years &above where taxable income not exceeding Rs. 400,000/- tax liability reduced by 50%.
Question No: 16 ( Marks: 1 ) http://vuzs.net
M/s ABC & Co. has been incorporated under Pakistan Companies Ordinance 1984.
However it’s most of the branched and control and management of affairs wholly
situated out of Pakistan? What will be the residential status of M/s ABC & Co.?
Resident Company
Non-Resident Company
Resident Individual
Resident AOP
Question No: 17 ( Marks: 1 ) http://vuzs.net
Which part of income is charged to tax of resident person under the income tax
ordinance 2001?
Pakistani source of income
Foreign source of income
Both Pakistan and foreign source of income
None of the given option
Ref:
Scope of Total Income of a Resident Person Section 11 (5)
Resident Person Changeable to tax on:
• The income of a resident person under a head of income shall be computed by taking into account amounts that are Pakistan-source income and amounts that are foreign-source income
• Pakistan Source Income & Foreign Source Income Sec.11 (5) whereas, non-resident person charged only on Pakistan Source Income Sec.11 (6)
Question No: 18 ( Marks: 1 ) http://vuzs.net
Which part of income is charged to tax of non-resident person under the income
tax ordinance 2001?
Pakistani source of income
Foreign source of income
Both Pakistan and foreign source of income
None of the given option
Ref:
whereas, non-resident person charged only on Pakistan Source Income Sec.11 (6)
Question No: 19 ( Marks: 1 ) - Please choose one
____________ means a fixed place of business through which the business of
an enterprise is wholly or partly carried on.
Permanent establishment
Small Business Units SBU
Venture
Ref: by ZAIGHUM
see section 2(41) at page no 9.
Question No: 20 ( Marks: 1 ) http://vuzs.net
Which of the following come under the ambit of Royalty under section 2 (54)?
Right to use any patent
Copy right of a literary
Right to use any industrial or scientific equipment
All of the given options
Ref:
Royalty Defined Sec. 2 (54)
Royalty means any amount paid or payable however described or computed, whether periodical or lump sum, as a consideration for:
a)The use of, or right to use any patent, invention, design or model, secret formula or process, trade mark
or other like property or right;
b)The use of, or right to use any copy right of a literary, artistic or scientific work, including films or video
tapes for use in connection with television or tapes in connection with radio broadcasting, but shall not
include consideration for the sale, distribution or exhibition of cinematograph films.
c)The receipt of, or right to receive, any visual images or sounds or both, transmitted by satellite, cable,
optic fiber or similar technology in connection with television, radio or internet broadcasting;
d)The supply of any technical, industrial, commercial or scientific knowledge, experience or skill;
e)The use of or right to use any industrial, commercial or scientific equipment;
f)The supply of any assistance that is ancillary and subsidiary to, and is furnished as a means of enabling
the application or enjoyment of, any such property or right as mentioned in sub-clause (a) through (e)
g)The disposal of any property or right referred to in (sub-clause) (a) through (e).
Question No: 21 ( Marks: 1 ) http://vuzs.net
What is the relation between the Non-resident and permanent establishment
as per section 105?
Both have same legal entity
Both are separate legal entity
Both are dependent on each other
None of the given options
Ref:
• The profit of the permanent establishment shall be computed on the basis that it is a distinct and separate person engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the non-resident person of which it is a permanent establishment;
Question No: 22 ( Marks: 1 ) http://vuzs.net
Salary by members of AOP is not treated as Salary but treated as appropriation of
profit and charged under the head:
Income from Salary
Income from Property
Income from Business
Income from Other Sources
Ref:
Salary by members of AOP is not treated as Salary but treated as appropriation of profit and charged under the head “Income from Business”
Question No: 23 ( Marks: 1 ) http://vuzs.net
In which of the following heads of Income No deductions are allowed:
Salary Income
Income from Property
Income from Business
Capital Gains
Ref:
No deductions are allowed under the head “Income from Salary”
Question No: 24 ( Marks: 1 ) http://vuzs.net
Mr Ali is an employee of ABC Co. the company has provided a driver and a
gardener to Mr. Ali. What will be the treatment of their salaries as per Income
Tax Ordinance 2001?
The salaried paid to them added in the salary of MR. Ali
The salaried paid to them subtracted in the salary of MR. Ali
Have no relation with salary of Mr. Ali not sure
The Salaried paid are exempted from Tax
By ZAIGHUM
Question No: 25 ( Marks: 1 ) http://vuzs.net
A directorship or any other office involved in the management of a company
under section 2(22) of Income Tax Ordinance, 2001 is termed as:
Employment
Employer
Employee
Business premises
Ref:
2(22) “employment includes:
• a directorship or any other office involved in the management of a company;
• a position entitling the holder to a fixed or ascertainable remuneration; or
• the holding or acting in any public office;
Question No: 26 ( Marks: 1 ) http://vuzs.net
Mr. A non-resident of Pakistan received interest on Australian Bonds Rs.
