Last Updated on: 24th July 2023, 03:05 am
The Federal Board of Revenue (FBR) announced on July 1, 2021, special tax regulations for small and medium-sized manufacturing companies.
The FBR has published details of the withholding tax regime for the manufacturing sector FBR Announces New Tax Scheme for manufacturing sector small and medium-sized enterprises.
As per the FBR, SMEs in section (59A) of section 2 was defined as manufacturing companies, regardless of their status as an individual, AOP, or company with a turnover of up to Rs. 250 million.
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Manufacturing Small and Medium-sized Enterprises, which are businesses falling under this definition, have been excluded from the definition of small business.
In the new legal framework for SMEs, the legal authorization regulation is provided for in Article 100E and in the fourteenth program of the regulation.
The board of directors has been authorized to prescribe a simplified declaration form for these SMEs. The SME tax regulations showed that the regulations of the Fourteenth Schedule to the Income Tax Ordinance are prescribed.
For tax reasons, SMEs are divided into two categories:
- Category —I: SMEs with a turnover of Rs 100 million would pay tax on 7.5% of their taxable income.
- Category – II: SMEs with turnover exceeding 100 million rupees and up to 250 million rupees would pay tax on 15% of their taxable income.
Another important feature of this regime is the ability to pay taxes on the basis of sales in the final tax regime.
- Category —I SMEs whose sales do not exceed Rs 100 million may pay tax on 0.25% of their sales.
- Category II SMEs with sales exceeding 100 million rupees and up to 250 million rupees may choose to tax 0.5% of their sales.
It is also specified that the provisions of article 113 do not apply and that the taxes deducted under article 153 are not a minimum tax.
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In addition, the taxes to be collected on the import of equipment, machinery, and raw materials in accordance with Article 148 will be adjusted if the manufacturing SME is an industrial enterprise.
The export earnings of SMEs are taxed at the reduced rate of 0.25% and 0.5% final tax, depending on the category.
SMEs must obtain a reduced rate certificate from the relevant commissioner, FBR further added.
