In a bid to support and promote the growth of Small and Medium Enterprises (SMEs), the Federal Board of Revenue (FBR) has introduced special provisions under Section 100E of the Income Tax Ordinance, 2001.
The amendment, incorporated through the Finance Act, 2021, outlines a tailored approach for calculating and paying taxes by SMEs, recognizing their unique contributions to the economy.
The text of Section 100E of the Income Tax Ordinance, 2001, reads as follows:
100E. Special provisions relating to small and medium enterprises.— (1) For tax year 2021 and onwards, the tax payable by a small and medium enterprise as defined in clause (59A) of section 2 shall be computed and paid in accordance with rules made under the Fourteenth Schedule.
(2) The Board may prescribe a simplified return for a small and medium enterprise.
This section signifies a departure from the conventional tax framework for businesses, acknowledging the distinct characteristics and challenges faced by SMEs. The focus is on simplifying tax compliance procedures and providing a more conducive environment for the growth of small and medium-sized businesses.
Key features of Section 100E and the special provisions for SMEs include:
1. Definition of SMEs: The tax treatment outlined in Section 100E is applicable to small and medium enterprises, as defined in clause (59A) of section 2. This definition is crucial in determining the eligibility of businesses to avail themselves of the special provisions.
2. Tax Computation Rules: The tax payable by SMEs for tax year 2021 and onwards will be computed and paid in accordance with rules made under the Fourteenth Schedule. These rules are expected to provide a more tailored and simplified approach to tax calculations for SMEs.
3. Simplified Return: The FBR is empowered to prescribe a simplified return specifically designed for small and medium enterprises. This initiative aims to reduce the administrative burden on SMEs and streamline the tax filing process.
The introduction of Section 100E reflects the government’s commitment to fostering a business-friendly environment, particularly for SMEs that play a vital role in economic development, employment generation, and innovation.
Director General of FBR, speaking about these provisions, emphasized that the special treatment for SMEs is a strategic move to recognize their significance and encourage their active participation in the formal economy. He highlighted that SMEs often face unique challenges, and the streamlined tax provisions aim to address these challenges, allowing SMEs to focus on growth and expansion.
President of the Small and Medium Enterprises Association, while welcoming the initiative, stated that the introduction of Section 100E is a positive step towards creating an enabling environment for SMEs to thrive. He expressed optimism that the simplified tax procedures would contribute to the growth of SMEs and enhance their competitiveness.
The business community and stakeholders are encouraged to stay informed about the specific rules under the Fourteenth Schedule that will govern the tax computation for SMEs. The simplified return, once prescribed by the FBR, is expected to further ease the compliance burden on SMEs, fostering a more inclusive and dynamic business landscape in Pakistan.
