FUNDAMENTAL OF BUSINESS (463)

Course Fundamental of Business Course Code 463

Level A.D (Art/Comm) Semester Spring 2025
Assignment Last Date 20-08-2025
ASSIGNMENT NO. 1
Q. 1 What is capitalism? How it encourages people to do become entrepreneurs? Explain the
benefits of capitalism over socialism
Ans: What is Capitalism?
Capitalism is an economic system where private individuals or businesses own the means of
production, such as factories, land, and resources. It is driven by the principle of profit-making in a
free market where supply and demand dictate prices. In a capitalist setup, the government usually
plays a limited role, primarily ensuring law and order, protecting private property rights, and
regulating fair competition. At its core, capitalism believes that individuals acting in their own self-
interest can ultimately benefit society as a whole by generating wealth, innovation, and employment.
How Capitalism Encourages People to Become Entrepreneurs
Capitalism thrives on innovation and competition. It creates an environment where individuals are
encouraged to take risks in pursuit of profit. Entrepreneurs, who are often the lifeblood of a capitalist
system, find multiple motivating factors in this setup. One of the strongest incentives is the potential
for unlimited earnings. Unlike in a fixed-wage job, capitalism allows a person to earn as much as they
can, based on how successfully they can meet the demands of consumers.
The freedom to start a business, the opportunity to bring new ideas to life, and the possibility of
personal and financial independence are strong driving forces. Capitalism offers minimal barriers to
entry in many sectors, allowing people from various backgrounds to test their ideas in the market.
Even failure is not permanent in capitalism; those who do not succeed the first time are often given
second chances and learning opportunities. This system values perseverance and rewards innovation.
Moreover, in capitalist economies, access to resources such as loans, investments, and capital markets
empowers aspiring entrepreneurs. Governments in capitalist countries often create startup-friendly
policies, low taxes for businesses, and fewer regulations, making the entrepreneurial journey more
accessible and encouraging.
Benefits of Capitalism Over Socialism
While both capitalism and socialism aim to manage economic activity and improve the lives of
citizens, their approach is vastly different. Capitalism places trust in individual capability, while
socialism emphasizes collective ownership and state control. Capitalism offers several distinct
advantages:
1. Economic Freedom and Efficiency
Capitalism allows individuals to make their own economic choices — what to produce, how to
produce, and for whom to produce. This freedom often leads to increased innovation, efficiency, and
productivity. Since businesses compete with each other to attract consumers, they strive to provide

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better quality goods at lower prices. In contrast, socialist economies can become sluggish and
inefficient because of state control and lack of competition.
2. Innovation and Technological Progress
The competitive nature of capitalism encourages businesses to innovate. Whether it's new technology,
better services, or improved production methods, the drive to stand out in the market pushes
entrepreneurs and corporations to think creatively. In socialism, where profits are not the primary
motive, there is often less urgency to innovate.
3. Wealth Creation and Job Opportunities
Capitalism leads to wealth generation through business ventures, which in turn creates employment.
The entrepreneurial spirit supported by capitalism helps economies grow and diversify. On the other
hand, socialism aims to redistribute existing wealth, which may sometimes hinder overall economic
growth and reduce incentives to excel.
4. Consumer Choice and Satisfaction
In capitalist economies, consumers have a wide variety of goods and services to choose from. This
abundance and variety lead to greater consumer satisfaction. Socialism, by contrast, often involves
centralized planning, which can lead to shortages, poor quality goods, and fewer choices.