100,000 (half amount received in Pakistan). What is the treatment of this
amount for calculating his gross total income?
Rs. 100,000 added in his total income
Rs. 100,000 subtracted from his total income
Rs. 50,000 added in his total income
Exempt from tax
Ref:
Page no 35 exercise no 3
Question No: 27 ( Marks: 1 ) http://vuzs.net
Mr. X employed in Pakistan remittance from USA received Rs. 10,000 in
Pakistan from past profits. Which of the following is right for the above scenario?
Mr. X being resident of Pakistan Rs. 10,000 will be added in Gross total
income
Mr. X being resident of Pakistan Rs. 10,000 will be Subtracted in Gross
total income
Mr. X being non-resident of Pakistan Rs. 10,000 will be added in Gross
total income
Remittance is not income hence it is not included
Ref:
Note 1:
Since remittance is not income, hence it is not included.
Page 33 exercise not 1
Question No: 28 ( Marks: 1 ) http://vuzs.net
Mr. X resident of Pakistan remittance from UK received Rs. 20,000 in Pakistan
from past profits. Which of the following is right for the above scenario?
Mr. X being resident of Pakistan Rs. 20,000 will be added in Gross total
income
Mr. X being resident of Pakistan Rs. 20,000 will be Subtracted in Gross
total income
Mr. X being non-resident of Pakistan Rs. 20,000 will be added in Gross
total income
Remittance is not income hence it is not included
Question No: 29 ( Marks: 1 ) http://vuzs.net
Mr. Kishan Kumar during his yearly tour in Pakistan spends 155 working days, 26
off-working days 1 strike day and 1 Public Holiday in a tax year 2008-09? What
will be the status of the individual?
Resident Individual
Non Resident Individual
Resident Person
Resident HUF
Ref:
155+26+1+1=183
Resident Individual (Section 82)
• An individual shall be a resident individual for a tax year if the individual-
• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty-three days or more in the tax year; or
• Is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year?
Question No: 30 ( Marks: 1 ) http://vuzs.net
Mr. Zeeshan during his yearly tour in Pakistan spends 180 working days and in a
tax year 2008-09? What will be the status of individual?
Resident Individual
Non-Resident Individual
Resident Person
Resident HUF
Ref:
Resident Individual (Section 82)
• An individual shall be a resident individual for a tax year if the individual-
• is present in Pakistan for a period of, or periods amounting in aggregate to, one hundred and eighty-three days or more in the tax year; or
• Is an employee or official of the Federal Government or a Provincial Government posted abroad in the tax year?
Question No: 31 ( Marks: 5 )
Why the right to acquire share is not chargeable to tax under Employee Share
Scheme section 14. Under what condition the right to acquire share under section
14 is taxable?
Answer:
Employee Share Schemes sec 14:
ƒThe value of a right or option to acquire share under this scheme shall be not chargeable to tax.
ƒWhere shares issued are subject to a restriction on transfer of the shares-
a)no amount shall be chargeable to tax under the head Salary until the earlier of-
i. the time the employee has a free right to transfer the shares; or
ii. the time the employee disposes of the shares &
b)the amount chargeable to tax to the employee shall be fair market value of shares at the time
employee has free right to transfer as reduced be any amount given as consideration for the grant
of a right or option to acquire the shares.
ƒWhere in a tax year an employee disposes of a right or option to acquire shares under an employee
share scheme, the amount chargeable to tax shall include the amount of any gain made on the
disposal computed accordance with the following formula:
A-B
ƒWhere A is the consideration received from the disposal of the right or option.
ƒB is the employee’s cost in respect of the right or option.
Question No: 32 ( Marks: 10 )
What is meant by Fiscal Policy?
Highlight the role of taxes in Fiscal Policy. Differentiate between Budget deficit
and Budget Surplus.
Answer:
What is Fiscal Policy?
Fiscal policy is a discipline that deals with arrangements which are adopted by government to
collect the revenue and make the expenditures so that social and economic stability could be attained /
maintained.
™ Objectives of Fiscal Policy
Economic Development
Raising level of employment (Achieving full employment level)
Influencing consumption patterns
Price stability
Redistribution of income
Removal of deficit in Balance of Payments
™ Instruments of Fiscal Policy
Government Expenditures
Taxes
Deficit Financing
Subsidies
Transfer Payments—like Unemployment Allowances etc.
Sources for Revenue Generation for State
ƒ Taxes, Tariffs
ƒ Internal & External Borrowing
ƒ Penalties & Fines
ƒ Aids & Grants
