ISLAMABAD: In a significant move to enhance the ease of doing business, the Federal Board of Revenue (FBR) has announced that taxpayers with a turnover below Rs100 million are now excluded from the mandatory collection and deduction of withholding tax.
The FBR said that this change in withholding tax regime is effective from July 1, 2020, as outlined in Income Tax Circular No. 03 of 2020, issued a day earlier.
The FBR explained that the Finance Act, 2020, introduced several amendments to the Income Tax Ordinance, 2001, aimed at reducing the compliance burden on smaller businesses.
One of the key changes, the FBR added, is the adjustment of the threshold for turnover, which determines the categorization of an individual or an association of persons (AOP) as a “prescribed person” under sub-section (7) of section 153 of the Ordinance. The threshold has been increased from Rs50 million to Rs100 million for the preceding tax year, the FBR said.
This amendment means that only those individuals or AOPs with a turnover of Rs100 million or above in the previous tax year will now be required to collect and deduct withholding tax under section 153 of the Ordinance. The FBR emphasized that this change is intended to simplify tax obligations and promote business activities by alleviating smaller taxpayers from the administrative burden of tax withholding responsibilities.
Additionally, the FBR continued the obligation to withhold tax under section 153 will now be limited to persons registered under the Sales Tax Act, 1990, who have a turnover of Rs100 million or more in any of the preceding tax years. Prior to this amendment, all sales tax registered persons, regardless of their annual turnover, were classified as prescribed persons for the purpose of tax withholding under section 153.
By raising the turnover threshold, the FBR aims to create a more favorable business environment, particularly for small and medium-sized enterprises (SMEs), which are often disproportionately affected by complex tax compliance requirements. This measure is expected to reduce the administrative burden on SMEs and allow them to focus more on their core business activities.
The FBR’s initiative reflects a broader effort to streamline tax procedures and foster a more conducive environment for business growth in Pakistan. The changes introduced through the Finance Act, 2020, are part of ongoing reforms aimed at improving the overall efficiency and effectiveness of the tax system.
