Mr. Sohail Hasan, Income Tax SME by MichaelChoate

VIEWS: 11 PAGES: 27

									Taxation of SME’s
T    ti    f SME’
Salient Points

 There is no uniform definition for SME’s
   d       i    tax laws. Th h ld vary
 under various t l         Thresholds
 No single tax on SME’s. Multiple taxes
 With multiple taxes system becomes
 complex for SME’s. Capacity issues arise
 S t         d t b      ti    li d
 System needs to be rationalised
Types of taxes

 Income Tax
 Sales tax
 Federal Excise Duty
 Customs Duty
Types of Entities

 Proprietor - Individual
 Partnership - Association of Persons (AOPs)
 Limited Company- Single member or Small
 Company
Types of Businesses

 Retail
 Manufacture
 Services
 Exports
 Contractor
Individuals d AOP
I di id l and AOPs
Income tax

Retailers are of two types.

    Retailers with turnover upto Rs 5m

    Retailers with turnover more than Rs 5m and who
            j        p                     y
    are subject to Special Procedure for Payment of
    Sales Tax
Individuals d AOP
I di id l and AOPs
Income tax

If Retailer with turnover upto Rs 5m

  Option: Pay final tax at 0.5% of turnover or be assessed
  under normal regime

  N adjustment for taxes witheld
  No dj t    tf t         ith ld

  If importer final tax also generally at 4% of import value

  If option not exercised net income determined under ITO
  2001. If income > Rs 100k tax levied at graduated scale at
  rates ranging from 0.50% to 25%
Individuals d AOP
I di id l and AOPs
Income tax

If Retailer with turnover > Rs 5m and subject to
Special Procedure for Payment of Sales Tax

 Final Tax at following rates
     Turnover > Rs 5m but < Rs 10m – Rs 25k plus
     0.5% of turnover exceeding Rs 5m
     Turnover > Rs 10m – Rs 50k plus 0.75% of
     turnover exceeding Rs 10m
Individuals d AOP
I di id l and AOPs
Income tax

   But sales on which tax deducted or
   deductible t 3.5% t included in turnover
   d d tibl at 3 5% not i l d d i t
   but liable to tax at 3.5%
         i     t fi l t           ll l      t
   If an importer final tax generally also at 4%
   of import value
   No adjustment for other taxes witheld at
   source
Individuals d AOP
I di id l and AOPs
Income tax

What is a Retailer
 Retailer means an individual or an AOP
 selling goods to the general public for
           ti
 consumption
 Turnover means gross receipts excluding
        tax,
 sales tax FED and discounts shown on
 invoices
Individuals and AOPs
Income tax

Manufacturer
 •   Goods        hi h ith ldi t d d t d            d d tibl
     G d on which witholding tax deducted or deductible
     at source, generally 3.5% treated as final tax
 •   On balance net income if > Rs100k at graduated rates
          ifi d for individuals d AOP
     specified f i di id l and AOPs
Services
 •                              g                   p
     On net income if > 100k at graduated rates except
     brokerage and commission. Taxes witheld at source
     treated as minimum tax
 •           g
     Brokerage and commission -10% - This is Final Tax
Individuals d AOP
I di id l and AOPs
Income tax

Exporter - Final Tax
   •   Foreign exchange proceeds at 1%
   •   Indirect exporter proceeds at 1%
   •   Commission proceeds at 5%
   •   Stitching, dyeing, printing, embroidery, washing, sizing
       and weaving services to an exporter at 0.5%
CNG – Final Tax
   •   Gas consumption bill at 4%.
Contracts other than for services and goods
   •   Contracts on which witholding tax deducted - 6%. This
       is Final Tax
Individuals d AOP
I di id l and AOPs
Witholding tax provisions

Witholding tax applies on payments if made to
individuals or AOPs by prescribed persons:
  –   Sale of rice, cotton seed, edible oils 1.5%
  –         g
      Other goods 3.5%  %
  –   Contracts other than for goods
      and services 6%
  –   Transport services 2%
  –   Other services 6%
Individuals d AOP
I di id l and AOPs
other provisions

