Page 1 of 4 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN EXAMINERS’ COMMENTS SUBJECT Advanced Taxation SESSION Final Examination – Summer 2012 General: The overall performance this time was far below the levels seen in the past many attempts. Three out of six questions carrying 52 marks required tax computation and were mostly focused on concepts which had previously been tested several times. Even then, the performance on these questions was much below expectations. Performance in the other questions was not much different either. Where questions were left unanswered by the students, this appeared to be because of lack of knowledge and selective studies rather than time pressure. Question-wise comments are as under: Q.1 (a) The question was about “Pakistan resident company” with foreign source income and foreign tax credit. Although the question did not contain any complexity, most of the students could not answer it correctly. Some common mistakes found included: • A number of candidates did not appreciate the fact that profit on debt paid to finance foreign branch operations has been adjusted against local operations and should be added back to the income from local operations and allowed against foreign branch’s income. • Majority of the students were totally confused while calculating foreign tax credit. They did not understand the basic principle whereby credit for tax paid in foreign countries is restricted to the lower of Pakistan tax applicable on the same amount of income or foreign tax paid. Consequently, no credit was to be allowed for foreign tax paid against China Branch’s income whereas credit for the entire amount of foreign tax paid against Korean Branch was to be allowed. Many students also did not know that the credit is to be claimed separately for each branch. They applied the rule on the combined income of the two branches clubbing together the tax paid thereon. • Some of the candidates altogether ignored the export sales and the related tax implication. (b) This was a straightforward theoretical question based on Section 177 and Section 214 of the Income Tax Ordinance, 2001. However, most of the students had limited knowledge of the subject and barely secured 1 or 2 marks only.