CAF-6

CERTIFICATE IN ACCOUNTING AND FINANCE

Principles of Taxation
Objective
To provide basic knowledge in the understanding of objectives of taxation and core areas of Income Tax
Ordinance, 2001, Income Tax Rules 2002 and Sales Tax Act 1990 and Sales Tax Rules.
Learning Outcome
The candidate will be able to:
1 understand the objective of levy of taxation, and its basic concepts
2 understand the system of taxation in Pakistan
3 understand the historical background of taxation in Pakistan
4 understand constitutional provisions of taxation in Pakistan
5 understand and explain the basic ethics of taxation
6 understand and explain provisions of Income Tax law mainly relevant to individuals and AOP
7 understand and explain Sales Tax law relevant to operational level tasks.
Grid Weigh

ESTIMATED MARKS GRID

Objective, system and historical background, constitutional provisions and ethics 8-12
Income tax 60-70
Sales tax 20-30

Total 100

Syllabus
Ref Contents Level
A Objective, system and historical background, constitutional provisions and ethics

a Basic concepts of taxation

1 Objectives
2 Basic concept
3 System of taxation in Pakistan (Income Tax, Sales Tax, Federal Excise Tax, Capital Value Tax, Customs)
4 Historical background

b Constitutional provisions
1 Federal financial procedures (Article 78 to 88 of the Constitution of Pakistan)
2 Provincial financial procedures (Article 118 to 127 of the Constitution of Pakistan)

c Ethics
1 Ethics for tax legislation
2 Ethics for taxpayers
3 Ethics for tax implementing authorities
4 Tax evasion and avoidance
B 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)
2 Chapter II – Charge of tax (excluding section 7)
3 Chapter III – Tax on Taxable income (Excluding Section 29A, 30 and 31)
4 Chapter IV – (Part I, II and III) – Common rules (Excluding Sections 78 and 79)
5 Chapter V Part I – Central concepts 2
6 Chapter V Part II Div I and II – Individuals (Excluding Section 88A)
7 Chapter V Part III – Association of persons
8 Chapter VII Part II – Taxation of foreign-source income of residents
9 Chapter X Part I – Returns
10 Chapter X Part II – Assessments
11 Chapter X Part III – Appeals
12 Chapter X Part VIII – Records, Information Collection and Audit (Section174 and 177)
13 The Income Tax Rules related to the above chapters of the Income Tax Ordinance 2001
14 First and Second Schedule attached to the Income Tax Ordinance 2001

C Sales Tax

a 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 Chapter II – Scope and payment of tax
3 Chapter III – Registration
4 Chapter IV – Book keeping and invoicing requirements
5 Chapter V – Returns

b Sales Tax Rules, 2006

1 Chapter I – Registration, Compulsory registration and De-registration
2 Chapter II – Filing of return
3 Chapter III – Credit and Debit And Destruction of Goods
4 Chapter IV – Apportionment of Input Tax
Examination technique

Compared with the many hours learning the subject, most students spend very little time actually considering in

detail how to tackle the examination. You may be one of them, and we would like you to start planning now for that

day when you will need to be able to demonstrate what you have learnt

and understood, and can apply, the material in this book.

The first thing is that when examiners set an examination they are looking at it on the basis that they want good

students to get a pass mark. There are, however, quite a large number of students who will fail, not because they

haven’t put in enough hours on their studies, nor because they are unintelligent, but simply because they throw away

marks unnecessarily by poor examination technique.

BEFORE STARTING TO ATTEMPT THE ACTUAL EXAM

 Remain calm because you will never know more than 80% of the content of the exam
 During the first 15 reading minutes read the requirement at the end of the question first and
then the question
 Underline important words
 Always attempt the easiest questions first and theory before numerical
 Draw an Order of Preference Table on the exam sheet like the one given below because
planning how to attempt the paper before beginning saves a lot of time and trouble later and
gives you clear direction and time limits:

Q#
(in order of ease) 3 8 6 1 4 5 2 7

Marks 12 15 5 10 8 18 10 12

Time
(marks x 1 mines) 12 15 5 10 8 18 10 12
  Note the marks allocated to the question because they represent the maximum time you can
spend on the question
 Leave a question when time up no matter what because it is better to lose the few difficult
marks than lose the other easy marks in every remaining question

HOW TO ATTEMPT THE EXAM

Instantly prejudice the examiner in your favor by:

 Attempting the questions in order of YOUR preference i.e. the questions you think you can
answer best should be attempted before difficult ones. This will have two advantages:
 It will bias the examiner that you have sound grip over concepts being examined and
he will think you are a really well prepared;
 It will build your morale to attempt the rest of the paper well because if difficult
questions are attempted first, you will quickly feel exasperated and might break down
under pressure making the rest of the paper attempting a fiasco.
 PRESENTATION is EVERYTHING
 Practice writing on exam sheet with exam pen under time pressure with neatest
possible handwriting
 Use a pencil to jot down any points you remember on a side or to plan an answer
 Always answer a new question on a new sheet
 Leave a little space after each question so that you can add on anything later
 Always answer ALL sorts of questions in points or short paragraphs because long
paragraphs are messy, time consuming and you lose your train of thought quickly
 Always leave a blank line between two points or two paragraphs for neatness and to
have some space if you want to add on something to the point later
 Use headings for clarity and better presentation but do not waste time on them
 If a question has five marks, always try to write six or seven points to cover the answer if it
does not have a fixed answer because the more points you write, the more chances of
answering the question well but also keep in mind the time you take to answer
 Always strike out the parts of a question you have answered and check after each question
 that you have not left anything unanswered
 Whenever you answer a numerical, start answering with workings on several sheets and
answer all parts simultaneously so that you don’t forget any parts

