By Ayesha Saba

The Federation of Pakistan Chambers of Commerce and Industry (FPCCI) has proposed a series of reforms for small and medium enterprises (SMEs) in the federal budget FY2026-27, including increasing the turnover threshold for SMEs and introducing a simplified taxation structure aimed at supporting business growth and improving documentation.

According to the FPCCI budget proposals document available with Wealth Pakistan, the business body stated that the existing framework for SMEs no longer adequately reflects current economic realities, particularly after significant currency depreciation and changes in business costs over the years.

The chamber proposed increasing the SME turnover threshold from the current Rs250 million to at least Rs500 million.

According to the document, the Rs250 million threshold was introduced through the Finance Act 2007 and has remained unchanged despite the substantial depreciation of the Pakistani rupee over the years.

FPCCI stated that the US dollar has appreciated by around 366% against the Pakistani rupee since the threshold was introduced, making the existing benchmark less representative of present business conditions.

The organization also proposed linking the threshold with the Consumer Price Index (CPI) to ensure that future changes in inflation and economic conditions are automatically reflected in SME classifications.

The chamber further proposed introducing a simplified turnover-based slab taxation system for SME exporters.

Under the proposed mechanism, businesses with a turnover of up to Rs500 million would pay a 1% tax on turnover. Companies with turnover between Rs500 million and Rs1.2 billion would be taxed at 1.5%, while firms with turnover between Rs1.2 billion and Rs2 billion would pay 2%.

According to FPCCI, the proposed structure would simplify compliance requirements and reduce administrative burden on businesses.

The organization maintained that the current tax regime often requires SMEs to maintain complex financial records and undertake multiple adjustments while determining taxable income.

According to the document, the system can increase compliance costs and create disputes regarding expense admissibility and profit determination.

FPCCI stated that a simplified mechanism could reduce litigation and make tax obligations more predictable.

The chamber also proposed changes in SME definitions regarding ancillary income.

According to the document, SMEs often generate relatively small earnings from sources such as rental income, dividend income, and bank profits, which can create complications relating to SME eligibility under existing interpretations.

FPCCI proposed amending the SME definition under Section 2(59A) to exclude non-business income from eligibility considerations.

The organization maintained that such changes would provide greater clarity and prevent technical issues from affecting SME status.

The proposals also emphasized the need to reduce the burden on compliant taxpayers by expanding the tax net and encouraging more businesses to become part of the documented economy.

According to FPCCI, strengthening SMEs remains important because of their contribution to business activity, employment generation, and broader economic development.

The chamber stated that reforms aimed at reducing complexity and improving the operating environment can support the long-term growth of small and medium enterprises in the country.

Credit: INP-WealthPk