Ahmed Khan Malik 

KARACHI: The small and medium enterprises (SMEs) in Sindh have urged the government to create a five-year fiscal policy framework that includes annual reviews to ensure it can adapt to changing economic conditions and policy priorities, according to WealthPK. At present, the province lacks a comprehensive long-term fiscal policy framework, which results in inconsistent fiscal planning and implementation, the SMEs Association of Sindh noted in its recommendations for the upcoming budget. The Association was also calling for the harmonization and amalgamation of tax rates, the number of levies, and collection systems at both the provincial and federal levels. Due to the complexity of the current taxation system, businesses must meet various conditions to comply with tax regulations. Many SMEs are not equipped to handle the legal and regulatory documentation and compliance requirements associated with taxation. Additionally, the Association was asking for SMEs to be prioritized for pending payments of sales tax and duty drawback refunds. They argued that the refund process needs to be simplified, as a significant backlog of income tax refunds has accumulated, and the processing speed is critically slow.

The delays in refund payments cause a shortage of working capital for businesses. The Association suggested eliminating 45 lines from the Withholding Tax (WHT) system due to their minimal contribution. They also propose gradually reducing WHT rates for small and medium businesses as defined in the National SME Policy 2021. Withholding Tax currently consists of 88 lines, but 45 of these contribute less than 1% to the direct tax revenue. Furthermore, the Association recommended revisiting the concept of the withholding agent and allowing them a tax credit of 10 percent for the tax they collect and deposit. Under Serial # 4 of the Eleventh Schedule to the Sales Tax Act, 1990, withholding agents, including every incorporated company in Pakistan, collect tax on behalf of the FBR and deposit it into government accounts. They also advocated for the abolition or amendment of legislation to exempt properties under civil litigation and unpartitioned properties from taxation under section 7E of the Income Tax Ordinance, 2001. They suggested revising the thresholds or exemptions to reduce the burden on taxpayers and align with the goal of promoting economic development.

Currently, taxation is imposed on deemed income from capital assets exceeding Rs25 million, with certain categories and taxpayers, particularly those already subject to high tax rates, finding this additional levy unjustified. The Association proposed waiving the regulatory duty on all types of raw materials and withdrawing the related SROs. Instead, they recommended imposing regulatory duty on specific finished products to protect local industries. The existing regulatory duties on industrial raw materials negatively impact small, growing industries and exporters. They also recommended reducing customs and tariff fees on pottery exports to boost competitiveness, especially for small businesses, and promoting uniform export duty structures across countries to facilitate long-term business planning. High customs and tariff fees on pottery exports hinder the sector's global competitiveness, and inconsistent export duty structures complicate planning. Lastly, the SMEs Association of Sindh seeked the removal of duties on imported raw materials to lower production costs and enhance the competitiveness of domestic industries. Duties on raw materials that are not available in Pakistan increase production costs and impede competitiveness.

Credit: INP-WealthPk