TRIC suggests 20% income tax for SME sector
Proposes simplified tax regime to bring the sector under tax net
Proposes simplified tax regime to bring the sector under tax net. PHOTO: FILE
ISLAMABAD:
The Tax Reforms Implementation Committee (TRIC) has proposed a simplified tax regime for small and medium-sized firms, suggesting a 20% income tax rate, amid tax machinery’s reservations about creating another special regime and its implications for revenues in the short term.
The TRIC on Monday deliberated the proposal but could not agree on a workable model, which would delay its implementation till next fiscal year. There has been a push to introduce the new regime through the second mini-budget of the Pakistan Tehreek-e-Insaf (PTI) government that is expected to be unveiled this month.
Private members of the TRIC prepared the draft of the new tax regime for the small and medium enterprise (SME) sector that they shared with Minister of State for Revenue Hammad Azhar nearly two months ago.
Only 1.4m taxpayers submit annual returns for 2018
However, the Federal Board of Revenue (FBR) was not very receptive to the proposal due to its implications for the revenues and creating yet another special tax regime. The country’s tax system is marred by sector-specific final tax regimes and special procedures.
The private members of the TRIC believed that the new proposed taxation system can help the government broaden the tax base by incentivising the SME sector to come in the tax net.
They argued in the meeting that this was the only way to bring the small firms in the tax net that, at present, remain outside the tax system. There are only 1.5 million people and companies that have filed their annual income tax returns for the last year, which is only 0.72% of the total population. The SME has been defined as a firm that has a turnover of less than Rs60 million, the capital not more than Rs50 million, the cost of fixed assets not more than Rs50 million and the number of employees not more than 50 persons.
The proposed tax regime offers huge incentives to these firms. It offers to charge only 20% income tax rate as against the 29% for the big firms for the tax year 2018. For the next four years, the rate is proposed to be reduced by 1% every year and bringing it down to 15% by 2023. But the FBR authorities have apprehensions that such low rates would disincentives the corporatisation in the country.
The TRIC private members have proposed that the firms that grow should be offered a rebate of 10%x in the first three years of operation under normal provisions of the income tax law.
It has been proposed that the Provisions of Sales Tax Act, 1990 and Federal Excises Act, 2005 should not apply to persons whose income is chargeable to tax under the new SME regime. Any supplies made by any person falling under the proposed regime may also not be subject to any payment of sales tax under Sales Tax Act, 1990 or Duty under the Federal Excise Act, 2005.
There shall be no jurisdiction of any particular person or field office of Inland Revenue in respect of persons falling under this regime. There will be national jurisdiction. Offices of NADRA at various locations will be eligible for registration of persons for SME tax regime, according to the proposal. The TRIC private members have proposed some radical exemptions like abolishing the requirement to file wealth statement. Instead, it has proposed a new statement for these people.
The persons voluntarily filing under this new regime will also not be required to explain the source of capital for any earlier year, according to the proposal. One of the objectives of the simple taxation for the SME sector is lesser number of taxes and compliance requirements.
The TRIC has proposed that the SME sector should be dealt by the tax intermediaries that will perform various functions for that taxpayer, including automated registration, preparation of statement of income filing, statement of income and tax payable, assistance in examination and representation at dispute resolution and appeal stage.
All persons having Tax Practitioners’ Certificate from the FBR, members of the all bar associations of Pakistan, members of the institute of chartered accountants of pakistan or institute of cost and management accountants of Pakistan and any person nominated by a recognised chamber of commerce or federation of chambers of commerce can perform the role of intermediary.
The TRIC on Monday also discussed the issue of introduction of trace and tracking system for the tobacco sector.
It has long been pushing the case of introducing the tracking system to discourage tax evasion that is estimated at Rs50 billion annually.
Published in The Express Tribune, January 8th, 2019.
The Tax Reforms Implementation Committee (TRIC) has proposed a simplified tax regime for small and medium-sized firms, suggesting a 20% income tax rate, amid tax machinery’s reservations about creating another special regime and its implications for revenues in the short term.
The TRIC on Monday deliberated the proposal but could not agree on a workable model, which would delay its implementation till next fiscal year. There has been a push to introduce the new regime through the second mini-budget of the Pakistan Tehreek-e-Insaf (PTI) government that is expected to be unveiled this month.
Private members of the TRIC prepared the draft of the new tax regime for the small and medium enterprise (SME) sector that they shared with Minister of State for Revenue Hammad Azhar nearly two months ago.
Only 1.4m taxpayers submit annual returns for 2018
However, the Federal Board of Revenue (FBR) was not very receptive to the proposal due to its implications for the revenues and creating yet another special tax regime. The country’s tax system is marred by sector-specific final tax regimes and special procedures.
The private members of the TRIC believed that the new proposed taxation system can help the government broaden the tax base by incentivising the SME sector to come in the tax net.
They argued in the meeting that this was the only way to bring the small firms in the tax net that, at present, remain outside the tax system. There are only 1.5 million people and companies that have filed their annual income tax returns for the last year, which is only 0.72% of the total population. The SME has been defined as a firm that has a turnover of less than Rs60 million, the capital not more than Rs50 million, the cost of fixed assets not more than Rs50 million and the number of employees not more than 50 persons.
The proposed tax regime offers huge incentives to these firms. It offers to charge only 20% income tax rate as against the 29% for the big firms for the tax year 2018. For the next four years, the rate is proposed to be reduced by 1% every year and bringing it down to 15% by 2023. But the FBR authorities have apprehensions that such low rates would disincentives the corporatisation in the country.
The TRIC private members have proposed that the firms that grow should be offered a rebate of 10%x in the first three years of operation under normal provisions of the income tax law.
It has been proposed that the Provisions of Sales Tax Act, 1990 and Federal Excises Act, 2005 should not apply to persons whose income is chargeable to tax under the new SME regime. Any supplies made by any person falling under the proposed regime may also not be subject to any payment of sales tax under Sales Tax Act, 1990 or Duty under the Federal Excise Act, 2005.
There shall be no jurisdiction of any particular person or field office of Inland Revenue in respect of persons falling under this regime. There will be national jurisdiction. Offices of NADRA at various locations will be eligible for registration of persons for SME tax regime, according to the proposal. The TRIC private members have proposed some radical exemptions like abolishing the requirement to file wealth statement. Instead, it has proposed a new statement for these people.
The persons voluntarily filing under this new regime will also not be required to explain the source of capital for any earlier year, according to the proposal. One of the objectives of the simple taxation for the SME sector is lesser number of taxes and compliance requirements.
The TRIC has proposed that the SME sector should be dealt by the tax intermediaries that will perform various functions for that taxpayer, including automated registration, preparation of statement of income filing, statement of income and tax payable, assistance in examination and representation at dispute resolution and appeal stage.
All persons having Tax Practitioners’ Certificate from the FBR, members of the all bar associations of Pakistan, members of the institute of chartered accountants of pakistan or institute of cost and management accountants of Pakistan and any person nominated by a recognised chamber of commerce or federation of chambers of commerce can perform the role of intermediary.
The TRIC on Monday also discussed the issue of introduction of trace and tracking system for the tobacco sector.
It has long been pushing the case of introducing the tracking system to discourage tax evasion that is estimated at Rs50 billion annually.
Published in The Express Tribune, January 8th, 2019.