Tax Book 2023

Chapter 30 Solved Past Papers Income Tax Numericals of ICMAP Stage IV - (2003 to 2018)

·Initial allowance at the rate of 25% of the cost of the cost of eligible depreciable asset.

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(d) Amortization of Intangible Assets:

Development ofnewdesignfallsunderthedefinition ofintangible assets. Totalresearchand

developmentexpensesshallnotbeallowedasdeductionintheyearofitsincurrence,rather,shall

be amortized on the basis of its useful life.

Normal depreciation at 15% in the first year of use shall be allowed on WDV of the asset.

Wheretheusefullifeofanintangiblecannotbeascertained,theassetshallbeamortizedover a

Normaldepreciation15%oftaxWDVbroughtforwardshallbeallowedinsubsequenttax

years after first year of use.

Imported plant and machinery whether new orused, fall under the definition of eligible

depreciable assets. Under MPL case the following taxdepreciation shall be allowed as

deduction intheyeartheassetusedfirsttimebyMPLortheyear,inwhichcommercialproduction

is commenced, whichever is later.

Income tax paid at import stage by MPL on its plant and machinery shall be available for

adjustment against income tax liability of MPL under Normal Tax Regime.

Conceptual Approach to Taxes _____771

(e) Payment to Advertising Agent (Media Person):

(f) Group Taxation of Companies:

(i)

(ii)

Wheretheusefullifeofanintangiblecannotbeascertained,theassetshallbeamortizedover a

period of twenty five (25) years. This year an amount of Rs. 120,000 (i.e., 1/25 of Rs.

3,000,000).

Thecompaniesinthegroupshallgiveirrevocableoptionfortaxationunderthissection

as one fiscal unit.

Theprovisions ofsection 59AAoftheIncome TaxOrdinance, 2001 asrelatingtogrouptaxation

of the companies entail that:

Amount received by non-resident who renders independent services (e.g. professional

services,servicesofentertainersorsportspersons)shallbetreatedPakistan-sourceincomeifitis

paid by a resident person or borne by a permanent establishment of a non-resident person.

Under this case the payment is being made by MPL, a resident company, to a foreign

advertising agent, so it shall be Pakistan-source income and charged to tax as per

applicable taxratesundersection 152 @10%.MPLshalltodeducttaxatsourcewhilemaking

payment to the advertising agent. Otherwise, it will be rendered as inadmissible deduction.

Holding companies andsubsidiary companies of100%owned group mayopttobe

taxed as one fiscal unit. In such cases, besides consolidated group accounts a

required under the Companies Ordinance, 1984, computation of income and tax

payable shall be made for tax purposes.

(iii)

(iv)

as one fiscal unit.

The group taxation shallbe restricted to companies locally incorporated under the

Companies Ordinance, 1984.

Thereliefundergrouptaxationwouldnotbeavailabletolossespriortotheformationof

the group.

Conceptual Approach to Taxes _____771