Encouraging women

entrepreneurship

In recent years, women’s entrepreneurship has been growing

rapidly across the world. Women worldwide see entrepreneurship
as a path to a better future. Many women in developing countries
run businesses successfully, and many more aspire to become
entrepreneurs. Entrepreneurship of women is crucial to empower
females economically and boost economic growth.

Women’s enterprises are on the rise everywhere in Pakistan, but still a huge
gender gap in entrepreneurship exists, which needs to be bridged through
various initiatives. For example, tax policy could be explored as an area to
promote women entrepreneurs in the country.

The government has introduced certain tax measures. For example, clause
(19) inserted in Part-III of Second Schedule to the Income Tax Ordinance,
2001 (ITO 2001) through Finance Act 2021 (FA 2021) provides that tax
payable by women enterprises on profit and gains derived from business be
reduced by 25 per cent.

A female enterprise is a sole proprietorship concern owned by a woman or an

association of persons with all women members. It benefits by 25pc reduced
tax liability. However, such an enterprise must be a startup established on or
after July 1, 2021. Furthermore, to avail benefits under this clause, it must not
be formed by a transfer or reconstruction of an existing business.

Reducing the cost of compliance is essential to promote female-led businesses

What other tax policy measures can be explored to promote and encourage
women entrepreneurs?

One possibility is to increase the annual turnover threshold by charging a

minimum tax for businesses run by women entrepreneurs. However, the
government has already raised this from Rs10 million to Rs100m, given the
significant decline in economic activity caused by the pandemic. Therefore,
further increasing the threshold for charging minimum tax specifically for
women enterprises seems to be a distant dream.

Women enterprises may demand a separate turnover tax rate lower than the
rate charged for businesses run by men. However, the minimum tax rate on
annual turnover has already been reduced from 1.5pc to 1.25pc through FA
2021.

Another possibility is to prescribe a separate tax-free income ceiling for

women-run businesses. The tax-free income ceiling for individuals and the
association of persons is Rs600,000 annually.

Likewise, women enterprises can be allowed to deduct depreciation at a

relatively higher rate, at least in the early two to three years of the business.

It is worth mentioning that the number of small home-based businesses

launched by women has increased manifold in the wake of financial hardships
due to recent floods and inflation. It is a good time to facilitate women in
running their businesses.

Women Chambers of Commerce and Industry (WCCI) across the country are
already encouraging women to set up businesses. At the same time, the office
bearers are informing tax policymakers about hardships women
entrepreneurs face in tax compliance. Recently, office bearers of the
Islamabad WCCI met the Federal Board of Revenue (FBR) chairman to put
forth tax-related issues and concerns of women entrepreneurs.

They informed the chairman of FBR that women entrepreneurs face hardships
in tax compliance, such as timely return filing and the high cost of filing tax
returns, discouraging new women entrepreneurs from registering their
businesses. They suggested that a fixed tax regime for small women
entrepreneurs may be introduced.

They also requested that awareness sessions on filing tax returns and tax
compliance procedures be arranged in the WCCI of major cities to encourage
women entrepreneurs to make tax compliance easy.

The chairman of FBR appreciated their suggestions and assured them that
their input would be considered for launching initiatives to facilitate women
entrepreneurs, especially those in remote and marginalised areas.
The chairman of FBR issued directions to establish a special desk at Gwadar
for addressing grievances and concerns of women entrepreneurs and
facilitating them in filing tax returns. Furthermore, he issued directions to
field formations to hold awareness sessions in WCCI of major cities to
facilitate women entrepreneurs concerning tax compliance.

Reducing the cost of tax compliance is essential to promote women

enterprises. For this purpose, special desks need to be established to facilitate
women in registering their businesses and subsequent tax compliance, such as
return filing and tax payments. By doing this, women enterprises will be able
to save money, which otherwise was to be paid to tax practitioners.

Besides tax measures, women entrepreneurs must be supported through

greater access to finance and awareness through training and advisory
services.

The writer is an Additional Commissioner (Inland Revenue) at the Federal

Board of Revenue office in Lahore

Published in Dawn, The Business and Finance Weekly, October 11th, 2022