Differentiate Between the Following with Examples: 11

TAXATION MANAGEMENT Exam

QUESTION 1: A

Differentiate between the following with examples: [11]

a)Tax & fee

b)Progressive tax & Proportional tax

c)Inclusive & Exclusive definition

a) Difference between tax and fee:

Tax is a charge levied upon persons or things by a government. The main

difference between tax and fee is the entitlement of counter benefits. Tax are

compulsory levy by the Government in order to finance its projects or the basic

way governments raise the revenue necessary to carry out their functions,

including administration of justice, defense, and construction of infrastructure,

such as canals, roads, and public buildings and other activities while fee is the

charge in which one becomes entitle to claim counter benefit once it paid.

Examples of taxes are Income tax; Sales Tax and Fee includes any fee paid like

school fee or doctor fee etc.

b)Progressive tax & Proportional tax:

Progressive tax system is of such type in which tax burden falls more heavily on

the wealthy or high-income person than on the poor or low-income person. The

effective tax rate increases as the amount to which the rate is applied increases. It

may be frequently applied in reference to income taxes, where people with more

disposable income pay a higher percentage of that income in tax than do those

with less income.

While proportional tax is an income tax that takes the same percentage of income

from everyone regardless of how much (or little) an individual earns. These taxes

are levied with the same percentage. For example, sales tax is levied at the rate of

15%.

c)Inclusive & Exclusive definition:

Exclusive definition is one which excludes all the literal or dictionary meanings

and meant for the meaning that is explained in the given statute or law.

However inclusive definition follows both dictionary meanings as well as the

definition set out by any law or statute.

In simple words, the area of exclusive definition is just concerned with the subject

matter and inclusive convey both general meaning of the word as well as the

subject matter. Examples of exclusive definitions are Appellate Tribunal,

Commissioner and Inclusive are employment, dividend etc

QUESTION 1: B)

Determine tax year in the light of following information:

(4)

a)Mr. D, a salaried person received salary during the period from 1st July

2003 to 30th June 2004.

b)Mr. A, a manufacturer of shawls deriving income during the period from

1st April 2004 to 31st March 2005.

c)Mr. B, a rice exporter deriving income during the period from 1st January

2004 to 31st December 2004.

d)M/S XYZ, an Insurance Company having an accounting period from 1st

January 2006 to 31st December 2006.

Answer to Question 02:

Tax year 2004

Tax year 2005

Tax year 2007

Question 1: C:

(5)

Determine the status of the following persons under section 80 of the ordinance.

1.Mr. Ali director in Private Company (Individual)

2.Edhi Welfare Trust (Company)

3.Federal Government (Person)

4.Virtual University of Pakistan (Company)

5.A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons

Mr. Kumar & Mr. Deepak (Hindu Undivided Family)

QUESTION 2 A:

What do you understand from the following?

1.Minimum of Time Scale ( MTS)

(1.5+1.5=3)

2.Initial Thresh hold of income for taxation of a salaried individual for tax

year 2007.

1. Concept of MTS (Minimum of Time Scale)

This is the starting point or minimum amount which is available to an employee

under a time scale for example if time scale is:--

$ 20,000--2000—30000

Here $20,000 is the Minimum of time scale.

2. Initial threshold for salaried individual is Rs. 150,000

Proviso

Provided that where income of a woman tax payer is covered by this

clause, no tax shall be charged if taxable income does not exceed $.

200,000.

QUESTION 2 B:

Compute the taxable income and tax liability thereon of Mr. Kamal, asalaried individual. The data pertaining to tax year 2007 is givenbelow.

1 / Basic salary / $. 20,000 pm
2 / Utilities paid by employer / $. 50,000 for tax yr.
3 / Bonuses / $. 60,000 for tax yr.
4 / House rent allowance / $. 5,000 pm
5 / Medical Allowance / $. 5,100 pm
6 / Free hospitalization services availed under terms ofemployment. / $. 40,000 for tax yr.
7 / Driver’s salary paid by employer / $. 8,000 pm
8 / Dearness Allowance / $. 6,000 pm

SOLUTION:

Tax payer: Mr. Kamal

Residential Status: Resident Individual

Computation of taxable income of Mr. Kamal

Tax year: 2007

NTN: 000111

In Rs.

Particulars

Basic Salary

Utilities paid by employer

Bonuses

House rent allowance

Medical allowance

Free Hospitalization under

terms of employment

Driver’s salary

Dearness Allowance

Total Taxable Income

Tax Liability:

Total

income

240,000

50,000

60,000

61,200

40,000

96,000

72,000

Exempt

income

Nil

40,000

Nil

Taxable

income

240,000

50,000

60,000

61,200

Nil

96,000

72,000

639,200

Tax rate of 6.0 percent shall apply as given at serial #9 for taxable income

exceedingRs. 600,000 but does not exceed Rs. 700,000.

= $. 639,200 x 6%

= $. 38,352

Note: Medical allowance exempt up to 10% of Basic salary, if free hospitalization services or reimbursement of medical expenses not provided by employer. Since free hospitalization services provided in this case, hence entire amount of medical allowance has been added as taxable income.

QUESTION 3:

Determine tax year in the light of following information

a)Mr. A, a salaried person received salary during the period from 1st July 2002 to 30th June 2003.

b)Mr. X, an individual derived income during the period from 1st July 2004 to 30th June 2005.

c)Mr. Z, an individual derived income during the period from 1st July2005 to 30th June 2006.

d)Mr. B, a rice exporter deriving income during the period from 1st January 2005 to 31st December 2005

QUESTION 4:

Determine the status of the following persons under section 80 of the ordinance.

ABC Cooperative Housing Society
Mr. R, a Director in Private Company
Askari Bank Limited

4.Edhi Welfare Trust

Federal Government
Virtual University of Pakistan
A joint family of Mr. Arun (a Hindu), Comprising Mr. Hamel, His sons Mr. Kumar & Mr. Deepak.
Nishat Mills Ltd.

QUESTION 5:

Write short notes on the following:

Exemption on account of “President’s Honour”
Exemptions on account of “Profit On Debt”
Exemptions on “Scholarships”

Taxation Management

Assignment #02

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Total Marks=15

Question 01:

Differentiate between the following with examples:

a)Tax & fee

b)Progressive tax & Proportional tax

c)Inclusive & Exclusive definition

a) Difference between tax and fee:

(3x2=6)