PIPFA Business Laws and Taxation Flashcards

24 sample cards from the Business Laws and Taxation deck

Sampled from the end of the deck, so these are different cards from the ones shown on the syllabus page.

1. List the main modes of dissolution of a firm.

   Dissolution by agreement, compulsory dissolution (illegality/all-but-one insolvent), dissolution on the happening of contingencies (expiry of term, completion of venture, death/insolvency of a partner), dissolution by notice (partnership at will), and dissolution by the court.

2. What types of companies can be incorporated under the Companies Act 2017?

   Companies limited by shares, companies limited by guarantee (with or without share capital), and unlimited companies. By membership: single-member, private, and public companies. Also includes listed/unlisted and foreign companies.

3. Distinguish between a private company and a public company under the Companies Act 2017.

   A private company restricts share transfer, limits members to 50 (excluding employees), and prohibits public subscription; minimum 1 member (single-member) or 2. A public company has minimum 3 members, no upper limit, freely transferable shares, and may invite public subscription.

4. What are the main incorporation documents and the role of SECP under the Companies Act 2017?

   Key documents are the Memorandum of Association (defines objects/scope) and Articles of Association (internal rules). These are filed with the Securities and Exchange Commission of Pakistan (SECP), the regulator that registers companies and issues the certificate of incorporation.

5. Define 'tax' and distinguish a direct tax from an indirect tax.

   A tax is a compulsory contribution levied by the government without direct quid pro quo. A direct tax (e.g. income tax) is borne by the person on whom it is imposed and cannot be shifted. An indirect tax (e.g. sales tax) can be shifted to another person (the consumer).

6. State Adam Smith's four canons of taxation.

   Canon of Equality (ability to pay), Canon of Certainty (amount/time/manner certain), Canon of Convenience (levied at a convenient time and manner for the taxpayer), and Canon of Economy (low cost of collection).

7. Name the additional canons of taxation beyond Adam Smith's four.

   Canon of Productivity, Canon of Elasticity (flexibility), Canon of Simplicity, Canon of Diversity, and Canon of Expediency (administrative feasibility).

8. Distinguish between a tax, a fee, and a cess.

   A tax is a compulsory levy with no direct return. A fee is a charge for a specific service rendered by the government (quid pro quo present). A cess is a tax levied for a specific purpose, usually as a surcharge on an existing tax.

9. Distinguish between progressive, proportional, and regressive taxation.

   Progressive: tax rate rises as income rises (e.g. income tax slabs). Proportional: same rate at all income levels. Regressive: rate falls as income rises, so the burden is heavier on lower incomes (indirect taxes are often regressive in effect).

10. Which authorities administer income tax and sales tax in Pakistan, and under which laws?

    The Federal Board of Revenue (FBR) administers federal taxes. Income tax is governed by the Income Tax Ordinance 2001; sales tax (goods) by the Sales Tax Act 1990. Sales tax on services is provincial (e.g. PRA, SRB, KPRA, BRA).

11. How is the residential status of an individual determined 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. Otherwise the individual is a non-resident.

12. Why is residential status important for taxation, and how does it affect scope of income?

    A resident person is taxed on world income (Pakistan-source plus foreign-source income). A non-resident is taxed only on Pakistan-source income. Residential status determines the scope of total income chargeable to tax.

13. What is a 'tax year' under the Income Tax Ordinance 2001?

    The normal tax year is the 12-month period ending on 30th June, denoted by the calendar year in which it ends. A special tax year is one approved by the FBR ending on a different date; a transitional tax year covers the change-over period.

14. List the five heads of income under the Income Tax Ordinance 2001.

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

15. How is Total Income computed under the Income Tax Ordinance 2001?

    Total income is the sum of income under all five heads (salary, property, business, capital gains, other sources), computed for the tax year. Taxable income = Total income minus deductible allowances (e.g. Zakat, charitable donations as allowed).

16. What is the difference between Total Income and Taxable Income?

    Total income is the aggregate of income under all heads. Taxable income is total income less deductible allowances (such as Zakat paid and approved donations). Tax is computed on taxable income at applicable rates.

17. What constitutes 'salary' income under the Income Tax Ordinance 2001?

    Salary includes any amount received by an employee from employment — pay, wages, leave pay, fees, commissions, bonuses, gratuity, perquisites, allowances, and any profits in lieu of or in addition to salary. It is taxed on a receipt basis.

18. How is income from property computed under the Income Tax Ordinance 2001?

    Income from property is the rent received or receivable from letting out land/buildings (the higher of actual rent or fair market rent), including the gross amount of rent chargeable to tax for the tax year, subject to permissible deductions/treatment as specified in the law.

19. Distinguish 'perquisite' from 'allowance' in salary taxation.

    An allowance is a fixed monetary amount paid to an employee (e.g. house rent allowance, conveyance allowance). A perquisite is a non-cash benefit or facility provided by the employer (e.g. company car, free accommodation), valued and added to salary income.

20. What is the scope of sales tax under the Sales Tax Act 1990?

    Sales tax is charged on taxable supplies made by a registered person in the course of business, and on goods imported into Pakistan. It is a value-added, indirect tax levied at each stage of the supply chain, ultimately borne by the final consumer.

21. Define a 'taxable supply' and 'taxable activity' under the Sales Tax Act 1990.

    A taxable supply is a supply of taxable goods made by a person carrying on a taxable activity (other than exempt supplies). Taxable activity means any economic activity carried on regularly or continuously, including supply of goods, whether or not for profit.

22. Who is required to register for sales tax under the Sales Tax Act 1990?

    Persons making taxable supplies in the course of business — manufacturers, importers, wholesalers, dealers, distributors, retailers (above threshold), and exporters intending to claim refunds — must register with the FBR. Registration enables charging output tax and claiming input tax.

23. Define input tax and output tax under the Sales Tax Act 1990.

    Output tax is the sales tax charged by a registered person on taxable supplies made (sales). Input tax is the sales tax paid by the registered person on purchases/imports of taxable goods used in making taxable supplies.

24. How is the net sales tax payable computed, and what is input tax adjustment?

    Net sales tax payable = Output tax minus admissible Input tax for the tax period. If input tax exceeds output tax, the excess is carried forward or refunded (e.g. for exporters). This adjustment mechanism makes sales tax a value-added tax.

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