Taxation of Small Traders

Section 99B “Special Procedure for Small Traders and Shopkeepers” and 99C “Special Procedure for Certain Persons” were inserted in Income Tax Ord. 2001 to facilitate the small traders, shopkeepers and other small businesses. Section 99B and 99C facilitate the said persons in respect of Tax Filings, Assessments, Tax Calculations, and Ease in Tax Returns Filings, Bookkeeping and Accounting Requirements and relaxation in other compliance requirements.

Further relaxation is given to small businesses through Finance Act 2020 by further enhancing the threshold of Rs. 50 Million Annual Turnover to 100 Million Annual Turnover to fall in the criteria of Withholding Agent (For Individuals and AOPs) under Section 153 of Income Tax Ord.

Furthermore, withholding tax implications are not applicable on small scale business transactions where transactions of sale of goods and provision of services do not exceed the limit of Rs. 75,000 and 35,000 in a financial year respectively

Furthermore, Section 153(5) states that subsection 1 shall not apply on:

1. Sale of goods where the sale is made by the importer of goods and tax under section 148 with respect to these goods has been paid and the goods are sold in the same way they were when they were imported
2. Payments made to traders of yarn by the taxpayers specified in the zero rated regime of sales tax

According to Second Schedule Part II, reduction in tax rates, under clause 28D, the rate of minimum tax under section 113 for tax year 2020, shall be 0.5% in case of a trader having a turnover of one million rupees, provided that the tax liability of the traders for tax year 2019 and 2020 in case of traders who filed their return of income tax for the year 2018 shall not be less than the tax paid in 2018. According to Clause (28E), the rate of minimum tax under section 113 for tax year 2020, shall be 0.5% in case of a trader of yarn being an individual.

Specified by Second Schedule, Part IV, Exemptions from Specific Provisions, under clause 45A, (a) the rate of deduction of the withholding tax under clauses (a) and (b) of sub-section 1 of Section 153, shall be 1% on local sales, supplies and services rendered to the taxpayers in the following categories of sales tax zero rated taxpayers, namely, textile and articles, carpets, leather and articles, surgical goods and sports goods, provided that the rate of deduction of withholding under clauses (a) and (b) of subsection 1 of section 153 shall be 0.5% on local sales, services and supplies made by traders of yarn.

Clause 46AA states that provisions of Section 153 shall not apply to the following persons on receipts of payments, namely,

1. The Provincial Government
2. A Local Authority
3. Persons who are residents of Azad Kashmir and execute contracts in Azad Kashmir only and produce a certificate to this effect from the concerned tax authority
4. Persons receiving payments from a company or an association of persons having a turnover of fifty million rupees or more or from an individual having a turnover of fifty million rupees or more exclusively for the supply of agriculture production fit to be taken to the market
5. Companies receiving payments for the supply of electricity and gas
6. Companies receiving payments for the supply of crude oil
7. Hotels and restaurants receiving payments in cash for food or accommodation or both
8. Shipping companies and air carriers receiving payments for the supply of passenger tickets and for the cargo charges of the goods transported
9. Individuals who are not registered under section 181 of the Ordinance receiving payments for the supply of sand, bricks, grit, gravel, crushed stone, soft mud or clay
10. Artisans, electricians, plumbers surface finishers, carpenters, painters or daily wagers receiving payments with respect to rendering services to the construction sector.