DESCRIPTIVE QUESTIONS WITH SUGGESTED SOLUTIONS/ ANSWERS TESTED IN PAST ATTEMPTS
1 of 5
BUSINESS TAXATION – STRATEGIC LEVEL-1
Q. 1 Specify the situations where federal excise duty shall be payable in sales tax mode under section 7 of
the Federal Excise Act, 2005. (04)
Suggested Solution/ Answer:
In case of goods specified in the Second Schedule or such services as may be specified by the Board
through a notification in the official Gazette the duty shall be payable in sales tax mode, whereby:
1) A registered person manufacturing or producing such goods or providing or rendering such
services shall be entitled to deduct input tax paid during the tax period from the amount of duty
of excise due from him on such goods or services in respect of that tax period.
2) A registered person shall be entitled to deduct the amount of duty of excise paid or payable by
him on such goods or services as are acquired by him during a tax period from the output tax
due from him in respect of that tax period.
3) A registered person supplying such goods or providing or rendering such services shall be
entitled to deduct duty of excise paid or payable on such goods or services as are acquired by
him during the tax period from the amount of duty of excise due from him on such goods
manufactured or produced or services as are provided or rendered by him during that period.
4) A person shall be entitled to deduct duty of excise paid or payable, on such goods or services
as are acquired by him during a month, from the amount of duty of excise due from him on
such goods manufactured or produced or services as are provided or rendered by him, during
that month. Such services as are provided or rendered by him, during that month.
Q. 2 On July 31, 2024, Nabeel Limited (NL) received a notice from Officer of Inland Revenue asking it to
deposit a withholding tax of Rs. 7,500,000 in respect of a loan of Rs.50 million which NL provided to
one of its shareholders on December 31, 2023, the company’s accumulated profits at the time of
provision of loan amounted to Rs. 40 million. Discuss the tax implications of the above scenario. (03)
Suggested Solution/ Answer:
When a private company provides a loan to any of its shareholders, the loan is treated as a dividend
to the extent of the company’s accumulated profits. Since NL had accumulated profits of Rs. 40
million at that time, the whole amount of the loan of Rs. 50 million shall not be considered as dividend.
Therefore, NL was required to withhold tax of Rs. 6 million i.e. 15% of Rs. 40 million instead of Rs.
7,500,000 from the payment.
Q. 3 Define the terms ‘Security’ and ‘Derivative product’ as provided in the Income Tax Ordinance, 2001
and rules made thereunder. (03)
Suggested Solution/ Answer:
Security: means a share of a public company, voucher of Pakistan, Telecommunication Corporation,
Modarba certificate, an instrument of Redeemable capital debt securities and derivative products.
Shares of a public company shall be considered as security if such company is a public company at
the time of disposal of such shares.
Derivative products are financial products that derive their value from the underlying security or
other asset. They may be traded on a Pakistani stock exchange and include deliverable futures
contracts, cash-settled futures contracts, contracts of rights and options 4[and future commodity
contracts traded at PMEX.
Q. 4 Any person engaged in the production of goods or providing services liable to duty of excise shall be
required to obtain registration under the Federal Excise Act, 2005. Explain who shall not be required
to obtain registration in the light of section 13 of the Federal Excise Act, 2005. (04)
Suggested Solution/ Answer:
Where a person who is already registered under the Sales Tax Act, 1990, shall not be required to
take separate registration for excise purposes and his sales tax registration shall be deemed to be a
registration for the Federal Excise Act, 2005.
DISCLAIMER: These questions and suggested solutions/ answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA members, students and faculty members only. No part of it can be
reproduced, stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA. The
questions and suggested solutions/ answers provided on and made available through the ICMA’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. ICMA has provided the
same on the basis of certain assumptions for general guidance of the students and there may be other possible solutions/ answ ers based on different assumptions and understanding. It is clarified that ICMA shall not be liable to attend or
receive any comments, observations or critiques related to the same.
DESCRIPTIVE QUESTIONS WITH SUGGESTED SOLUTIONS/ ANSWERS TESTED IN PAST ATTEMPTS
2 of 5
BUSINESS TAXATION – STRATEGIC LEVEL-1
Q. 5 On January 1, 2025, Perfect Limited provided a loan of Rs. 6 million to Mr. Raza, Director Finance, at
an interest rate of 9%; however, the prescribed benchmark rate is 10%. Mr. Raza utilized this loan to
acquire a residential apartment and intends to rent it for the next year. Calculate and comment on the
amount allowed as a deduction in respect of profit on debt paid by Mr. Raza for the tax year 2025.(03)
Suggested Solution/ Answer:
As per section 13 (8) of the Income Tax Ordinance, 2001 If an employee utilizes the concessional
loan to generate any taxable income against which profit on debt is deductible then the profit on debt
shall be allowed at the benchmark rate instead of actual profit on debt paid by him. In this case Mr.