Q. 2 Differentiate between public and private limited companies. Discuss the benefits of forming
a company over a partnership firm.
Ans: Public vs Private Limited Companies: Understanding the Difference
In the world of business, entrepreneurs and investors have several options to choose from when
forming an entity. Two of the most common types of companies under corporate law are Public
Limited Companies (PLCs) and Private Limited Companies (Pvt Ltds). While both are registered
entities that offer limited liability to their owners, they differ in several important aspects.
A Private Limited Company is a company that is owned privately by a small group of individuals.
It does not issue shares to the general public and has restrictions on the transfer of its shares. In
Pakistan, as per the Companies Act 2017, a private company must have at least two and can have up
to fifty shareholders. Its name ends with "(Pvt.) Ltd."
On the other hand, a Public Limited Company can offer its shares to the public through a stock
exchange and has no restriction on the number of shareholders. It must have a minimum of three
directors and at least seven shareholders, though there is no upper limit. Public companies are more
strictly regulated and are required to disclose financial details to the public. Their names end with
"Ltd."
Key Differences Between Public and Private Limited Companies
1. Ownership and Share Transfer
In a public company, shares can be freely bought and sold by the general public. In a private
company, share transfers require the approval of other shareholders, maintaining tighter
control over ownership.
2. Disclosure and Transparency
Public companies are required to submit financial reports to regulatory authorities like SECP
and must publish their audited accounts, making them more transparent. Private companies
are not under such strict disclosure norms.

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 3. Raising Capital
Public companies can raise large amounts of capital from the public by issuing shares, bonds,
or debentures. Private companies usually rely on internal sources or private investors.
4. Minimum Requirements
A private company can be started with fewer shareholders and directors. Public companies
require a higher number of both and must meet stricter registration and compliance regulations.
5. Regulatory Oversight
Public companies are heavily regulated to protect public investors, whereas private companies
enjoy relatively relaxed rules and fewer filing obligations.

Benefits of Forming a Company Over a Partnership

While partnerships are simple and easier to form, forming a company—either private or public—
comes with a range of advantages that can make it a more attractive option for many entrepreneurs.
1. Limited Liability Protection
In a partnership, partners are personally liable for the debts of the business. If the business
fails, their personal assets can be used to pay creditors. In contrast, both private and public
company shareholders have limited liability, meaning they are only liable for the company’s
debts up to the amount they invested.
2. Perpetual Existence
A partnership dissolves upon the death or withdrawal of a partner unless a new agreement is
made. Companies, however, have a separate legal identity and can continue to exist despite
changes in ownership or management.
3. Easier Access to Capital
Companies—especially public ones—can raise significant capital from investors, venture
capitalists, or through public share offerings. Partnerships usually rely on partner contributions
or loans, which can limit growth.
4. Better Credibility
Companies, being legally registered entities with transparent structures, tend to gain more trust
from banks, investors, and the public. They are seen as more professional and stable.
5. Separate Legal Identity
A company is considered a separate legal person from its owners. It can sue or be sued, own
property, and enter into contracts in its own name—unlike a partnership, which does not have
a separate legal identity from the partners.

Q. 3 Keeping in view the existing financial system of Pakistan, what are the various sources from
where businesses can obtain funds for their expansion plans?
Ans: Sources of Business Funding in Pakistan’s Financial System
Every business, regardless of size, needs funds to grow, expand operations, or enter new markets. In
Pakistan, the financial system offers various avenues for raising capital. While the system has its
limitations due to economic challenges, inflation, and political instability, it still provides multiple
funding options for entrepreneurs and companies with expansion goals.
1. Bank Loans and Credit Facilities
One of the most common sources of funding for businesses in Pakistan is through commercial banks.
Banks like Habib Bank, MCB, UBL, and Bank Alfalah offer both short-term and long-term loans.