 AOPs only liable to withold tax if turnover > Rs 50m
 from payments
 Could be liable to file returns if taxable income other
 than Final Tax income exceeds minimum taxable
 amount
 Could be liable to pay advance tax if latest assessed
 taxable income other than Final Tax income> Rs
 200k
 Statement for income subject to Final Tax to be filed
 If Final Tax > Rs 20k wealth statement also to be
 filed
Small C
S ll Company
Income Tax

What is a Small Company:
  •   Registered on or after July 1,2005 under CO 1984
  •   Paid up capital plus reserves < Rs25m
  •   E l                 t
      Employees <250 at any ti       in tax
                                time i t year
  •   Turnover < Rs250m
  •                  splitting
      Not formed by splitting, reconstitution of an
      existing company
Small C
S ll Company
Income Tax

Retail
   •   3.5% t      ith ld t                d    ld treated
       3 5% tax witheld at source on goods sold t t d
       as Final Tax
   •        p                                        p
       If importer also liable to 4% Final Tax on imports
   •   On balance net income as determined under ITO
       2001 taxable at 20%
Manufacturer but not exporter
   •   On net income as determined under ITO 2001
       taxable at 20%
Small C
S ll Company
Income Tax

Services
  •   On net income at 20% except brokerage and
      commission. Taxes witheld at source could be
      treated as minimum tax
  •   Brokerage and commission -10% - This is Final
      Tax
Small C
S ll Company
Income Tax

Exports – Final Tax
  •   Foreign exchange proceeds at 1%
  •   Indirect exporter proceeds at 1%
  •   Commission proceeds at 5%
      C      i i           d t
  •   Stitching, dyeing, printing, embroidery, washing,
           g             g                  p
      sizing and weaving services to an exporter at
      0.5%
Small C
S ll Company
Income Tax

 Liable to file tax return irrespective whether
 i
 income or l loss
 Liable to withold tax from payments
 Liable to suffer witholding tax on receipts
 Liable to pay advance tax
Sales T
S l Tax
What is Sales Tax

 Tax on goods sold or imported
 Provincial sales tax on certain services
 Rates generally vary from 16% to 21% but
 some goods charged at fixed rates. Special
 rates for Retailers if turnover > Rs 5m
Sales T
S l Tax
What is Sales Tax

 Tax levied at time of sale on value of supply
 Tax on sale is called ‘output tax’
 Sales tax paid on purchases used in goods
 sold is called ‘input tax’
 Input tax is set off against output tax. The net
         ti    id        ti     f     d to
 amount is paid sometimes referred t as th   the
 VAT mode
Sales T
S l Tax
What is Sales Tax

    Goods are either:
      Liable to sales tax
      Exempt from sales tax
      Zero rated
      Z       t d
•   Input tax paid on exempt goods cannot be
    refunded
•   Input tax on zero rated goods can be
    refunded.
    refunded Exports are zero rated
Sales Tax
Registration required for making taxable or
zero rated supplies

  Manufacturers not being a cottage industry
  Retailer if value of sales in any 12 month tax
  period > Rs 5m. If less exempt from sales tax
  Importer
  Wholesaler including dealer and distributor
  Commercial exporter who intends to obtain
  sales tax refund
Sales Tax
Cottage Industry

 Is a manufacturer:
     whose turnover in any 12 month tax period is
    less than Rs 5m or
    whose utility bills in any 12 month tax period is
    less than Rs 700k
Provincial Sales Tax
P   i i lS l T
Services

 Provincial sales tax generally at 16% on
     i        h
 services such as:
  –   Caterers
  –   Hotels and clubs
  –   Custom agents
  –   Ship chandlers and stevedores
  –   Courier
Federal Excise Duty

 FED is a duty on specified goods produced,
 manufactured or imported into Pakistan or on
 services rendered
    y
 Duty levied when such g               pp
                          goods are supplied or
 imported or service rendered
 Duty is levied at the rates prescribed for goods and
 services liable to duty
 There is also a Special Duty on certain goods at1%
Federal Excise Duty

 Duty is paid on net basis or in some cases
 like sales tax in the VAT mode
 Duty paid on sale value or sometimes
 prescribed value
 There is no threshold for exemption.
    y person engaged in manufacture of
 Any p           g g
 dutiable goods or providing dutiable services
 required to be registered
THANK YOU FOR YOUR ATTENTION

								
To top