Committee recommends 20% income tax rate on SME sector

The suggested tax regime offers huge incentives to SME firms and offers to levy 20% income tax rate compared to 29% for the bigger entities in the tax year 2018

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ISLAMABAD: A 20% income tax rate has been proposed for the small and medium enterprise (SME) sector by the Tax Reforms Implementation Committee (TRIC) on Monday.

This suggestion comes amidst scepticism amongst the tax machinery regarding the creation of another special regime and its impact on revenues in the near-term, reports Express Tribune.

On Monday, TRIC discussed the proposal but was unable to concur on a workable model, which would delay its enactment till the next financial year 2019-20.

Additionally, there has been an effort to introduce this policy via the second mini-budget expected to be announced by the government later this month.

And the proposal was prepared by the private members of TRIC for the SME sector which was provided to the Minister of State for Revenue Hammad Azhar almost two months back.

The tax regulator wasn’t very welcoming to the proposal because of the impact it could have on revenues and on the creation of another special regime.

According to the views of TRIC’s private members, the new recommended taxation system could help the government in widening the tax base by encouraging the SME sector to come in the tax net.

During the meeting, they contended this was the only way in enabling to bring small firms in the tax net which currently are outside the tax system.

The suggested tax regime offers huge incentives to SME firms and offers to levy 20% income tax rate compared to 29% for the bigger entities in the tax year 2018.

Furthermore, for the next four years, it has been recommended to decrease the rate by 1% every year to 15% by 2023.

However, the Federal Board of Revenue (FBR) hasn’t warmed to this recommendation and voiced concerns that such low rates would disincentivize the corporatization in Pakistan.

Additionally, TRIC in its recommendations said those SME firms which exhibit growth should be offered a rebate of 10% in the first three years of operation under a normal provision of the tax law.

Also, it has been suggested that Provisions of Sales Tax Act, 1990 and Federal Excises Act, 2005 shouldn’t be levied on individuals whose income would come under the purview of the new SME regime.