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These funds can be used for purchasing machinery, expanding product lines, or even for working
capital needs. Banks also provide overdraft facilities and credit lines that businesses can use to
manage day-to-day cash flow. However, due to strict documentation, interest rates, and collateral
requirements, access to these funds is sometimes limited to more established businesses.
2. Islamic Financing Options
Given that Pakistan is an Islamic republic, many businesses prefer interest-free financing. Islamic
banks such as Meezan Bank and Al Baraka Bank offer Shariah-compliant financing options like
Mudarabah, Musharakah, and Ijara. These modes involve profit-sharing or lease-based financing
instead of traditional interest-based loans. Islamic finance has grown in popularity and is now a major
part of Pakistan’s financial landscape, especially for SMEs and entrepreneurs who want religiously
acceptable funding solutions.
3. Equity Financing and Stock Market
Larger businesses in Pakistan can raise funds by issuing shares to the public through the Pakistan
Stock Exchange (PSX). By selling a portion of ownership, companies can raise significant capital
without increasing their debt burden. Although going public involves regulatory compliance and
transparency, it can be a powerful tool for expansion. Additionally, private equity firms and angel
investors are emerging in Pakistan, especially in major cities like Karachi, Lahore, and Islamabad,
where startup ecosystems are growing.
4. Government Schemes and Support Programs
To promote business growth, the Government of Pakistan has launched various funding schemes.
The SME Bank, Pakistan Poverty Alleviation Fund (PPAF), and Small and Medium Enterprises
Development Authority (SMEDA) provide financial support and technical assistance. Recently,
under the Kamyab Jawan Program, the government has been providing youth loans to help young
entrepreneurs start or expand businesses with low-interest rates. These schemes are particularly
beneficial for startups and rural entrepreneurs.
5. Microfinance Institutions
For small businesses and cottage industries, microfinance institutions like Khushhali Microfinance
Bank, FINCA, and U Microfinance Bank offer easy access to credit. Though the loan sizes are
small, they can be a lifeline for women-led businesses or vendors in underserved areas. Microfinance
banks also offer flexible repayment options and minimal collateral requirements, making them more
inclusive.
6. Retained Earnings
Established businesses often rely on their own profits for growth. By reinvesting earnings back into
the business instead of distributing them as dividends, companies can finance their own expansion.
This is considered a safe method because it avoids increasing debt or giving up ownership. However,
it requires strong internal financial discipline and long-term planning.
7. Foreign Direct Investment (FDI) and International Aid
Some large corporations and joint ventures receive funding through foreign investment. Pakistan has
seen FDI from China, the UAE, Turkey, and other countries, especially in sectors like energy,
telecommunications, and infrastructure. Additionally, funding from international bodies like the
World Bank, Asian Development Bank, and USAID is sometimes channeled into business
development programs and training, which can indirectly support business growth.

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Q. 4 Every business requires strong management. What is business management? Explain the
function of planning and organizing in detail.
Ans: Understanding Business Management: The Backbone of Success
Behind every successful business lies a solid system of management. Whether it's a small family-run
shop or a large multinational corporation, effective management ensures that all the resources—
human, financial, and physical—are used wisely and efficiently. But what exactly is business
management, and how do its core functions like planning and organizing play a role in this process?
What is Business Management?
Business management is the process of planning, organizing, leading, and controlling all aspects of a
business to achieve its goals and objectives. It involves coordinating people, processes, and resources
to ensure smooth operations and sustainable growth. A business manager doesn't just oversee day-to-
day tasks—they also guide the organization toward its long-term vision, making strategic decisions
along the way.
Good business management isn’t just about being in charge. It’s about understanding the business
environment, solving problems creatively, leading people with integrity, and ensuring that the
company not only survives but thrives in a competitive world.
Two of the most critical functions in business management are planning and organizing. These
functions lay the groundwork for everything else that happens in an organization.
The Role of Planning in Business Management
Planning is the first and arguably the most important function of management. It is the process of
thinking ahead and setting goals for the future. Without a proper plan, businesses would lack direction
and purpose.
1. Setting Objectives
Planning begins with defining what the organization wants to achieve. These goals could be
increasing sales, expanding into new markets, improving customer service, or launching a new
product. Clear objectives give everyone in the company a sense of purpose.
2. Forecasting the Future
Planning also involves analyzing market trends, understanding customer behavior, and anticipating
future challenges. This allows businesses to be proactive instead of reactive, giving them a
competitive edge.
3. Developing Strategies
Once goals are set, management must figure out how to achieve them. This includes creating budgets,
assigning responsibilities, scheduling tasks, and allocating resources effectively.
4. Reducing Uncertainty
Good planning helps reduce the impact of uncertainties by preparing for possible risks and
disruptions. This is especially important in today’s fast-changing business environment where
anything from economic shifts to technological advances can alter the landscape quickly.

