(Test Bank) Conceptual Approach To Taxes

Butt, 6

Business

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6th Edition

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CONCEPTUAL APPROACH TO TAXES Income Tax Sales tax Capital Value Tax Federal Excise Act & Rules, 2005 By: NADEEM BUTT Chartered Accountant FCA, FPFA, B.Com . AMAN PUBLICATIONS COMPANY TAX YEAR 201 6 6th EDITION ALL RIGHTS RESERVED BY THE AUTHOR No responsibility shall be taken for any mistake, error or omission regarding any material contained in this book. AUTHOR NADEEM BUTT Chartered Accountant FCA, FPFA, B.Com. PRICE R s. 600/-6TH Edition: 201 6 SALIENT FEATURES OF THIS EDITION  Use of easy & understandable language.  Covers the syllabus of CA Module C, CAM -IV, ICMAP Stage IV & M.Com.  Helpful for the students & teachers of CA - Final, ACCA (PAK), Higher Nat ional Diploma (HND), MBA, MPA, PIPFA & LLB.  Added various examples & solved practice questions to demonstrate the theory.  Reference of relevant provisions of income tax & sales tax law has been given.  Added after each chapter past papers topic wise theoretical questions of ICMA Stage IV from tax year 2003 to 201 5 & CA Module C / Stage -II CAF-06 from tax year 200 1 to 201 5.  Added past papers numerical questions of ICMA Stage IV from tax year 2003 to 201 5 & CA Module C / Stage -II CAF-06 from tax year 200 1 to 201 5.  Includes the amendments incorporated by the Finance Act, 20 15.  Useful for all who want to learn, teach & practice Income tax & Sales tax . FACILITY FOR ANY QUE STION OR QUERY FROM THE AUTHOR AT:  Ph No: 042 -35408635 -6 and 042 -35408638 -9  Cell: 0333 / 0301 - 4245240  E-mail: info@nbandco.com and nadeembutt@nbandco.com PREFACE TO THE SIXTH EDITION With the grace of Almighty ALLAH and prayers of my family, friends , and students, I am presenting the Sixth Edition of “Conceptual approach to taxes”. This book is primarily for the students of CAF - of ICAP, Stage IV of ICMAP and M. Com. I hope this book will serve the purpose of the students, teachers & other persons related with the taxation. The book primar ily consists of notes on each chapter with examples, multiple choice questions, practical problems with solutions and topic wise last year questions from tax year 2003 to 201 5. I am grateful to all those who contributed a lot in the completion of this book . My special thanks are due to my staff. All positive criticism with suggestions for the improvement will be entertained. Nadeem Butt Chartered Accountant October 0 1, 201 5 THE AUTHOR  Mr. Nadeem Butt qualified as a Chartered Accountant in 1998 & after working with a well known professional firm as Tax Manager has started his own professional firm under the name and style Nadeem & Co. Chartered Accountants in 2007 & is practicing as Fellow member of ICAP mainly in audit, income tax & sales tax for more than 200 various corporate and non -corporate clients in Pakistan. He is also the life time member of Lahore Tax Bar Association and Audit & Tax advisor of All Pakistan Cottage Industry & Small Traders Association.  Member, (special invitees) Taxation Committee of Lahore Chamber of Commerce & Industry (LCCI).  17 years post qualification teaching experience in the subjects of Taxation. .  Visiting faculty member of the following professional educational institutions in providing coaching for the exams of Taxation: 1. College of Accountancy & Professional Studies (CAPS) Module C & F 2. Institute of Cost & Management Accountants of Pakistan (ICMAP) Stage – IV 3. Institute of Chartered Accountants of Pakistan (ICAP) Module C 4. Rise Sch ool of Accountancy Module C 5. Premier DLC (A project of Beacon house) AFC- CA 6. The University of Lahore M. Com . 7. SKANS School of Accountancy Module C 8. Punjab Group of Colleges M. Com . 