Raza is allowed to deduct profit on debt as 6 million *10%*6/12=300,000
Q. 6 What are the conditions for the deregistration of a registered person under Section 21 of the Sales
Tax Act, 1990, and Sales Tax Rule 11? (05)
Suggested Solution/ Answer:
Every registered person who ceases to carry on his business, whose supplies become
exempt from tax, or who ceases to remain registered shall apply to the Commissioner Inland
Revenue having jurisdiction for cancellation of his registration in Form STR- 3. The
Commissioner, on such application or its initiative may issue an order of de-registration or
cancellation of the registration of such person from such date as may be specified, but not
later than ninety days from the date of such application or the date all the dues outstanding
against such person are deposited by him, whichever is later and such person shall cause to
be de-registered through computerized system accordingly.
Q. 7 Mr. Bilal, a sole proprietor, had been filing his income tax returns and wealth statements for many
years. He was not satisfied with his tax advisor and has appointed you as his consultant. He has
asked you to review his returns for the past five years also.
On review of the wealth reconciliation for tax year 2025, it was noticed that Mr. Bilal borrowed Rs. 1
million from his friend who is a foreign national. The amount was received in cash while his friend was
on a visit to Pakistan and is still outstanding.
Required:
Advise Mr. Bilal about the tax implications, in each of the above situations. (03)
Suggested Solution/ Answer:
Section 39(3) of the Income Tax ordinance states that any amount received on account of followings:
any amount received as a loan, advance, deposit for issuance of shares or gift by a person in a tax
year from another person (not being a banking company or financial institution) otherwise than by
crossed cheque drawn on a bank or through a banking channel from a person holding a National Tax
Number shall be treated as income chargeable to tax under the head “Income from Other Sources”
for the tax year in which it was received.. Therefore, the amount received in cash by Mr. Bilal can be
treated as income, in the tax year 2025.
Q. 8 On 01 July 2024, Mr. Jameel purchased a computer for Rs. 80,000, of which he uses 60% for his
business and 40% for his personal use.
Required:
Calculate the amount of depreciation he can claim as tax deductible in the year 2025. (03)
Suggested Solution/ Answer:
Amount (Rs.)
Cost on 01-July-2024
80,000
Less: Initial Allowance @ 25%
(20,000)
Value after Initial Allowance
60,000
Less: Normal Depreciation @ 30% of 60,000
(18,000)
Closing Written Down Value (WDV)
42,000
Portion of depreciation for office use (60% of Rs. 18,000)
10,800
Add: Initial Allowance (assumed for office use)
20,000
Total Depreciation for Office Use
30,800
DISCLAIMER: These questions and suggested solutions/ answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA members, students and faculty members only. No part of it can be
reproduced, stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA. The
questions and suggested solutions/ answers provided on and made available through the ICMA’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. ICMA has provided the
same on the basis of certain assumptions for general guidance of the students and there may be other possible solutions/ answ ers based on different assumptions and understanding. It is clarified that ICMA shall not be liable to attend or
receive any comments, observations or critiques related to the same.
DESCRIPTIVE QUESTIONS WITH SUGGESTED SOLUTIONS/ ANSWERS TESTED IN PAST ATTEMPTS
3 of 5
BUSINESS TAXATION – STRATEGIC LEVEL-1
Q. 9 Galaxy & Company (G&C) is engaged in the manufacturing and sale of taxable goods to the local
industry, during the current year, G&C sold taxable supplies valued Rs.150,000 to a Governmentowned enterprise.
Required:
1) Sales tax withholding by the buyer of taxable goods.
2) Amount payable to the supplier.
(05)
Suggested Solution/ Answer:
Value of taxable goods
150,000
Sales Tax @ 18%
27,000
Value inclusive Sales tax
177,000
Sales tax deductible by the withholding agent @ 1/5 of 27,000
5,400
Amount payable by the supplier:
Value of taxable supplies
Add: Sales Tax
Less: Sales Tax deductible
150,000
27,000
(5,400)
Amount payable by the withholding agent to the supplier
171,600
Q. 10 Mr. Zulqernain rented his house for Rs. 40,000 monthly during the current tax year. He incurred the
following expenses related to his house.
Rs.
Repair and Maintenance Expenses
30,000
Insurance premium
20,000
Property tax
12,000
Municipal tax
10,000
Interest upon HBFC loan
24,000
Salary of Kashan, responsible for collecting rent
30,000
Legal expenses
4,000
In the previous year, the tenant vacated the house without payment of 2 months’ rent (Rs. 30,000 per
month) which is non-recoverable from the tenant.
Required: Calculate the amount chargeable to tax under the head income from the property.
