Ayesha Saba

Recent tax reforms have sparked concerns that they will have a debilitating effect on the performance of small and medium enterprises (SMEs), which are already reeling from challenging economic conditions. Talking to WealthPK, Raja Waseem, spokesman of Pakistan Industrial and Traders Associations Front (PIAF), said SMEs were the backbone of the economy, but unfortunately, the government had increased the tax on them from 35% to over 45%. “A new tax regime has sparked widespread concern among business leaders. The revised taxation policies, introduced ostensibly to streamline revenue collection, have instead placed a considerable burden on SMEs already grappling with economic challenges.” “Many SMEs struggle to secure financing due to stringent collateral requirements and high interest rates. By offering low-cost, collateral-free credit, the government can help these businesses invest in growth and innovation.

We need policies that encourage entrepreneurship and reward innovation, not those that stifle them.” He further emphasised that SMEs were crucial for job creation and economic dynamism. “Imposing high taxes without adequate support mechanisms could push many businesses into distress,” he warned. Majid Shabbir, an adviser to Islamabad Chamber of Commerce and Industry (ICCI), said taxing SMEs, which employ a significant portion of the workforce and contribute substantially to GDP, had drawn criticism from various quarters. “The new tax measures, including higher corporate tax rates and stricter compliance requirements, are overly burdensome and could stifle the sector’s growth. While we acknowledge the government’s need for revenue, these measures are counterproductive for SMEs, which form the backbone of our economy.”

“Higher taxes cutting into their margins make it increasingly difficult for SMEs to finance expansions, implement new technologies and develop their workforce. This limits their potential to innovate and grow, ultimately impacting their overall contribution to the economy,” Majid said. “The focus should be on creating a supportive regulatory framework that encourages formalisation. What we truly need is a programme that reforms and simplifies regulatory processes and reduces bureaucratic hurdles,” he remarked. He further argued that addressing the inherent disadvantages of the current tax system is crucial for fostering a more dynamic and robust economy. He emphasised the need for a more equitable tax environment. “Supporting the growth of SMEs through fair taxation will drive economic diversification and innovation, ultimately leading to higher employment rates,” he stressed.

Credit: INP-WealthPk