ASSIGNMENT QUESTIONS
Q1. Raza is a general manager in a Pharmaceutical company in Karachi. His basic salary is Rs.
70,000 and the company has given him a Toyota Corolla for business and personal use. The
car was purchased by the company 2 years ago at a cost of Rs 1,900,000. Market value on
30th June 2020 of this car is Rs. 1,750,000. He is also provided with a driver costing Rs.
20,000 per month for which a sum of Rs 7,000 is deducted from his salary each month.
He gets monthly dearness allowance of Rs. 7,000, a monthly special relief allowance of 15%
of basic salary, Rs. 2,500 per month as entertainment allowance and monthly medical
allowance of Rs. 10,000. He and his family members are covered under the health insurance
policy in accordance with the terms of employment. The amount of annual premium paid by
employer was Rs. 150,000.
On 1 January 2020 his company sold an item of inventory to Raza for Rs. 12,000. The market value of
the item of inventory at the end of 31 December 2019 and 30 June 2020 was Rs. 22,000 and Rs.
24,000 respectively. The company had acquired it in July 2018 at a cost of Rs. 35,000.
An option was granted to Raza in August 2018 to acquire 2,500 shares in his employer’s parent
company, Mamoo plc. (MP), listed on Hong Kong stock exchange. However, the option was
exercisable after completion of one year of service with the company. Raza paid an amount
equivalent to PKR 200,000 to acquire the option when the fair market value of the option was PKR
250,000.
On 1 September 2019 he paid an amount equivalent to PKR 300,000 to acquire the shares in MP.
The shares were issued to him on 15 September 2019 when the market value of each share was
equivalent to PKR 375.
Raza was also provided the following:
(i) Provident fund (PF) contribution of Rs. 8,400 per month. An equal amount per
month was contributed by Raza to the fund. Interest income of Rs. 391,000 at
the rate of 20% of accumulated balance of PF was credited to his PF account.
(ii) Reimbursement of electricity bills during the year amounting to Rs. 60,000.
On 31 March 2020, in recognition of completion of twenty five years of his service with the
company, the board of directors approved to waive the outstanding amount of loan taken
by Raza. This interest free loan of Rs. 2,300,000 was taken on 1 January 2016 and was
repayable in fifty equal monthly instalments commencing from May 2016. The prescribed
benchmark rate is 10% per annum
In addition to the above:
On 1 July 2014, Raza agreed to rent out a house to Mirza at a monthly rent of Rs. 500,000
with effect from 1 August 2018 and received one year’s rent in advance. He also received Rs.
1000,000 as a security deposit which was partly used to repay the security deposit
amounting to Rs. 500,000 received from the previous tenant in July 2014 and partly used for
renovation of the house. Raza also incurred the following expenses in respect of the above
house:
(i) Property tax of Rs. 15,000.
(ii) Payment of interest amounting to Rs. 200,000 to his friend against amount
borrowed for renovation of the house.
(iii) Insurance premium of Rs. 110,000.
(iv) Rs. 5,000 per month to Wasif for collection of rent.
Compute Tax Liability for the year 2020
Q2.
a. The primary objective of a taxation system is to collect revenue. You are required to list the
other objectives (non-revenue) which a taxation system can achieve.
b. Specify the head of income under which the following amounts would be chargeable to tax:
(i) rent from sub lease of a building.
(ii) Amount included in rent for the provision of amenities, utilities and any other
service connected with renting of the building.