Suggested Solution/ Answer:
Rental income (40,000 *12)
Admissible Expenses:
Repair and Maintenance (480,000 x 1/5)
Insurance Premium
Property Tax
Municipal Tax
Interest on HBFC loan
Salary Kashan ( lower of Actual charges or 4% of RCT)
Legal expenses
Irrecoverable rent ( 2 months) (30,000 x 2)
Taxable Income from property
(05)
480,000
96,000
20,000
12,000
10,000
24,000
19,200
4,000
60,000
( 245,200)
234,800
DISCLAIMER: These questions and suggested solutions/ answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA members, students and faculty members only. No part of it can be
reproduced, stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA. The
questions and suggested solutions/ answers provided on and made available through the ICMA’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. ICMA has provided the
same on the basis of certain assumptions for general guidance of the students and there may be other possible solutions/ answ ers based on different assumptions and understanding. It is clarified that ICMA shall not be liable to attend or
receive any comments, observations or critiques related to the same.
DESCRIPTIVE QUESTIONS WITH SUGGESTED SOLUTIONS/ ANSWERS TESTED IN PAST ATTEMPTS
4 of 5
BUSINESS TAXATION – STRATEGIC LEVEL-1
Q. 11 Transform International (TFI) operates an AOP business with its Head Office located in Karachi. The
following financial data has been extracted from its books for the current tax year:


Pakistani source income amounts to Rs. 2,500,000
Details of foreign source income, foreign tax paid and profit or loss detail in Pak Rupees are
as follows:
Head of Income
Foreign Income
Foreign tax paid
Speculation business
Non-Speculation Business
Capital Gain
Other Sources of Income
500,000
(1,000,000)
750,000
1,250,000
125,000
75,000
127,500

Foreign Losses
b/f
(250,000)
(1,500,000)
-
The foreign tax credit for income from other sources, which was unadjusted in the previous
year, amounts to Rs. 50,000.
Required: Compute the total taxable income and Income tax payable/ Refundable for the current tax
year. (05)
Suggested Solution/ Answer:
Pakistan Source Income
Foreign Source Income:
Speculation business:
Less: B/f speculation loss
Non Speculation Business
Capital Gain:
Income
Less: B/f of Capital loss
Other Source of Income
Total Taxable Income
Income tax computation:
Tax on 3,200,000
Tax on (4,000,000- 3,200,000) x 40%
Tax liability
Tax Credit computation -Speculation business
(a) Tax paid in foreign country
970,000/4,000,000 * 250,000 (whichever is lower)
Tax Credit computation - Other source income
Tax paid in foreign country
970,000/4,000,000 x 1,250,000
whichever is lower
Income Tax Payable
2,500,000
500,000
(250,000)
(1,000,000)
750,000
(1,500,000)
(750,000)
250,000
Nil
1,250,000
4,000,000
650,000
320,000
970,000
125,000
60,625
(60,625)
127,500
303,125
(127,500)
781,875
DISCLAIMER: These questions and suggested solutions/ answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA members, students and faculty members only. No part of it can be
reproduced, stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA. The
questions and suggested solutions/ answers provided on and made available through the ICMA’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. ICMA has provided the
same on the basis of certain assumptions for general guidance of the students and there may be other possible solutions/ answ ers based on different assumptions and understanding. It is clarified that ICMA shall not be liable to attend or
receive any comments, observations or critiques related to the same.
DESCRIPTIVE QUESTIONS WITH SUGGESTED SOLUTIONS/ ANSWERS TESTED IN PAST ATTEMPTS
5 of 5
BUSINESS TAXATION – STRATEGIC LEVEL-1
Q. 12 Sunshine Limited (SL) is engaged in manufacturing and trading of fast moving consumer goods and is
registered under the Sales Tax Act, 1990. During the month of November 2024 following activates
were carried out by SL.
 SL imported raw material amounting to Rs. 15 million for in-house consumption.
 A new machinery was purchased at a cost of Rs. 1.2 million and was put to use during
November 2024.
 The company imported finished goods amounted to Rs. 8 million.
 SL purchased locally manufactured packing material from registered supplier for Rs. 6 million.
Required: Compute total residual input tax claimable by SL for the month of November 2024. (05)
Suggested Solution/ Answer:
Residual input tax
Import of raw material (15 million x 18%)
Packing material (6 million x 18% )
Machinery (1.2 million x 18%), separate consideration
not restricted for 90% restriction of output tax
Total Residual input tax
Rs.
2,700,000
1,080,000
3,780,000
THE END
DISCLAIMER: These questions and suggested solutions/ answers including write-ups, tables, charts, diagrams, graphs, figures etc., are uploaded for the use of ICMA members, students and faculty members only. No part of it can be
reproduced, stored in a retrieval system or transmitted in any physical/ or electronic form or by any other means including electronic, mechanical, photocopying, recording or otherwise without prior written permission of the ICMA. The
questions and suggested solutions/ answers provided on and made available through the ICMA’s website may only be referred, relied upon or treated as general guidelines and NOT a substitute for professional advice. ICMA has provided the
same on the basis of certain assumptions for general guidance of the students and there may be other possible solutions/ answ ers based on different assumptions and understanding. It is clarified that ICMA shall not be liable to attend or
receive any comments, observations or critiques related to the same.