Finance Minister urged to lessen burden of taxes on Small and Medium Enterprises

Karachi, July 03, 2013 (PPI-OT): The Union of Small and Medium Enterprises (UNISAME) invited the immediate attention of the federal finance minister (FM) Ishaq Dar to the direct and indirect taxes imposed on the SMEs and urged him in the interest of equity, fairness and justice to relieve the under privileged from the extra burden by reducing it with expert advice. UNISAME urged him to spare the majority sector which is hand to mouth and finding it difficult to survive and remain in business.

President UNISAME Zulfikar Thaver pointed out that with the increase in sales tax and income tax the SMEs are heavily burdened and would not be able to cope up especially due to deteriorating law and order and depressed economy.

He invited the attention of the FM to the fact that the cell phones are not a luxury but a necessity and a tool for the small entrepreneur and this facility need not be heavily taxed as it promotes business due to effective communication. The land lines are in miserable condition and the cell phones are reliable and with the 42.5% taxes the subscribers will be paying through the nose.

The finance committee (FC) of UNISAME has pointed out the changes made in Sales Tax and Income Tax are as under:

The General Sales Tax is increased from 16% to 17%.

Sales made to Unregistered Person (Those person who are not registered with the Sales Tax Department), Sales Tax to be collected @ 19%. Commercial Importers will suffer the extra 2% burden as they are already paying an additional 3% Sales Tax as Value Addition Tax on Imports. This will also increase chances of corruption as this increase in tax will attract the nuisance of flying invoices.

All Person registered with the Sales Tax Department to become Income Tax Withholding Agents/Deducting Authorities for collection of Withholding Tax on Supplies, Services, Brokerage and Commission etc. This will benefit the Revenue Department as concealment of sales or receipts would be eradicated. Negative impact would be increase in maintenance of documentation and compliance, which is an extra burden on Small and Medium Business entities.

Another important amendment in Sales Tax is that the 5 Sectors on which Sales Tax was being charged at a reduced rate of 2% and/or 5%, finished goods of these Sectors are to be charged at normal rate of 17%. (Including Textile, Surgical goods, sports goods, foot wear etc.

Since 14th of February, all Limited Companies (Private or Public both) and all Sales Tax Registered Persons who are registered as Exporters (whether engaged in exports or not) have become Sales Tax Withholding Agents, i.e they have to deduct 20% of Sales Tax Input on their Purchases.

Since 01st of March, 2013, all textile products have been charged to Sales Tax @ 2%. Raw Material, Processing, Finishing, Dyeing etc.

Additional Charge of Sales Tax @ 5% on Commercial and Industrial Electric Consumers not registered with the Sales Tax Department, if their bill exceeds Rs. 15,000.00 per month. (This is to put extra burden on those entities which are not liable to be registered with the Sales Tax Department).

Retail Sale of Certain goods such as Textile including garments, Sports wear, foot wear, house hold electrical goods, house hold gas appliances, Auto spare parts even biscuits, chocolates are charged to Sales Tax @ 17% effective from 13th of June, 2013.

Amendments in Sales Tax Act, 1990 in general have inflated the prices of consumer goods and definitely put an extra burden of documentation on SMEs was the unanimous opinion of the FC of the union.

Regarding Income Tax the following changes have been made

The highest rate of tax on Individual and AOPs have been increased to 35% from 25%.

Small Company on which tax was charged at a straight rate of 25% have been increased to 34%.

Income Tax Withholding rates are increased such as on supplies from 3.5% to 4%, on services from 6% to 7%, on cash withdrawal from bank from 0.2% to 0.3%.

A new way of Withholding Tax is being introduced wherein the deducting authority shall deduct Income Tax on Sales which is quite ambiguous as a Person has to pay Income Tax on both Purchase and Sales.

Minimum Tax on the Income of Certain Persons such as Retailers and those taxpayers whose turnover exceeds Rs. 50 Million in a year has been increased to 1% from 0.5%.

An increase has been made in the Income Tax on Motor Vehicle collected by the Provincial Government on behalf of Federal Board of Revenue.

Abolishment of 75% Tax Rebate on the Income of Teachers and Researchers. This is totally unfavorable to those people who have no other source except for teaching.

Introduction of Withholding Taxes on Aarthis/brokers of food, fruits and vegetable agents etc.

Introduction of Wealth Tax on Moveable Assets of a Tax Payer (if exceeds Rs. 1 Million during the year) @ 0.5%. This amendment is mostly criticized as Income Tax has already been paid on these assets. Moveable Assets includes, Cash in Hand, Cash at Bank, Fixed deposits, SSCs, DSCs, Shares, Debentures, any other investments, motor vehicles, advances and prepayments, assets on the name of spouse or children etc.

Mandatory filing of Wealth Statement along with Reconciliation of Net Wealth of all Tax Payers with their filing of Annual Return of Income.

All in all, the amendments in Income Tax are excessive in nature and will put extra burden specially on SMEs said Zeeshan Syed member of the FC of UNISAME

The FC of the union has sought time with the FM to discuss ways and means to reduce the impact on the SMEs and urged the FM to spare time for meeting before the sector is commercially weakened.

For more information, Contact:
Union of Small and Medium Enterprises (UNISAME)
75/1 3rd Commercial Street,
Phase IV, D.H.A., Karachi, Pakistan
Phones: + 92 35884225 and 6
Cell: + 92 300 8245307 and + 92 321 8245307
Fax: + 92 35380642