The Role of Organizing in Business Management

Once the plan is in place, the next step is organizing. This function deals with putting the plan into
action by arranging resources and tasks in a structured way.
1. Structuring the Organization
Organizing begins with creating an organizational structure. This involves deciding how different
departments and teams will operate and how authority will be distributed. For example, a marketing

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department may have a team leader, content creators, and data analysts—each with specific roles and
responsibilities.
2. Resource Allocation
Organizing ensures that resources such as time, money, tools, and people are used where they are
needed most. It’s about making sure the right person is doing the right job at the right time.
3. Delegating Responsibilities
No manager can do everything alone. Effective organizing involves assigning tasks to employees
based on their strengths and skills. Delegation helps in building trust, improving efficiency, and
developing future leaders.
4. Coordinating Efforts
Different parts of a business must work together smoothly. Organizing helps coordinate activities
across departments so that everyone is working towards a common goal without duplicating efforts
or working at cross-purposes.

Q. 5 Without marketing, a business will not be able to make sufficient profits. What is the
marketing mix? Explain its elements.
Ans: Understanding the Marketing Mix: The Secret to Business Profitability
Marketing plays a vital role in the success of any business. It’s not just about advertising a product
but about understanding customer needs, creating value, and delivering satisfaction. One of the most
powerful concepts in marketing is the marketing mix. Often referred to as the 4 Ps of Marketing,
the marketing mix helps businesses make strategic decisions that influence customer behavior and
drive profitability.
Without a strong marketing plan, even the best products can go unnoticed. That’s why understanding
and applying the marketing mix is essential for business growth.
What is the Marketing Mix?
The marketing mix is a combination of four essential elements—Product, Price, Place, and
Promotion—that businesses use to meet customer needs and achieve organizational goals. These
elements must work together in harmony. A great product sold at the right price, in the right place,
and promoted in the right way can create a loyal customer base and lead to long-term success.
Let’s explore each element in detail.
1. Product – What You Are Offering
The product is the core of the marketing mix. It can be a tangible item (like a smartphone) or an
intangible service (like online tutoring). The product must fulfill a need or solve a problem for the
customer.
Key considerations include:
• Quality and features
• Design and branding
• Packaging
• Warranty and after-sale services
A business must continuously update and improve its product based on market feedback. A good
product attracts attention, builds trust, and encourages repeat purchases.
2. Price – The Value of the Product
Price refers to how much a customer pays for the product. It directly affects revenue and profit, so
pricing must be carefully planned.

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Businesses must consider:
• Cost of production
• Competitor prices
• Customer willingness to pay
• Pricing strategies (discounts, premium pricing, etc.)
The right price is not always the lowest. It’s the price that customers feel is fair for the value they
receive. A poor pricing strategy can either turn customers away or leave money on the table.
3. Place – Where the Product is Available
Place means the distribution channels through which the product reaches the customer. A product
might be excellent, but if it’s not available where customers want to buy it, it won’t sell.
Considerations include:
• Physical stores vs. online stores
• Warehousing and inventory
• Transportation and logistics
• Availability in different regions
Efficient placement ensures convenience for customers and timely delivery. For example, a fast-food
chain should be located in high-traffic areas, while an online brand must focus on quick and safe
shipping.
4. Promotion – How You Tell People About It
Promotion involves all the activities used to communicate with customers and persuade them to buy.
This includes advertising, public relations, personal selling, and digital marketing.
Tools for promotion:
• Television, radio, and newspaper ads
• Social media campaigns
• Sales promotions like discounts or free trials
• Email marketing and SEO
Promotion helps create awareness, generate interest, and build brand loyalty. A strong promotional
strategy can make even a small business stand out in a crowded market.

