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

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