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Men, women entrepreneurs: SME policy envisages big incentives

  • The annual turnover for category I SMEs has been proposed at Rs100 million while in category II, annual sales turnover will be between Rs100 million to Rs250million
Updated 14 Nov, 2021

ISLAMABAD: The Economic Coordination Committee (ECC) is all set to approve Small and Medium Enterprises (SMEs) Policy 2021-25 on Monday (tomorrow), proposing extensive incentives both for men and women entrepreneurs.

Well informed sources told Business Recorder that tax reduction will be given from 67 per cent to 83 per cent; whereas minimum turnover tax will be 0.25 per cent and 0.5 per cent or flat tax rate of 7.5 per cent and 15 per cent.

There will be presumptive regime without any audit and sans harassment; online and simple tax filing, with inclusion of IT and ITES, and gradual reduction in withholding tax with corresponding increase in formalization, sales/ Income Tax receipts.

The annual turnover for category I SMEs has been proposed at Rs100 million while in category II, annual sales turnover will be between Rs100 million to Rs250million.

The banks will fix credit line of Rs60 billion under SME Asaan Finance Scheme (SAAF) for collateral-free lending. Each SME will be get loans up to Rs 10 million, with three years' tenure.

The number of borrowers will be approximately 30,000, while credit risk guarantee will be 40-60 per cent. The government will also extend a subsidy of Rs25 billion.

The sources said that collateral-free financing for SMEs will be based on size, sector, geography and gender.

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The new SME policy has proposed 19,584 plots for SMEs, of which 1380 plots will be allocated in National Industrial Parks, 5,675 in KpK, 11,892 in Punjab and 637 in Balochistan.

For women entrepreneurship development, 25 per cent tax reduction in tax liability for income from business where banking will be based on equality policy for financial inclusion of women. Women specific business incubation will be established along with display facilities with business development support programs.

Four measures have been proposed for market access: (i) for local market access, option of bid declaration in lieu of bid security; (ii) facilitation for SMEs access to international markets; (iii) preservation in public procurement for SMEs; and (iv) export readiness & E- Tijarat program.

According to sources, there is also a proposal to give SME cards to the eligible entrepreneurs but final decision will be at the level of federal cabinet. For policy implementation, a SME Development Fund will be established which will extend grants for technology/ product improvement, certification & accreditation, market access, training, business development services, etc.

Periodic review, corrective measures and engagement with private sector to design demand driven SME development programs is also envisaged in the proposed policy.

According to the summary to be considered by the ECC, there are over 5.2 million SMEs in the country, as per the estimates from the census of Economic Establishments of 1988 and 2005.

The SME sector comprises many small businesses that are more widely distributed and, hence, cover marginalized areas more than large firms.

The development of SMEs is; therefore, critical for both economic and social development. Pakistan's first National SME Policy was rolled out in 2007. However, it could not be sustained beyond a year or so.

Moreover, the changing business environment has necessitated its review. Since 2007, there have been major innovations in digital technology which have transformed the market place.

Digital platforms such as e-commerce and innovations in financial technology are fast changing the nature of transactions of goods and services, supplied both in domestic and international markets.

Realizing this, Small and Medium Enterprises Development Authority under the auspices of Ministry of Industries and Production (MolP) initiated the process to formulate a new SME Policy.

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Accordingly, Small and Medium Enterprises Activity (SMEA), a project funded by United States Agency for International Development (USAID), was tasked with formulating the draft SME Policy, based on the evidence gathered from a field survey of over 200 SMEs and interviews with relevant private and public sector stakeholders.

In order to propose interventions for a geographically and socially inclusive growth, Mol&P conducted detailed discussions with relevant associations and chambers of SMEs.

Deliberations with FPCCI, key chambers of commerce & industry (SCCI, LCCI, KCCI, Small traders Chambers, etc.) and trade associations (Pharmaceuticals, IT & ITES, Auto parts, Gem Stone, Marble, Home Textile, Light Engineering, Leather, Surgical, Sports Goods, Cutlery, Furniture, Ceramics, etc. (2019-21).

Moreover, a National Coordination Committee (NCC) on SMEs development including the relevant stakeholders was notified on August 12, 2020 by the Prime Minister's Office. Eight meetings of the NCC on SME were held, wherein deliberations were done and aboard policy goals translated into specific action plans.

Further, policy goals are being focused by NCC on: (i) improving regulatory infrastructure and introduction of re-inspection portal for businesses; and (ii) provision of incentives for SMEs through formation of an SME card.

Under the policy following specific interventions have already been made by the Government: (i) financial SME Assan Finance (SAAF) Scheme -SBP; (ii) fiscal taxation- FBR; and (iii) regulatory guillotine - BoI.

Copyright Business Recorder, 2021

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