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SAZH-TAF Report on FDI

Industry - SME

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Pakistan does not offer substantial protections to its Small and Medium Enterprises. This issue shared by our expert in TUV Austria became apparent from the fact that often SMEs are taxed as much as big businesses, which impacts their growth.

 

He highlighted that Pakistan’s service sector is 56% of our GDP and we imposed the greatest tax on it. There is a perception according to him that the economic plan seems to be to take care of certain textile industries and ignore the collective contribution of others. He made a comparison with Singapore, which has a phenomenal reputation of collection and conviction as regards to taxation. He shared that we have a complex taxation regime with varying degrees of taxes including service tax, corporate tax, and minimum tax summing to 30% tax the entire year, then 15% tax on dividends and now we have super taxes. Due to this burden, and the lack of education amongst the population on tax management, people attempt to evade taxes rather than manage them.

 

He continued that when it comes to SME protection, in the service sector, a minimum tax on revenues is imposed. The tax deducted, over, and above, liability cannot be claimed in cash. If you have an invoice of PKR 100,000/-, then in Punjab 13%, in Sindh 12%, in KPK 13%, and ICT 14% of taxes are imposed. Apart from the invoice, TUV and other companies are required to submit sales tax within 30 days. Whereas, he compared with their office in Bangladesh in which, when an invoice is sent with an added GST amount, then the onus of paying that tax (services) is on the user/consumer, not his company. He said that all over the world, services tax is paid by the consumers. Thus, in Pakistan, he shared that all the burden is placed on the company providing the service, possibly because collection-wise it is an easy target. He complained that Pakistan does not even have a single portal for all the provinces on taxes. This places an additional burden on SMEs who may not have the information or infrastructure to handle such operations.

 

He shared that such onerous requirements and inequal burden, results in startups and SMEs leaving Pakistan.


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