Karandaaz launches report on 'The State of Business Taxation in Pakistan - Challenges for SMEs'.

LAHORE -- Karandaaz Pakistan arranged a webinar on Wednesday to launch its latest study on The State of Business Taxation in Pakistan - Challenges for SMEs. The report provides detailed analysis on the hurdles Pakistani SMEs face when attempting to become tax-compliant, the rules that govern taxation in the country and recommends ways responsible authorities can streamline taxation policy while establishing efficient processes for collection to establish a more optimal tax regime. SMEs are regularly touted as the backbone of the country's economy, contributing more than 70% of employment and approximately 25% of the country's exports. At the same time, however, Pakistani SMEs tend to remain largely outside the formal economy. Estimates for Pakistan's undocumented or shadow economy range from 35% to 56% of the country's official gross domestic product (GDP). Another even stronger indicator is provided by data from the Federal Board of Revenue (FBR), Pakistan's supra tax collection and enforcement authority. Though a recent census of business establishments has not been conducted, proxy data suggests that there could be close to 5.2 million SMEs in Pakistan. Yet, according to the FBR's 2018 filing data, only about 64,000 associations of persons (AOPs) filed returns. This indicates that only a handful of SMEs are registered with the national tax collection agency.

The SMEs interviewed for this study cited the burden of tax compliance as a bigger hurdle than the actual tax paid or the high tax rates associated with it. Without the adequate resources and skillset for timely compliance with tax obligations, SMEs end up having to pay penalties. In many developing economies, compliance costs are a major deterrent to tax filing and deciding to become 'formal.' Evidence collected during the study suggests that, first and foremost, the tax authorities must move beyond revenue-centricity towards the goal of building a cohesive, collaborative, and simplified tax regime that eliminates all the 'noise' in the system.

To do so, the report contains numerous recommendations, including harmonization of policy across jurisdictions; strengthen handholding and facilitation of SMEs via heavy investment in systems that can be integrated across the government machinery so that data can 'talk'; adopt automation and smart regulation that is accessible to SMEs; and institute painless tax administration that reduces tax compliance burdens.

CEO Karandaaz, Waqas ul Hasan...