9. GC University, Lahore Busin ess Taxation Coaching  Appointed as auditor on behalf of the tax department by the Federal Board of Revenue for Special Audit Under section 4A of the repealed Income Tax Ordinance of various corporate and non -corporate entities.  Two students of Mr. Nadeem Butt (FCA) got 1st & 2ndpositions all over the Pakistan by scoring 98% & 97% marks in Taxation exam of ICMAP.  Student of Mr. Nadeem Butt (FCA) got the first gold medal in the history of SKANS School of Accountancy, Lahore in Financial Accounting Module C exam of ICAP. INCOME TAX For CA & ICMAP Students S. No. CHAPTERS Page No. 1 Taxation System 1 2 Ethics in tax Laws 9 3 Constitutional Provisions 17 4 Preliminary 27 5 Introduction & geographical source of income 59 6 Computation of taxable income 71 7 Income from Salary 85 8 Income from property 111 9 Income from business 125 10 Assets and depreciation 147 11 Method of accounting & records 171 12 Capital gains 183 13 Income from other sources 205 14 Losses 219 15 Tax credits 237 16 Common rules 255 17 Returns and Assessments 265 18 Appeals & Revisions 287 19 Income Tax Authorities 301 20 Exemptions other than Covered in Respective Chapters 319 21 Solved Past Papers Income Tax Numericals of CA Module C - (2001 to 201 5) 323 For CA Mod F & ICMAP Students S. No. CHAPTERS Page No. 22 Final Tax Regime & Minimum Tax 383 23 Deduction / Payment of Tax 407 24 Offences and prosecutions 455 25 Insurance business 465 26 Oil, natural gas & other mineral deposits 473 27 Banking business 481 28 Solved Past Papers Income Tax Numericals of ICMAP Stage IV (2003 to 201 5) 489 SALES TAX For CA & ICMAP Students S. No. CHAPTERS Page No. 1 Preliminary 535 2 Registration 549 3 Sales Tax Returns 561 4 Records & Books 569 5 Scope and Payment of Tax 577 6 Practice questions with solutions 603 7 Solved Past Papers Sales Tax Numerical s of ICAP - (2003 to 201 5) 615 For CA Mod F & ICMAP Students S. No. CHAPTERS Page No. 8 Recovery of Arrears & Refund 637 9 Offences & Penalties 649 10 Appeals 659 11 Sales Tax Special Procedure Rules, 2007 665 12 Sales Tax Special Procedure (Withholding) Rules, 2007 685 13 Solved Past Papers Sales Tax Numericals of ICMAP Stage IV (2003 to 201 5) 691 14 Third, fifth and sixth Schedules 705 15 Eighth and Ninth Schedules 715 CAPITAL VALUE TAX & FEDERAL EXCISE DUTY For CA Mod F & ICMAP Students S. No. CHAPTERS Page No. (A) CAPITAL VALUE TAX 729 (B) FEDERAL EXCISE ACT & RULES, 2005 1 Definition 733 2 Levy, Collection & Payment of Duty 737 3 Offences & Penalties 745 4 Federal Excise Rules, 2005 751 iSyllabus CAF-6 OF ICAP Objective The aim of this paper is to develop basic knowledge and understanding in the core areas of Income Ta x and its chargeability as envisaged in the Income Tax Ordinance 2001 and the Income Tax Rules 2002 (relevant to the syllabus), Sales Tax Act 1990 and the Sales Tax Rules (relevant to the syllabus). Grid Weighting Objective, s ystem and historical background, constitutional provisions and ethics 10 Income tax 65 Sales tax 25 Total 100 Syllabus Ref Contents Level Learning Outcome A Basic concepts of taxation 1 Objectives 1 LO 1.1.1: Comprehend the main objectives of taxation LO 1.1.2: Justify Taxation as means of development 2 Basic concept 1 LO 1 2.1: Understands the implication of direct and indirect taxati on 3 System of taxation in Pakistan (Income Tax, Sales Tax, Federal Excise Tax, Capital Value Tax, Customs) 1 LO 1.3.1: Comprehend different kinds of taxes and their scope 4 Historical background 1 LO 1.4.1: State the history of taxation in sub -contine nt B Constitutional provisions 1 Federal financial procedures (Article 78 to 88 of the Constitution of Pakistan) 1 LO 2.1.1: Demonstrate familiarity with the Federal Consolidated Fund and Public Account LO 2.1.2: Demonstrate familiarity with the expendi ture that