Rules for computation of profit and gains for SMEs

Rules for computation of profit and gains for SMEs

ISLAMABAD: Rules have been issued for computation of profit and gains of Small and Medium enterprises (SMEs). The SMEs shall be required to register with the Federal Board of Revenue (FBR) on its IRIS web portal.

The SMEs are also given option to register with Small and Medium Enterprises Development Authority on its SME registration portal (SMERP).

There shall be following two categories of small and medium enterprises and tax on their taxable income shall be computed at the tax rates given in the table below:

Category – 1: Where annual business turnover does not exceed Rs100 million, the tax rate shall be 7.5 per cent of taxable income

Category – 2: Where annual turnover exceeds Rs100 million but does not exceed Rs250 million, the tax rate shall be 15 per cent of taxable income

The Finance Bill 2021 proposed definition of Small and Medium enterprises as:

—a person who is engaged in manufacturing as defined in clause (iv) of sub-section (7) of section 153 of the Ordinance; and

—his business turnover in a tax year does not exceed two hundred and fifty million rupees.

Subject to a condition that if annual business turnover of a small and medium enterprise exceeds two hundred and fifty million rupees, it shall not qualify as small and medium enterprise in the tax year in which annual turnover exceeds that turnover or any subsequent tax year.

The Bill proposes a new section read with Fourteenth Schedule which shall deal with the computation and payment of tax for small and medium enterprises (SMEs) for tax year 2021 and onward as per the procedure laid down.

Option for final tax regime

—The small and medium enterprises may opt for taxation under final tax regime at the rates given in the table below

Category – 1: Where annual business turnover does not exceed Rs100 million, the rate of tax shall be 0.25 per cent of gross turnover

Category – 2: Where annual business turnover exceeds Rs100 million but does not exceed Rs250 million

—Option under this rule shall be exercised at the time of filing of return of income and option once exercised shall be irrevocable for three tax years. The provisions of section 177 and 214C shall not apply to SME who opts for taxation under Final Tax Regime.

SMEs that opt for taxation under normal law may be selected for tax audit through risk based parametric computer ballot under section 214C of the Ordinance if its tax to turnover ratio is below tax rates specified in these rules.

The cases selected under audit of this rule shall not exceed 5 per cent of the total population of SMEs whose tax to turnover ratio is below tax rates given in these rules.

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