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 Course Fundamental of Business Course Code 463
Level A.D (Art/Comm) Semester Spring 2025
Assignment Last Date 20-08-2025
ASSIGNMENT NO. 2
Q. 1 The real strength of a business lies in the skills and competence of its employees to achieve
growth and profitability. Discuss the importance of human resources (employees) in a trading
organization.
Ans: The Importance of Human Resources in a Trading Organization
In any trading organization—whether it deals in retail, wholesale, import/export, or e-commerce—
the true driving force behind success is not just the products or the financial capital, but the people
who manage operations, communicate with customers, and strategize for future growth. Human
resources (HR), often referred to as the backbone of any business, play a vital role in ensuring that
all functions of a trading organization work smoothly and efficiently. Their skills, knowledge, and
dedication directly influence the performance, growth, and profitability of the business.
People Make the Trade Work
At the heart of every sale, negotiation, inventory record, shipment, and customer interaction are
people. Employees in a trading company perform diverse functions—from sourcing products and
managing stock to interacting with suppliers and satisfying customers. These activities require not
only technical knowledge but also people skills, time management, decision-making, and the ability
to adapt quickly to market changes. Without a team of capable and motivated individuals, even the
best product or service can fail to reach its market or meet expectations.
Building Customer Relationships
In the world of trade, customer satisfaction is a powerful asset. Employees on the front lines—sales
representatives, customer service agents, and delivery staff—are the ones who directly deal with
customers. Their behavior, tone, honesty, and efficiency leave lasting impressions and build trust. A
polite, solution-oriented employee can retain a frustrated client; a careless one can lose a long-term
customer. So, human resources are not just about doing tasks; they are about building the reputation
of the company through relationships.
Innovation and Growth
Employees are also a source of ideas, innovation, and improvement. For instance, a warehouse worker
may come up with a better method of storing goods to save time and reduce loss. A sales executive
might observe new trends in customer demand and suggest new products. When employees are
encouraged to think and contribute, they become more than workers—they become growth partners.
In trading organizations, where market trends change fast, having a team that is sharp, creative, and
alert can give a serious competitive edge.
Efficient Operations and Cost Control
Skilled employees help streamline operations. In trading, a slight error in inventory, invoicing, or
shipment can lead to huge losses. Competent staff ensures accuracy, minimizes wastage, and handles
problems proactively. HR also trains and assigns roles based on strengths, ensuring that the right
person does the right job. This leads to better time management and lower operational costs, which
increases profitability.

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Human Resource Management: The Foundation of Team Success
Human resource departments play a strategic role in building this team. From hiring the right talent,
training them, monitoring performance, resolving conflicts, and encouraging teamwork—HR ensures
that employees are well-equipped and well-motivated. When HR policies are fair and supportive,
employees feel valued, and this boosts morale and loyalty. A trading organization with happy and
skilled workers will always outperform one where employees are ignored or overburdened.
Handling Crisis and Change
No business is free from challenges—market crashes, logistics delays, economic policy shifts, or even
pandemics can disrupt operations. In such times, it’s the resilience and adaptability of employees that
keep the company afloat. Human resources with problem-solving attitudes can find alternative
suppliers, negotiate better deals, manage customer concerns, or create digital solutions. Therefore,
the value of skilled employees is most evident not just in good times but in crisis situations.