can be charged upon Federal Consolidated Fund 2 Provincial financial procedures (Article 118 to 127 of the Constitution of Pakistan) 1 LO 2.2.1: Demonstrate familiarity with the Provincial Consolidated Fund and Public Account LO 2.2.2: Demonstr ate familiarity with the expenditure that can be charged upon Provincial Consolidated Fund iiSyllabus Ref Contents Level Learning Outcome 3 Distribution of revenues between Federation and the Provinces (Article 160 to 165A of the Constitution of Pakistan) 1 LO 2.3.1: Demonstrate familiarity with the formation of National Finance Commission and its main function. LO 2.3.2: Demonstrate familiarity with the taxes that can be raised under the authority of Parliament LO 2.3.3: Demonstrate familiarity with the powers of provincial assemblies in respect of p rofessional tax LO 2.3.4: Demonstrate familiarity with the exemption available to federal and provincial governments LO 2.3.5 : Demonstrate familiarity with the tax on corporation owned by federal and provincial government 4 Federal legislative lists rel ating to revenue generating measures (related part of Fourth Schedule to the Constitution of Pakistan) 1 LO 2.4.1: Enlist the revenue collection mentioned at S. No. 43 to 53 in Fourth Schedule attached to the Constitution C Ethics 1 Ethics for tax legis lation 2 LO 3.1.1: Describe how canons of taxation developed by economist are relevant for legislators while formulating tax policies 2 Ethics for taxpayers 2 LO 3.2.1: Understand the right and purpose of state to tax its citizen LO 3.2.2: Understand m orality behind compliance with tax laws 3 Ethics for tax implementing authorities 2 LO 3.3.1: Understand the powers Vs. ethical responsibilities of tax implementation authorities LO 3.3.2: Understand pillars of tax administration, namely, fairness, trans parency, equity and accountability 4 Tax evasion and avoidance 2 LO 3.4.1: Explain with simple examples the basic difference between evasion and avoidance of tax iiiSyllabus Ref Contents Level Learning Outcome D Income Tax 1 Chapter I – Preliminary (concepts of terms defined section 2 sub - section 1, 5, 5A, 6, 7, 9, 10, 11A, 19, 19C, 20, 21, 22, 23, 29, 29A, 29C, 36, 37, 38, 41, 44A, 46, 47, 49, 50, 51, 52, 53, 68) 1 LO 4.1.1: Describe the definitions given in section 2 sub-section 1, 5, 5A, 6, 7, 9, 10, 11A, 19, 19C, 20, 21, 22, 23, 29, 29A, 29 C, 36, 37, 38, 41, 44A, 46, 47, 49, 50, 51, 52, 53, 68 LO 4.1.2: Describe other definitions covered under relevant sections LO 4.1.3: Apply definitions on simple scenarios 2 Chapter II – Charge of tax (excluding section 7) 2 LO 4.2.1: Explain the charge ability of tax with simple examples 3 Chapter III – Tax on Taxable income (Excluding Section 29A, 30 and 31) 2 LO 4.3.1: Compute taxable income and tax thereon relating to salary, income from property, income from business, capital gain, dividend, profit on debt, ground rent, rent from sub -lease, income from provision of amenities, utilities or any other services connected with rented building and consideration for vacating the possession of building 4 Chapter IV – (Part I, II and III) – Common rules (E xcluding Sections 78 and 79) 1 LO 4.4.1 : Understand and apply on simple scenarios provisions for income of joint owner, apportionment of deductions, fair market value and receipt of income LO 4.4.2: Explain using simple examples the provisions relating to tax year LO 4.4.3 : Explain with simple examples the provisions relating to disposal and acquisition of assets, cost and consideration received 5 Chapter V Part I – Central concepts 2 LO 4.5.1: Describe with simple examples the meaning of persons, residen t and non -resident persons and associates 6 Chapter V Part II Div I and II – Individuals (Excluding Section 88A) 2 LO 4.6.1 : Describe with simple examples the principles of taxation of individuals 7 Chapter V Part III – Association of persons 2 LO 4.7 .1: Describe with simple examples the principles of taxation of association of persons 8 Chapter VII Part II – Taxation of foreign -source income of residents 2 LO 4.8.1 : Understand the applicability of tax on foreign salary income, credit against foreign tax and treatment of foreign loss of a resident on simple scenarios. 