startup tax strategies
TRANSCRIPT
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Startup Tax Strategies
National Association of Pakistani Entrepreneurs
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Presentation overview• What does tax mean to a Startup?
• Which tax filings are due and when?• Under the Income Tax Laws.• Under the Sales Tax Laws.
• What do I need to do to get ready?
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What does tax mean to a start up?
• Everything including:
• Whether to enter the market or not?
• Payment structuring
• Profitability
• Compliances
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Which tax filings are due and when?
• Tax filings and due dates are driven by:
• Business entity type (Sole Proprietorship, AOP & Company)
• Where the business was formed and where it’s operating
• The fiscal or calendar year end chosen for tax reporting
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First things first
• What is the first thing that a Startup needs to do?
• Set up a legal entity and get it self registered with both Federal and Provincial Tax Authorities
• Before you register the entity it is mandatory to get yourself registered with the Federal Board of Revenue
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Requirements for national/ provincial tax numbers
• Application form.
• Copy of CNIC of Proprietor/ Partners/ Directors.
• Copy of Partnership deed/ Incorporation Certificate.
• Copy of last paid Electricity Bill.
• Account Maintenance Certificate from Bank.
• Rent Agreement, if premises is on rent.
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Income tax
• Tax on individuals income and income of the legal entity are governed by the Income Tax Ordinance, 2001 and Income Tax Rules, 2002
• ITO, 2001 and ITR, 2002 provide a mechanism on how to compute tax on income of persons, how to deposit tax and how to file monthly and annual returns.
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Who is required to file income tax returns?
• Every Company.
• Every person whose income exceeds Rs. 300,000/-.
• Every person who owns an immovable property with a land area of 250 yards or more.
• Every person who owns a motor vehicle having engine capacity above 1000CC.
• Every person who has a National Tax Number.
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Basic tax compliance for all entities
• Any salary more than Rs. 15,000/- to be paid through cross cheque.
• Deduct tax on any salary of more than Rs. 33,333/- per month.
• All payments of more than Rs. 10,000/- should be made through cross cheque.
• Filing of Monthly and Annual Salary Withholding Statements.
• Filing of Income Tax Returns and Wealth Statements.
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Additional tax compliances
• Sole Proprietorships and AoP’s having Annual Turnover of more than Rs. 50 million and Companies have to:
• Deduct tax when making payments for services or supplies received.
• Filing of monthly and annual withholding statements.
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Tax year and Tax rates
• Tax Year is mostly from 1st July to 30th June unless a person opts for a Special Tax Year.
• Progressive Tax Rates:
• Salaried Individual: Between 0% and 30%• Sole Proprietorship: Between 0% and 35%• Association of Persons: Between 0% and 35%• Small Company: 25%• Company: 33%
(Income of Individuals and AoP if it is equal or less than Rs. 400,000/- is not chargeable to tax)
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Tax on Sole Proprietorship
• Sole Proprietorship is taxed at a progressive rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances.
• The drawing of the Sole Proprietor during the tax year is not taxable.
• Tax Rate: 0% to 35%
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Tax on an AOP
• An AOP is taxed at a progressive rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances.
• The drawings of the Partners of an AOP during the tax year are not taxable.
• Tax Rate: 0% to 35%
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Tax on a Company
• A Company is taxed at a flat rate on its taxable income i.e. total income of the person for the year reduced by the total of any deductible allowances.
• The Directors of the Company who are also the Shareholders of the Company may receive a salary/ remuneration which is taxed at a progressive rate.
• The Directors/ Shareholders of the Company also receive Dividend payments for the shares they hold of the Company which are taxed at:
• Filers: 12.5%• Non Filers: 17.5%
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Important dates
• Deposit of tax deducted with 7 days of such deduction.
• Monthly Statements relating to deductions pertaining to last month to be filed before 15th of the next month.
• Income Tax Returns along with Wealth Statements of Salaried Individuals to be filed before 31st August.
• Income Tax Returns along with Wealth Statements of Sole Proprietorships and Association of Persons to be filed before 30th September.
• Income Tax Returns of a Company to be filed before 31st December.
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Penalties
• Failure to register the entity with FBR attracts a penalty of Rs.5,000/-
• Failure to collect ,deduct or deposit tax attracts a minimum penalty of Rs. 25,000/-
• Non filing of monthly and annual statements attracts a minimum penalty of Rs. 10,000/-.
• Failure to file Income Tax Returns and Wealth Statements on time attracts a minimum penalty of Rs. 20,000/-.
• Failure to deposit tax due at the time of filing of Income Tax Return attracts a minimum penalty of 5% and a maximum of 50% of the tax deducted.
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Sales tax
• Sales Tax on Goods is a Federal levy and is governed by
Sales Tax Act, 1990 and Sales Tax Rules, 2006.
• Sales Tax on Services is a Provincial levy and is governed by:
• Sindh Sales Tax on Services Act, 2011 & Sindh Sales Tax on Services Rules,
2011.
• Punjab Sales Tax on Services Act, 2012 & Punjab Sales Tax Rules, 2012.
• KPK Finance Act, 2013.
• Islamabad Capital Territory (Tax on Services) Ordinance, 2001
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Basis Concept of Levying Sales Tax
• Income tax is charged on the “income” derived by a person.
• Sales Tax is charged on the “transaction” executed by the person.
• Sales Tax is charged on:
• Import of taxable goods; and
• Supply of taxable goods/services
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Input and Output Tax
• When a person supplies goods or provide services, sales tax is
charged. This is called the “output tax”
• Sales Tax paid at purchase of goods or acquiring of services is called
“input tax”.
• The “output tax” is adjusted against the “input tax” to arrive at the
balance tax payable or refundable.
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Rates of Sales Tax
• The general rate of Sales Tax on Goods is 17%.
• The general rate of Sales Tax on Services is:
• 14% in SRB
• 16 % in PRA
• 15% in KPK
• 16% in ICT
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Important Dates
• Generally Tax Period in Sales Tax is one month.
• Payment of Tax has to be made by 15th of succeeding month.
• Sales Tax return has to be filed on monthly basis on 18th of every succeeding month.
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Penalties
• Penalties are attracted for the following:
• Failure to make application for registration.
• Non – Furnishing of return within due date.
• Non Issuance of invoice.
• Unauthorized issuance of a taxable invoice.
• Failure to notify material changes in the particular of registration.
• Failure to deposit the amount of tax due or any part thereof.
• Failure to maintain the required records.
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What do I need to do to get ready?
• Choose the right legal entity.
• Understand your tax obligations.
• Separate business and personal finances.
• Deducting business expenses.
• Using the right tools/ systems.
• Doing your taxes with professional tax help.
National Association of Pakistani Entrepreneurs