Q. 2 Discuss in detail the following government organizations:

• FBR
• SECP
Ans: Federal Board of Revenue (FBR)
FBR is the chief tax-collecting agency of the Government of Pakistan. It works under the Ministry
of Finance and is responsible for implementing fiscal policies, collecting taxes, and ensuring
compliance with tax laws across the country.
Main Functions of FBR:
1. Tax Collection
FBR collects both direct taxes (like income tax) and indirect taxes (like sales tax, customs
duty, federal excise duty). These taxes form the backbone of the government’s revenue used
for development and public services.
2. Enforcing Tax Laws
It ensures that all individuals and businesses pay their due taxes by monitoring tax returns,
conducting audits, and investigating tax evasion.
3. Customs Control
FBR is responsible for regulating imports and exports by collecting customs duties at ports
and borders and preventing smuggling.
4. Issuing NTN & Sales Tax Registration
FBR provides National Tax Numbers (NTN) and registers businesses for sales tax, making
it easier to track and manage taxpayers.
5. Public Awareness & Support
FBR conducts campaigns to educate citizens about tax laws, offers online services, and
operates helplines to help taxpayers.
Importance of FBR:
• FBR helps the government finance development projects like schools, hospitals, roads, and
more.
• It promotes a culture of accountability and ensures that the rich contribute their fair share
through taxes.
• It supports economic stability by managing public revenue efficiently.

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Securities and Exchange Commission of Pakistan (SECP)
The SECP is the chief regulatory authority for the corporate sector, insurance industry, non-
banking finance companies, and capital markets of Pakistan. It was established in 1999 to modernize
and regulate the corporate sector and improve investor confidence.
Main Functions of SECP:
1. Company Registration
SECP facilitates the formation of companies, maintains records, and ensures that all legal
procedures for business setup are followed.
2. Regulation of Stock Markets
SECP supervises the functioning of stock exchanges like the Pakistan Stock Exchange
(PSX), ensuring fair trading, investor protection, and prevention of market manipulation.
3. Corporate Governance
It ensures companies follow ethical business practices, maintain transparent records, and
protect the rights of shareholders.
4. Licensing of Insurance Companies and NBFCs
SECP licenses and monitors insurance firms, leasing companies, investment firms, and
mutual funds to make sure they operate fairly.
5. Investor Protection and Education
It promotes financial literacy and takes steps to safeguard investors’ interests by ensuring
companies disclose important financial information on time.

Q. 3 A business needs a suitable location to achieve its objectives. Keeping this view, explain the
role of location in deciding the production activities of a manufacturing firm.
Ans: The Role of Location in Deciding the Production Activities of a Manufacturing Firm
When it comes to running a successful manufacturing business, one of the most critical decisions a
firm must make is choosing the right location. The location of a manufacturing facility is not just
about having a building—it is about positioning the business in a place where it can operate
efficiently, reduce costs, access markets, and ultimately achieve its goals. A poor location choice can
lead to high transportation costs, difficulty in hiring skilled labor, delays in production, and even a
disconnect with the target market. On the other hand, a strategically chosen location becomes a
foundation for smooth operations, better productivity, and increased profitability.
Access to Raw Materials
A manufacturing firm depends heavily on raw materials to keep its production going. If the
production unit is located far away from the sources of raw materials, the transportation cost
increases, and so does the risk of delays. For example, a sugar mill is better placed near sugarcane
fields, just as a cement factory should ideally be near limestone quarries. When raw materials are
easily accessible, production becomes more consistent and less costly.
Availability of Labor
Another important factor tied to location is the availability of skilled and unskilled labor. A
manufacturing firm needs workers to run machines, manage processes, inspect quality, and handle
logistics. If the plant is located in a remote area where skilled labor is hard to find, the firm may
struggle with training costs or low productivity. In contrast, being close to urban centers or industrial
hubs usually ensures better access to trained workers, which helps in maintaining production
efficiency.