9 Chapter X Part I – Returns 2 LO 4.9.1: Identify persons required to furnish a return of income LO 4.9.2: Identify persons not required to furnish a return of income LO 4.9.3: Identi fy persons required to furnish wealth statements LO 4.9.4: List the contents of wealth statement 10 Chapter X Part II – Assessments 1 LO 4.10.1: Understand the meaning of assessment by Commissioner and power of Commissioner to conduct audit ivSyllabus Ref Contents Level Learning Outcome 11 Chapter X Part III – Appeals 1 LO 4.11.1: List the appellate bodies LO 4.11.2: Explain using simple examples the circumstances when appeal to the Commissioner (Appeals) is made and the pre -conditions applicable LO 4.11.3: Explain the provisions relating to decis ion of appeals by Commissioner (Appeals) using simple examples 12 Chapter X Part VIII – Records, Information Collection and Audit (Section174 and 177) 2 LO 4.12.1: Understand the provisions relating to records to be kept by the taxpayers LO 4.12.2 : Descr ibe the provisions relating to audit by Commissioner 13 The Income Tax Rules related to the above chapters of the Income Tax Ordinance 2001 shall also be examined 1 LO 4.13.1: Apply rules relevant to learning outcomes specified against each topic on well explained scenarios 14 First and Second Schedule attached to the Income Tax Ordinance 2001 2 LO 4.14.1: Apply clauses relevant to learning outcomes specified against each topic on well explained scenario vSyllabus Ref Contents Level Learning Outcome E Sales Tax Sales Tax Act 1990 1 Chapter I – Preliminary (concepts of terms defined Section 2 sub - sections 3, 5AA, 9, 11, 14, 16, 17, 20, 21, 22A, 25, 27, 28, 29A, 33, 35, 39, 40, 41, 43, 44, 46) 2 LO 5.1.1 : Describe the definitions given in section 2 sub-section 3, 5AA, 9, 11, 14, 16, 17, 20, 21, 22A, 25, 27, 28, 29A, 33, 35, 39, 40, 41, 43, 44, 46 LO 5.1.2: Describe other definitions covered under relevant sections LO 5.1.3: Apply definitions on simple scenarios 2 Chapter II – Scope and payment of tax 2 LO 5.2.1: Understand the application sales tax law on taxable supplies including zero rated and exempt supplies LO 5.2.2: State the determination, time and manner of sales tax liability and payment using simple examples 3 Chapter III – Registration LO 5.3.1: State the requirement and procedure of registration 4 Chapter IV – Book keeping and invoicing requirements LO 5.4.1: List the record to be kept by a registered person LO 5.4.2 : State the requirements of tax invoice LO 5.4.3: Explain the retention period of record using simple examples. 5 Chapter V – Returns LO 5.5.1: Understand the various types of returns required to be filed by registered and un -registered persons. Sales Tax Rules, 2006 1 Chapter I – Registration, Compulsory registration and De - registration 2 LO 6.1.1 : Explain the requirement and procedure of registration, compulsory registration and deregistration using simple examples 2 Chapter II – Filing of return 2 LO 6.2.1 : Explain the requirement and procedure of filing of return using simple examples 3 Chapter III – Credit and Debit And Destruction of Goods 2 LO 6.3.1 : Explain the requirement and procedure of issuing debit and credit notes using simple examples LO 6.3.2: State the procedure for destruction of goods 4 Chapter IV – Apportionment of Input Tax 2 LO 6.4 .1: Explain the requirement and procedure of apportionment of input tax using simple examples