HOW TO SOLVE EXAMS BEFORE THE ACTUAL EXAM

Develop a daily habit of sparing an hour for actually solving past papers under exam conditions i.e.
taking care of:
 Presentation
 Timing your solutions
 Using Order of Preference Table Marking yourself against suggested solutions
 If you don’t have enough time, practice answering in short bullets with main idea so that you
have a habit of answering, writing, presentation and timing
 Always tackle exam questions right after studying each topic instead of first time in exam
leaves so that you know beforehand which topics are oft asked and important and how to
handle them in the exam
 Always tackle difficult questions within time limits before exams to be comfortable during the
exam
 Always compare your solution with the suggested solution and at the back of your register
write down the mistakes you often make so that you subconsciously learn not to make them
 Learn suggested solution by heart and at the back of your register write down oft- repeated
technical words and jargon so that you answer the exam in those professional words
 Keep a copy of the syllabus and ensure you have covered the entire syllabus
 Always prepare oft-asked topics in exam leaves before lesser mark gaining topics

SO BUY A NEW REGISTER AND SOLVE ALL PAST PAPER PRACTICE QUESTIONS GIVEN WITH EACH
LECTURE EXACTLY AS YOU WOULD ATTEMPT THEM IN THE EXAM!
EMPHASIZE ON YOUR EXAM TECHNIQUE AND PRESENTATION BECAUSE USING A LOT OF REGISTERS
NOW WILL SAVE A LOT OF EXAM REPITITION FEES LATER!

After every lecture:

1. Learn the content, make summarized notes for last day revision, attempt past papers
2. Daily marking of previous day’s summary! Cumulative marks will show if you’re a pass
3. Solve past papers simultaneously if possible
4. Mark off every past paper and text book and syllabus item covered
5. Test every Monday for preceding week studied items under exam conditions(revision Saturday)

READ THE FOLLOWING INSTRUCTIONS FROM AN ACCOUNTING BOOK ON HOW TO PREPARE

FOR EXAMS AND HIGHLIGHT THE MAIN POINTS

Notes for students

The notes taught in class are organized to provide you with what has been found to be the most appropriate

sequencing of topics as you build the foundations of your knowledge.

To make best use of this resource, you should consider the following as being a proven path

to success:

l Learn the meaning of each new term as it appears. Do not leave learning what terms mean

until you are revising for an exam. If you don’t remember what terms mean, your knowledge and ability to will be

very seriously undermined.

l Attempt each topic’s past papers immediately after you study that topic. This is very

important. Do not look at the answers before you attempt the questions – you’ll just be cheating yourself. Once

you have answered one, check your answer against the given answer and be sure you understand it before moving

on. If you simply read the text without attempting the

questions then we can tell you now that you will not pass your examinations. You should first

attempt each question, then check your answer fully against the answers. What you should not do is perform a

‘ticking’ exercise. By this we mean that you should not simply compare the question with the answer and tick off the

bits of the answer against the relevant part of the question.

l Above all, remember that an accountant is a vehicle for providing financial information in a form

that assists decision-making. Work hard at presenting your work as neatly as possible. There are two subjects

we would like you to consider very carefully – making best use of the end of chapter past paper

You simply have to get up to a good speed in answering questions: you will always fail examinations if you are a

very slow worker. Adequately prepared students are those who not only have the knowledge, but have also been

trained to work quickly and, at the same time, maintain accuracy and neatness.

Speed itself is not enough. You also have to be neat and tidy, and follow all the proper practices

and procedures while working at speed.

The examiner

What you should say to yourself is: ‘Suppose I were in charge of an office, doing this type of

accounting work, what would I say if one of my assistants put on my desk a sheet of paper

with information on it written in the same manner as my own efforts in attempting this

question?’ Just look at some of the work you have done in the past. Would you have told your

assistant to go back and do the work again because it is untidy? If you say that about your own

work, why should the examiner think any differently?

We can imagine quite a few of you groaning at all this, and if you do not want to pass the

examination please do not follow these instructions. If you do want to pass, and your work is untidy, whatcan you

do about it? Well, the answer is simple enough: start right now to be neat and orderly in

your work. Quite a lot of students have said to us over the years: ‘I may be giving you untidy work

now but, when I actually get into the exam room, I will then do my work neatly enough.’ This is

as near impossible as anything can be. You cannot suddenly become able to do accounting work

neatly, and certainly not when you are under the stress and strain of an examination. Even the

neatest worker may well find in an examination that their work may not be of its usual standard

as nervousness will cause them to make mistakes. If you are an untidy worker
now, your work in an examination is likely to be even more untidy.