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Transportation and Infrastructure
The ability to receive raw materials and deliver finished goods to the market relies heavily on good
transportation links. A manufacturing unit located near highways, railways, or ports can move goods
more easily and at a lower cost. This improves turnaround time, reduces storage needs, and enhances
customer satisfaction. Poor infrastructure can lead to frequent delays, higher logistics costs, and even
loss of products in transit.
Proximity to the Market
Being close to the customer base is another reason location matters. When a manufacturing firm is
situated near the area where demand for its products is high, it saves time and cost in delivering goods.
This also allows the firm to respond quickly to changes in customer needs or preferences. For
example, a textile factory supplying to a major city benefits from setting up close to that city rather
than in a distant region.
Utilities and Services
Production activities require power, water, waste disposal, and sometimes gas. Locations with stable
electricity supply, clean water, and reliable waste management services help manufacturers maintain
quality and reduce interruptions. Industrial areas are often designed with such facilities in mind,
which makes them attractive for setting up manufacturing plants.
Government Policies and Incentives
Governments sometimes offer tax breaks, subsidies, or reduced land prices in specific areas to
promote industry. Choosing a location in one of these zones can give a manufacturing firm financial
benefits and improve its long-term sustainability. At the same time, local regulations should also be
considered. A place with too many restrictions or complicated procedures can slow down business
operations.
Environmental Impact and Community Relations
Modern manufacturing is increasingly being scrutinized for its environmental impact. A firm must
choose a location that complies with environmental laws and does not cause pollution in residential
or sensitive areas. Moreover, establishing good relations with the local community helps in smooth
functioning and can prevent disputes or protests in the future.

Q. 4 The government imposes taxes on the business to get the required revenues for meeting its
budgetary requirements. What is the sales tax and how it is paid? Explain in detail.
Ans: Understanding Sales Tax and Its Payment
Governments around the world, including Pakistan, impose various taxes on individuals and
businesses to generate revenue for public welfare and development projects. One of the most common
and significant taxes is the Sales Tax. This tax plays a major role in helping the government meet its
budgetary requirements, such as building infrastructure, running public services, and funding
education and health programs.
What Is Sales Tax?
Sales tax is a type of indirect tax that is charged on the sale of goods and certain services. It is paid
by the end consumer, but collected and deposited by businesses or sellers on behalf of the
government.
In Pakistan, sales tax is usually imposed at a standard rate of 18% on most items, although some
essential goods may be exempt or taxed at lower rates. The law governing sales tax in Pakistan is the
Sales Tax Act, 1990, and the tax is administered by the Federal Board of Revenue (FBR).

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Key Features of Sales Tax
1. Indirect Tax: It is not directly paid by the consumer to the government but is included in the
price of the product or service.
2. Charged at Each Stage of Supply: Sales tax is collected at every step in the supply chain—
from manufacturer to wholesaler to retailer—but is ultimately borne by the final buyer.
3. Value-Added Tax (VAT) System: In Pakistan, sales tax works like a VAT, meaning
businesses charge tax on their sales and subtract tax already paid on purchases (called input
tax).

How Is Sales Tax Paid?

The process of paying sales tax in Pakistan involves several steps, mostly managed by the business
entities:
1. Sales Tax Registration
Any business that meets a certain turnover threshold (usually Rs. 10 million or more per year) must
register with FBR and obtain a Sales Tax Registration Number (STRN).
2. Issuing Tax Invoices
Once registered, the business must issue sales tax invoices to customers showing the price of goods
and the amount of sales tax charged.
3. Filing Monthly Returns
Businesses must file monthly sales tax returns using the FBR’s online system. In this return, they
report:
• Total sales
• Sales tax collected from customers (output tax)
• Sales tax paid on purchases (input tax)
4. Tax Payment
After calculating the net payable tax (output tax minus input tax), the business must deposit the
balance to the government treasury using a designated bank or online payment channel.
5. Record Keeping and Audits
Businesses must maintain proper records of all purchases, sales, and tax payments, as the FBR may
audit them to ensure compliance.

Example of Sales Tax Payment

Suppose a furniture store buys tables from a manufacturer at Rs. 10,000 plus 18% sales tax (Rs.
1,800), so the total cost is Rs. 11,800. Later, it sells the table to a customer for Rs. 15,000 plus 18%
tax (Rs. 2,700). The total amount charged from the customer is Rs. 17,700.
• Output Tax (collected from customer) = Rs. 2,700
• Input Tax (paid to supplier) = Rs. 1,800
• Net Sales Tax Payable to FBR = 2,700 – 1,800 = Rs. 900

Importance of Sales Tax

• Revenue for Government: It is a major source of income used for national development.
• Regulates the Economy: It helps monitor business transactions and reduces informal trade.
• Encourages Documentation: Businesses must maintain proper records, which promotes
transparency.

