Free Taxation MCQs with Answers
50 Taxation MCQs from Accounting, each with the correct answer and a written explanation of why it is correct. Free and unlimited, with no account needed.
Taxation covers the principles used to assess and collect taxes from individuals, businesses and transactions, with emphasis on income tax and sales tax concepts in Pakistan. Questions involve taxable income, exemptions, deductions, tax liability, withholding, returns, assessment, tax avoidance versus evasion, and the distinction between direct and indirect taxes.
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50 questions · page 2 of 3
- A. 30 June
- B. 31 March
- C. 31 December
- D. 30 September
Explanation: Pakistan's ordinary tax year is the twelve-month period ending on 30 June.
Correct answer: 30 June- A. Output tax is charged at zero, with input credit generally available
- B. Output tax is charged at the standard rate, with no input credit
- C. The supply is outside the scope of every tax law
- D. The supply is exempt, so related input tax is always refundable
Explanation: A zero-rated supply has a tax rate of zero, but the registered supplier can generally claim related input tax subject to the law.
Correct answer: Output tax is charged at zero, with input credit generally available- A. The person who ultimately bears the economic burden
- B. The date on which the tax return is submitted
- C. The authority that collects the tax
- D. The legal document used to calculate tax
Explanation: Tax incidence refers to who finally bears the economic cost of a tax, which may differ from the person legally required to pay it.
Correct answer: The person who ultimately bears the economic burden- A. A withholding agent
- B. A tax appellate authority
- C. A registered sales tax supplier
- D. A tax audit tribunal
Explanation: An employer that deducts tax from salary and remits it to the government acts as a withholding agent.
Correct answer: A withholding agent- A. The allocation of an asset's cost over its useful life
- B. The immediate recovery of all cash paid for an asset
- C. The increase in market value of a business asset
- D. The repayment of a business owner's personal loan
Explanation: Depreciation allocates the cost of a qualifying depreciable asset over the period in which it is used to earn income.
Correct answer: The allocation of an asset's cost over its useful life- A. Capital gain
- B. Employment income
- C. Dividend income
- D. Royalty income
Explanation: A capital gain generally arises when a capital asset is disposed of for an amount exceeding its relevant cost, subject to applicable…
Correct answer: Capital gain- A. Verify the accuracy of reported income and deductions
- B. Replace every taxpayer's return with a fixed estimate
- C. Convert an indirect tax into a direct tax
- D. Grant an automatic exemption from future tax
Explanation: A tax audit examines books, documents and other evidence to check whether income, deductions and tax calculations are properly reported.
Correct answer: Verify the accuracy of reported income and deductions- A. Its taxable output tax exceeds allowable input tax
- B. Its allowable input tax exceeds taxable output tax
- C. It has only exempt purchases and no sales
- D. It records a business loss regardless of sales tax figures
Explanation: Net sales tax is generally determined by comparing output tax with allowable input tax.
Correct answer: Its taxable output tax exceeds allowable input tax- A. To reduce the income on which tax is calculated
- B. To increase the taxpayer's gross receipts
- C. To convert taxable income into sales tax
- D. To eliminate the need to file a return
Explanation: An allowable deduction is subtracted in determining taxable income, so it normally reduces the base on which income tax is calculated.
Correct answer: To reduce the income on which tax is calculated- A. Filing an appeal under the applicable tax law
- B. Cancelling all supporting accounting records
- C. Treating the assessment as a private business expense
- D. Charging the disputed amount as sales tax on customers
Explanation: Tax laws provide an appeal mechanism through which a taxpayer may challenge an assessment before the relevant appellate authority.
Correct answer: Filing an appeal under the applicable tax law- A. Progressive tax
- B. Regressive tax
- C. Proportional tax
- D. Degressive tax
Explanation: A proportional tax applies one constant rate to the tax base, regardless of the taxpayer's income level.
Correct answer: Proportional tax- A. The amount on which tax is calculated
- B. The date on which tax becomes due
- C. The authority that collects the tax
- D. The penalty imposed for late payment
Explanation: The tax base is the income, value, transaction, or other measurable amount to which a tax rate is applied.
Correct answer: The amount on which tax is calculated- A. State Bank of Pakistan
- B. Federal Board of Revenue
- C. Securities and Exchange Commission
- D. Pakistan Bureau of Statistics
Explanation: The Federal Board of Revenue administers major federal taxes, including income tax and federal sales tax.
Correct answer: Federal Board of Revenue- A. To record the owner's capital
- B. To document the supply and tax charged
- C. To request a tax exemption
- D. To replace the annual tax return
Explanation: A tax invoice records the taxable supply, its value, and the sales tax charged to the purchaser.
Correct answer: To document the supply and tax charged35. For a general sales tax system, which transaction is most likely to constitute a taxable supply?
- A. A business sale of non-exempt goods for consideration
- B. A private gift with no business connection
- C. A transfer of personal belongings without payment
- D. An exempt transaction specifically excluded by law
Explanation: A business sale of non-exempt goods for consideration generally meets the basic conditions of a taxable supply.
Correct answer: A business sale of non-exempt goods for consideration- A. The taxpayer, through the filed return
- B. The court, through a judgment
- C. The bank, through the account statement
- D. The auditor, before any return is filed
Explanation: In self-assessment, the taxpayer computes income, deductions, and tax and reports them in the return.
Correct answer: The taxpayer, through the filed return- A. Customs duty
- B. Property tax
- C. Payroll tax
- D. Capital gains tax
Explanation: Customs duty is commonly charged on imported goods as they enter a country.
Correct answer: Customs duty- A. Whether a person may open a bank account
- B. The scope of income subject to taxation
- C. The market price of imported goods
- D. The accounting method used by a company
Explanation: Tax residence commonly helps determine whether a person is taxed on worldwide income or mainly on income from sources within the country.
Correct answer: The scope of income subject to taxation- A. It increases the later year's taxable income
- B. It may reduce later taxable income under applicable rules
- C. It permanently cancels every tax liability
- D. It converts income tax into sales tax
Explanation: A permitted carried-forward loss can generally be set against qualifying future income, reducing taxable income in a later period.
Correct answer: It may reduce later taxable income under applicable rules- A. Tax paid before the final liability is determined
- B. Tax charged only after a tax audit
- C. Tax imposed on imported machinery
- D. Tax refunded before income is earned
Explanation: Advance tax is paid during or before the relevant tax period on the basis of expected or estimated liability.
Correct answer: Tax paid before the final liability is determined