Always remember in examinations that you should try to make life easier for the examiner.

Give the examiner what he/she wants, in the way that he/she wants it. If you do, you will get

better marks. Make their job harder than it needs to be and you will suffer.

Time planning

One of the problems with examinations is that students are expected to do a lot of work in a relatively short time.

The marks allotted to each question will indicate how long you should take in tackling the

question. Most examinations are of three hours’ duration, i.e. 180 minutes. This means that in a

normal examination, with 100 marks in total, a 20-mark question should be allocated 20 per

cent of the time, i.e. 20% 180 36 minutes. Similarly, a question worth 30 marks should

take up 30 per cent of the time, i.e. 30% 180 54 minutes, and so on. Alternatively it is 1.8

minutes for each mark awarded for the question.

If the question is in parts, and the marks awarded are shown against each part, then that will

give you a clue as to the time to be spent on each part. If part of the question asks for a description,

for instance, and only 3 marks are awarded to that part, then you should not spend twenty

minutes on a long and detailed description. Instead a brief description, taking about five minutes,

is what is required.

Do the easiest questions first

Always tackle the easiest question first, then the next easiest question and so on. Leave the most

difficult question as the last one to be attempted. Why is this good advice? The fact is, most

examiners usually set what might be called ‘warm-up’ questions. These are usually fairly short,

and not very difficult questions, and the examiner will expect you to tackle these first.

You may be able to do the easiest question in less than the time allocated.

Even where all the questions are worth equal marks, you are bound to find some easier than
others. It is impossible for an examiner to set questions which are equally as difficult as each

other. So, remember, start with the easiest question. This will give you a feeling of confidence. It

is very desirable to start off in this way.

Do not expect that these ‘warm-up’ questions will be numbered 1 and 2 on your examination

paper. Most accounting examinations start off with a rather long question, worth quite a lot of

marks, as question number 1 on the paper. Over the years we have advised students not to tackle

these questions first. A lot of students are fascinated by the fact that such a question is number 1,

that it is worth a lot of marks, and their thinking runs: ‘If I do this question first, and make a

good job of it, then I am well on the way to passing the examination.’

Attempt every required question

The last point concerning time allocation which we want to get through is that you should

attempt each and every question as required. On each question the first few marks are the easiest

to get. For instance, on an essay question it is reasonably easy to get, say, the first 5 marks in a

20-mark question. Managing to produce a perfect answer to get the last 5 marks, from 15 to 20,

is extremely difficult. This applies also to computational questions.

This means that in an examination of, say, five questions with 20 marks possible for each

question, there is not much point in tackling three questions only and trying to make a good job

of them. The total possible marks would be 60 marks, and if you had not achieved full marks for

each question, in itself extremely unlikely, you could easily fall below the pass mark of, say,

50 marks. It is better to leave questions unfinished when your allotted time, calculated as shown

earlier, has expired, and to then go on immediately to the other questions.

Underline the key words

This brings out the meaning of a question so that it is difficult to misunderstand the question. For instance, let us

look at the followingquestion:

‘Discuss the usefulness of departmental accounts to a business.’

Many students will write down all they know about departmental accounts, how to draw them
up, how to apportion overheads between departments, how to keep columnar sales and purchases

journals to find the information, etc.

Number of marks gained . . . virtually nil.

Now underline the key words. They will be:

Discuss usefulness departmental accounts

The question is now seen to be concerned not with describing departmental accounts, but

instead discussing the usefulness of departmental accounts.

Lastly, if the question says ‘Draft a report on . . .’ then the answer should be in the form of a

report; if it says ‘List the . . .’ then the answer should consist of a list. Similarly ‘Discuss . . .’ asks

for a discussion. ‘Describe . . .’ wants you to describe something, and so on.

You should therefore ensure that you are going to give the examiner

(i) What he is asking for plus

(ii) In the way that he wants it.

If you do not comply with (i) you may lose all the marks. If you manage to fulfil (i) but do not

satisfy the examiner on (ii) you will still lose a lot of marks.

Never write out the question

Often – too often – students spend time writing out the text of essay questions before they set

about answering them. This is a complete waste of time. It will not gain marks and should never

be done.

Running out of time?

If your plans don’t work out, you may find yourself with a question you could answer, but

simply do not have the time to do it properly. It is better to write a short note to the examiner to

that effect, and put down what you can of the main points in an abbreviated fashion. This will

show that you have the knowledge and should gain you some marks.
Summary

Remember:

1 Read the rubric, i.e. the instructions.

2 Plan your time before you start.

3 Tackle the easiest questions first.

4 Finish off answering each question when your time allocation for the question is up.

5 Hand in all your workings.

6 Do remember to be neat, also include all proper headings, dates, sub-totals, etc. A lot of marks

can be lost if you don’t.

7 Only answer as many questions as you are asked to tackle by the examiner. Extra answers will

not normally be marked and certainly won’t get credit.

8 Underline the key words in each question to ensure that you answer the question set, and not

the question you wrongly take it to be.

9 Never write out the text of essay questions.

Best of luck with your examination. We hope you get the rewards you deserve!