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Q. 5 Why international business is necessary? Explain in detail the workings of an import-export
transaction.
Ans: Why International Business is Necessary? – Working of an Import-Export
Transaction (600+ words, 15% heads, human tone)
In today’s globalized world, businesses are no longer limited by geographical borders. A
company in Pakistan can easily purchase machinery from Germany, export textiles to the
United States, or receive raw materials from China. This dynamic exchange across borders is
what we call international business. It is not just a trend but a necessity in the modern
economic environment. Without international trade, countries would struggle to meet the
diverse needs of their populations, remain competitive, or expand their industries.
Why is International Business Necessary?
Access to Resources Not Available Locally
No single country is self-sufficient in producing everything it needs. For example, Pakistan
does not produce crude oil in enough quantity to meet its energy demands. It must import oil
from countries like Saudi Arabia. Similarly, other nations import Pakistani rice or textiles
because they cannot grow or manufacture them with the same quality or cost-effectiveness.
International business helps fill these gaps in local production.
Economic Growth and Employment Opportunities
International business allows countries to boost their economies. When local businesses export
goods or services, they earn foreign exchange, which strengthens the national economy. It also
opens up job opportunities. From manufacturing to shipping and from customs clearance to
marketing, many sectors benefit and create employment through global trade.
Spreading Technological Advancements
Often, countries at the forefront of innovation share their latest technologies through trade.
Developing countries can purchase advanced machinery or software, learn new production
methods, and improve their industries. This sharing of knowledge raises standards globally
and helps less developed countries progress faster.
Global Competitiveness
When businesses compete internationally, they are encouraged to improve product quality,
adopt new techniques, and reduce costs. This enhances their competitiveness, not just globally
but also within their own countries. Customers benefit from better products at affordable
prices due to this competition.
Cultural Exchange and Better International Relations
Through trade, people from different nations exchange ideas, cultures, and practices. It builds
stronger ties between nations, fostering peace and mutual respect. For example, when a
Pakistani craftsman exports handmade carpets to Europe, he is not just doing business—he is
also sharing a piece of his culture.
How Does an Import-Export Transaction Work?
Understanding the import-export process is essential for grasping how international business
operates practically. Below is a simplified breakdown of how a typical transaction takes place:

13 Fundamental of Business (0463) Spring – 2025 (Assad Printing Hangu)

1. Inquiry and Quotation
It begins when an importer (buyer) shows interest in a product offered by an exporter (seller).
The buyer requests details like price, quality, terms of delivery, and packaging. The exporter
then provides a quotation or a proforma invoice.
2. Order Placement
If the buyer agrees to the terms, they place a purchase order. This document confirms the
types, quantities, and agreed prices for products or services.
3. Payment Arrangements
The two parties agree on a payment method. Common methods include:
• Advance payment (buyer pays before goods are shipped),
• Letter of Credit (LC) (a bank guarantees the payment),
• Open account (payment after delivery),
• Document against payment (goods are shipped, and documents are released after
payment).
Most international trade uses a letter of credit due to its balanced security for both buyer and
seller.
4. Production and Quality Check
Once payment terms are settled, the exporter starts preparing the goods. In the case of
manufactured items, production begins. Quality control is vital at this stage to ensure goods
meet agreed standards.
5. Packaging and Shipping
After production, goods are packed for international shipping. Special care is taken for fragile
or perishable items. The exporter arranges shipping (air, sea, or land) and books cargo space.
6. Customs and Documentation
The exporter prepares all required documents:
• Commercial Invoice
• Bill of Lading or Airway Bill
• Packing List
• Certificate of Origin
• Insurance Certificate

Prepared by: Hayyat Afridi (Assad Printing Hangu)

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14 Fundamental of Business (0463) Spring – 2025 (Assad Printing Hangu)