SMEs: Special tax incentives likely

The government is expected to grant special tax incentives to the small and medium enterprises in coming budget (2020-21) to facilitate estimated 5.2 million enterprises affected due to Coronavirus outbreak and partial lock down.

In this regard, Small and Medium Enterprises Development Authority (SMEDA) has submitted its budget proposals for 2020-21 to the Ministry of Finance.

According to the budget proposals of the SEMDA for 2020-21, a National Tax Authority may be constituted to unify filing of returns, settlement of liabilities and harmonization of taxes to avoid double taxation. The FBR notices of tax reconciliations, tax audits and tax assessments be issued once in a financial year. The rationalization of total number of taxes paid and documentation procedures will result in encouraging businesses towards formulization and resultantly lead to higher revenue collection.

The budget proposals of the SEMDA for 2020-21 revealed that there is a need to support the small and medium size businesses by providing fiscal incentives in the area of taxation, export promotion, technical up gradation, marketing, training and development etc to overcome size and scale related impediments.

In a recent survey of SMEDA, Coronavirus outbreak and partial lock down has a negative impact on businesses. Initial estimates show that the economy will witness sluggish growth in services, manufacturing and agriculture sectors, increase in unemployment, decrease in government revenue, decline in exports and disruption in supply chains. Lockdown across the country is expected to make the situation dire for the estimated 5.2 million enterprises in the country. SMEs may experience supply chain distortions due to irregular supply of raw materials and intermediate goods, revenue loss and shortage of liquidity to continue business operations.

According to the budget proposals of SMEDA for 2020-21, the SMEDA has proposed that the rate of minimum tax be reduced for all listed and other companies to 1.0 percent to accelerate industrialization and business development.

SMEDA has proposed restoration of 10 percent tax credit which would result in up-gradation of existing technology.

SMEDA has proposed that the income tax exemption threshold may be enhanced to Rs 1 million. Tax rates on companies and Association of Persons (AOPs) may be rationalized for providing a level playing field to the SME sector.

SMEDA has proposed that the FBR should establish "SME Facilitation Centre" at the FBR to provide direct, personalized and timely guidance to SME taxpayers on compliance. The establishment of the "SME Facilitation Centre" at the FBR and One Window facility to deal with such requirements will allow SMEs to comply with legal aspects of taxation without hassle.

In its budget proposals for 2020-21, SMEDA has proposed that the withholding taxes should be brought down.

SMEDA has proposed that taxpayers shall be allowed to revise their returns without the approval of Income Tax Commissioners within the stipulated time period.

SMEDA has proposed that the withholding tax on the import of raw materials by all categories of importers, whether commercial or industrial, may be brought down and the difference of rate between the industrial and commercial importers may be abolished.

SMEDA has proposed that the adjustable limit of input sales tax may be increased to 95 percent of output sales in order to facilitate manufacturers.

SMEDA has proposed that the 3 percent further tax on supply to the un-registered persons may be withdrawn.

SMEDA has proposed that the initial depreciation allowance rate may be restored to 50 percent as was the case prior to the Finance Act 2013.

SMEDA has proposed that the imposition of customs duty on the import of luxury items and food products will not only strengthen consumption of local products but will also encourage import of capital goods necessary to strengthen local manufacturing base.

SMEDA has proposed rationalization of taxes on the import of plastic pipe machinery, budget proposals added.

Other proposals are: Income tax levied on salaried class may be rationalized. • Exemption of duty on imports of raw material for pharmaceutical and medical industry. • Sales tax and minimum tax rates on turnover may be reduced by 50% for minimum 6 months.

Tax on gross profit may be reduced from 3 % to 1 % as per previous practice. The manufacturing Industry may be declared as zero rated sector and withholding tax may be zero rated. Around one-year exemption on the imports of raw material and machinery for SMEs may be provided. • Duties and taxes may be exempted on the shipment arrived / stuck at port during the period of lockdown.

Sales Tax refunds should be reimbursed immediately in exporters accounts and start it from small companies and small amounts without classification of industries.

Companies who are Withholding Tax agents should be relaxed for the period of 6months.

To protect new startups, a package including tax relief and financial incentives may be announced for New Startups in order to facilitate their loan payments and operational expenses.

The government should support online businesses by providing tax facilitation (rationalizing provincial sales tax on services etc.) Tax support may be provided to start new businesses. Civil Aviation Charges on all imports may be Zero rated tillJune,2020. Furthermore, tax imposed on Employees' salaries may be simplified.