The Federal Board of Revenue (FBR) announced a special tax regime for manufacturing sector small and medium enterprises from July 1, 2021.
The FBR released the details of the fixed tax scheme for the manufacturing SMEs.
According to the FBR, the SMEs have been defined in clause (59A) of section 2 as manufacturing enterprises irrespective of their status as an individual, AOP or company having turnover up to Rs. 250 million. The manufacturing SMEs being companies falling under this definition have been excluded from the definition of small companies.
Under the new legal framework for the SMEs, the enabling legal provision has been provided in section 100E and Fourteenth Schedule of the Ordinance. Board has been empowered to prescribe simplified return form for such SMEs.
The rules for taxability of the SMEs revealed that the rules have been prescribed in Fourteenth Schedule of the Income Tax Ordinance. The SMEs have been divided into two categories for taxation purposes:
Category —I: SMEs having turnover upto Rs. 100 Million would pay tax at 7.5% of their taxable income.
Category — II: SMEs having turnover exceeding Rs. 100 Million and upto Rs. 250 Million would pay tax at 15% of their taxable income.
Another salient feature of this regime is the option to pay tax on turnover basis under final tax regime.
Category —I SMEs having turnover up to Rs. 100 Million may opt to pay tax at 0.25% of their turnover.
Category — II SMEs having turnover exceeding Rs. 100 Million and up to Rs. 250 Million may opt to pay tax at 0.5% of their turnover.
It is also clarified that provisions of section 113 shall not apply and tax deducted under section 153 shall not be minimum tax. Moreover, tax collectible under section 148 on import of plant & machinery and raw material shall be adjustable in case of manufacturing SME being industrial undertaking.
The export proceeds of SMEs shall be taxed at the reduced rate of 0.25% and 0.5% final tax on the basis of their category. The SMEs will be required to obtain reduced rate certificate from concerned Commissioner, FBR added.