SMEs given option to opt out of audit

KARACHI: Small and Medium Enterprises (SMEs) would be able to avail exemption from audit if they opt for the Final Tax Regime (FTR), the Finance Bill has proposed.

It is proposed that SMEs can also opt to be taxed under the FTR. The said option is required to be exercised at the time of returns filing and the same will be irrevocable for three tax years.

The SMEs who opt to be taxed under FTR will not be subject to the tax audit under sections 177 and 214C. The Finance Bill has proposed 0.25 percent of gross turnover as the final tax for SMEs having a turnover of up to Rs100 million; and 0.5 percent of gross annual turnover for SMEs having annual turnover of more than Rs100 million to Rs250 million.

Moreover, SMEs who opt for taxation under the normal law can be selected for the tax audit through a risk-based parametric computer ballot if its tax to turnover ratio is below the tax rates prescribed for FTR; however, the cases selected will not exceed 5 percent of the total population of SMEs whose tax to turnover ratio is below the tax rates prescribed for the Final Tax Regime.

The Finance Bill also proposed the introduction of a new tax regime for the Small and Medium Size Enterprises (SMEs) for the tax year 2021 and onwards.

SME is defined to mean a person who is engaged in manufacturing as defined in section 153 of the ordinance and his business turnover in a tax year does not exceed Rs250 million.

SME is required to register with the FBR on the IRIS web portal or the Small and Medium Enterprises Development Authority (SMEDA) on its SME registration portal. A company covered by the definition of SME will not qualify as a ‘small company.

In case, annual business turnover exceeds Rs250 million, it will cease to be an SME for such tax year and onwards. It also proposed that a simplified return for such SMEs may also be prescribed by the Federal Board of Revenue.