Small and medium enterprises (SMEs) play a vital role in the Pakistani economy. They account for over 90% of all businesses in Pakistan and employ over 80% of the workforce. In order to encourage the growth of SMEs, the government of Pakistan has introduced a number of income tax benefits for SMEs.
Types of SMEs
The government of Pakistan defines an SME as a business with involved in manufacturing with an annual turnover of less than PKR 250 million. SMEs are further classified into two categories:
- Micro enterprises: These are businesses with an annual turnover of less than PKR 50 million.
- Small enterprises: These are businesses with an annual turnover of between PKR 50 million and PKR 250 million.
Income Tax Benefits for SMEs
The government of Pakistan offers a number of income tax benefits for SMEs, including:
- Tax-free threshold: SMEs with an annual turnover of less than PKR 10 million are exempt from income tax.
- Lower tax rates: SMEs with an annual turnover of between PKR 10 million and PKR 250 million are subject to lower income tax rates than other businesses.
- Investment allowance: SMEs that invest in new plant and machinery are eligible for an investment allowance of 50% of the cost of the investment.
- Relief on export income: SMEs that export goods or services are eligible for a relief on export income of 10%.
- Waiver of advance tax: SMEs are not required to pay advance tax on their income.
- Tax withheld under section 153 is adjustable
The government of Pakistan has introduced a number of income tax benefits for SMEs in order to encourage the growth of SMEs. These benefits can provide SMEs with significant savings on their income tax bill, which can help them to grow their businesses and create jobs.