Question 5 The following information has been made available to you by Mr.

Irfan for his accounting year ended 30.6.2008: (1) Irfan is a Pakistani national and was resident in Pakistan for tax purposes until 30.12.2006 when he left for Saudi Arabia. He was appointed to work at the Pakistan Embassy from 15.1.2007 on a salary of Rs.300,000 per month which was paid to him in Saudi Arabia by the Federal Government of Pakistan. He resigned his post on 31.12.2007 and returned to Pakistan on the same day. There is no tax payable in Saudi Arabia on salary income. (2) In January 2008, Irfan as a self-employed individual entered into a one time contract with Builders Ltd to provide temporary workers during the month of January. Irfan received Rs.470,000 (after deduction of tax @ 6%) from the company. He informs you that he incurred costs of Rs.350,000. (3) Since 1.2.2008 Irfan has been employed in Karachi as the company secretary of XYZ Ltd. His terms of employment provide for the following: Basic salary of Rs.500,000 per month and monthly cash allowances of Rs.60,000 and Rs.10,000 for utilities and entertainment respectively. Medical allowance of Rs.15,000 per month. The terms of employment do not provide for free medical treatment or hospitalisation or any reimbursement of such expenses. Payment of Rs.15,000 per month for the school fees of Irfans children to be paid by the employer in the first week of each month to the Karachi Grammar School. Rent free accommodation in the companys fully furnished house on a land area of 1,000 square yards. The house is located within the municipal limits of Karachi. Two company maintained motor cars. A new car was leased on 1.2.2008 from an approved leasing company for Irfans private and business use and another car was purchased by the company for Rs.1,300,000 which was exclusively for his business use. FMV of the leased vehicle at the commencement of the lease period was Rs.3,000,000. Annual payment of Rs.500,000 to an approved pension fund to provide for Irfans retirement. (4) Other information: (i) Tax deducted at source from his salary income by XYZ Ltd was Rs.750,000. (ii) Prior to accepting the position as company secretary, XYZ Ltd paid Irfan Rs.1,000,000 in Saudi Arabia as consideration for his agreement to enter into an employment contract with the company. XYZ Ltd at the same time paid Rs.200,000 to PQR Bank in Saudi Arabia in discharge of a loan taken out by Irfan from the bank. On a business trip to the USA in March 2008 Irfan incurred expenses of Rs.350,000 which were reimbursed to him by XYZ Ltd. The salary of all XYZ Ltds staff including allowances as a company policy is always disbursed on the first day of the following month.

(iii) (iv)

(v)

While in Saudi Arabia, Irfan purchased a house property in Karachi for Rs.15,000,000. He rented out the house to an individual on 1.7.2007 at a monthly rent of Rs.150,000. He also collected from the tenant a refundable deposit of Rs.300,000 which is not adjustable against the rent. Irfan has incurred expenditure of Rs.127,000 in respect of this house. The following amounts were also received by Irfan after deduction of tax at source o Rs.135,000 as dividends from a private company incorporated in Pakistan. o Rs.180,000 profit on debt on a fixed deposit maintained with a banking company. o Rs.90,000 as a prize on a winning prize bond

(vi)

(vii) Zakat paid was Rs.250,000. Required: Compute taxable income and tax payable for applicable tax year(s).