ICAP CAF CAF-2: Taxation Principles and Compliance Syllabus

CAF-2: Taxation Principles and Compliance syllabus — full chapter and topic list

Expand any chapter to see its topics and sub-topics. This is the whole examinable outline for CAF-2: Taxation Principles and Compliance in ICAP CAF, not a summary of it.

1. 1

   Objective, System and Constitutional Provisions

   2 topics

   • Direct and indirect taxation
   • Federal and provincial financial procedures
2. 2

   Ethics in Taxation

   4 topics

   • Right of the state to tax citizens
   • Morality of compliance by taxpayers and practitioners
   • Pillars of tax administration
   • Tax evasion versus avoidance
3. 3

   Central Concepts and Scope of Income

   2 topics

   • Scope of income and residential status
   • Key definitions under the Income Tax Ordinance
4. 4

   Computation of Income and Tax

   6 topics

   • Income from salary
   • Income from property
   • Income from business
   • Capital gains
   • Income from other sources
   • Losses, allowances, tax credits and exemptions
5. 5

   Income Tax Administration and Compliance

   4 topics

   • Returns of income and wealth statements
   • Assessments and audit of tax affairs
   • Appeals before appellate authorities
   • Alternative dispute resolution
6. 6

   Sales Tax Laws

   3 topics

   • Scope and payment of sales tax
   • Registration, de-registration and returns
   • Book keeping and invoicing requirements

CAF-2: Taxation Principles and Compliance flashcards for ICAP CAF

23 of 51 cards from the CAF-2: Taxation Principles and Compliance deck — real questions with worked answers.

1. Distinguish between direct and indirect taxes with one example of each in Pakistan.

   A direct tax is levied directly on a person's income or wealth and cannot be shifted to another (e.g., Income Tax). An indirect tax is levied on goods/services and the burden can be shifted to the final consumer (e.g., Sales Tax / FED).

2. Why is income tax classified as a 'progressive' tax in Pakistan?

   Because the tax rate increases as the taxable income (base) increases, so higher-income persons pay a larger proportion of their income in tax.

3. In federal vs provincial taxation, which level of government levies tax on services in Pakistan?

   Sales tax on services is a provincial subject (levied by provinces/ICT), whereas sales tax on goods and income tax are federal subjects collected by the FBR.

4. What is the constitutional basis for the State's right to tax citizens in Pakistan?

   Article 77 of the Constitution: no tax shall be levied except by or under the authority of an Act of Parliament (legality principle); taxes must be imposed by law.

5. Name Adam Smith's four canons (maxims) of taxation.

   Equity (ability to pay), Certainty (clear amount/time/manner), Convenience (collected at a convenient time/way for taxpayer), and Economy (low cost of collection).

6. What is the difference between tax evasion and tax avoidance?

   Tax evasion is illegal reduction of tax by concealing income or facts (a crime). Tax avoidance is using legal means/loopholes within the law to minimise tax (legal, though it may be challenged under anti-avoidance rules).

7. From an ethics standpoint, what is a tax practitioner's primary duty when a client insists on understating income?

   The practitioner must not assist in evasion; they should advise compliance, decline to file a false return, and may withdraw from the engagement — upholding integrity and objectivity over the client's wishes.

8. State the four pillars of a sound tax administration.

   Registration, Filing/Payment (collection), Audit/Enforcement, and Taxpayer Services/Facilitation — supported by a fair appeals mechanism.

9. Define a 'tax year' under the Income Tax Ordinance, 2001 (normal tax year).

   The normal tax year is the 12-month period ending on 30 June, denoted by the calendar year in which it ends (e.g., the year ending 30 June 2026 is tax year 2026).

10. What is a 'special tax year' and how is it denoted?

    A special tax year is any 12-month period ending on a date other than 30 June, allowed/required by the FBR/Commissioner. It is denoted by the calendar year relevant to the normal tax year in which its closing date falls.

11. Define a 'resident individual' under the Income Tax Ordinance, 2001.

    An individual is resident if present in Pakistan for 183 days or more in a tax year, or is an employee/official of the Federal/Provincial Government posted abroad during the tax year.

12. When is a company treated as a resident company for a tax year?

    A company is resident if it is incorporated/formed under any Pakistani law, OR its control and management of affairs is situated wholly in Pakistan at any time in the year, OR it is a Provincial/Local Government.

13. When is an Association of Persons (AOP) treated as resident in Pakistan?

    An AOP is resident for a tax year if the control and management of its affairs is situated wholly or partly in Pakistan at any time in that year.

14. What is the difference in scope of income taxed for a resident vs a non-resident person?

    A resident person is taxed on world income (Pakistan-source plus foreign-source income). A non-resident is taxed only on Pakistan-source income.

15. List the five heads of income under section 11 of the Income Tax Ordinance, 2001.

    Salary, Income from Property, Income from Business, Capital Gains, and Income from Other Sources.

16. Define 'person' under the Income Tax Ordinance, 2001.

    'Person' includes an individual, a company, an association of persons (AOP), and the Federal/Provincial/Local Government — i.e., the entities chargeable to tax.

17. Define 'taxable income' under the Income Tax Ordinance, 2001.

    Taxable income = Total income for the tax year minus deductible allowances (e.g., zakat, certain donations/allowances), reduced by exempt income; it is the income on which tax is computed.

18. What is 'total income' under section 10 of the Income Tax Ordinance, 2001?

    Total income is the sum of a person's income under all five heads of income (including exempt income) for the tax year, before deductible allowances.

19. Define 'salary' for income tax purposes (section 12).

    Salary is any amount received by an employee from employment, including pay, wages, leave pay, perquisites, allowances, bonus, commission, gratuity, and amounts in lieu of/in addition to wages.

20. How is the value of accommodation provided by an employer taxed under the salary head (rules)?

    The amount taxable is the higher of the amount that would have been paid as house rent allowance, or 45% of the minimum of time scale of basic salary (MTS) / basic salary, added to taxable salary.

21. How is an employer-provided motor vehicle valued for personal vs partly personal use?

    5% of the cost (or fair market value at lease commencement) if used partly for personal use; 10% of the cost (or FMV) if used wholly for personal/private use of the employee.

22. On what basis is salary income generally taxed — accrual or receipt?

    Salary income is taxed on a receipt basis — it is chargeable in the tax year in which it is actually received by the employee, regardless of when it was due.

23. What is the charging basis of 'Income from Property' under section 15?

    Income from property is the rent received or receivable for the tax year from leasing land or buildings; it is taxed on the higher of actual rent or fair market rent (where applicable).

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