For small and medium-sized enterprises (SMEs) in Pakistan, making strategic decisions about resource allocation is crucial for survival and growth. One such critical decision revolves around managing their financial health: should they handle their accounting in-house or outsource it to external experts? This blog post delves into a comparative analysis of both approaches, specifically considering the cost, efficiency, and scalability aspects relevant to Pakistani SMEs. 

 

Understanding the Options:

In-House Accounting: This is the process of employing and sustaining a full-time accounting staff in-house within the company. This team is delegated with all aspects of finance, from recording regular transactions to generating financial reports and dealing with tax compliance.

Outsourced Accounting: This entails hiring an outside accounting firm or professional to handle some or all of the accounting duties of the company. The level of services can vary from simple bookkeeping to full-scale financial management and consulting.  

 

Cost Considerations: 

For Pakistani SMEs, cost is often a primary concern. Let’s break down the cost implications of each approach: 

In-House Accounting: 

Direct costs are salaries, benefits (such as Employees’ Old-Age Benefits Institution – EOBI and possible health insurance), office space, software subscriptions, and continuing education. Indirect costs may consist of time devoted to recruitment, supervision, and possible mistakes due to the absence of specialized expertise. For a small business, even a single full-time accountant can be a large share of their overhead.

Outsourced Accounting: 

The expense structure for outsourcing is generally a service fee, which may be fixed (for a specified amount of work) or variable (on a volume of transactions or time basis). Although there is a recurring cost, SMEs do not have to incur the expense of recruiting and keeping a full-time staff. This can be especially beneficial for startups or companies with varying workloads. Furthermore, outsourcing allows for access to skills that may be prohibitive to bring on internally.  

 

Efficiency Analysis: 

Efficiency in accounting directly impacts the timely availability of financial information for decision-making.    

• In-House Accounting: Efficiency can vary greatly depending on the skills and experience of the in-house team. A dedicated team can develop a deep understanding of the business operations, potentially leading to tailored financial reporting. However, reliance on a small team can create bottlenecks, especially during peak periods like tax season. There’s also the risk of errors if the team lacks specialized knowledge in certain areas.    

• Outsourced Accounting: Outsourcing firms often have streamlined processes, utilize advanced accounting software, and possess specialized expertise across various industries and regulatory requirements in Pakistan (like compliance with the Federal Board of Revenue – FBR). This can lead to more accurate and timely financial reporting, freeing up the SME owners and their core team to focus on revenue-generating activities. The scalability of outsourced services also contributes to efficiency, as resources can be adjusted based on the business’s needs.    

 

Scalability for Growth: 

As Pakistani SMEs grow, their accounting needs will evolve in complexity and volume. 

• In-House Accounting: Scaling an in-house accounting department requires hiring more personnel, investing in infrastructure, and potentially restructuring the team. This can be a time-consuming and costly process, and finding qualified accounting professionals, especially in smaller cities, can be challenging.    

• Outsourced Accounting: Outsourcing offers inherent scalability. As the business grows, the SME can easily adjust the scope of services with the outsourcing firm. This flexibility allows SMEs to access the right level of expertise and resources when they need them, without the burden of permanent hires and infrastructure investments. For instance, a growing SME might initially outsource bookkeeping and tax filing but later add services like financial analysis and forecasting as their needs become more sophisticated.    

 

Making the Right Decision for Your Pakistani SME:

No single-size-fits-all solution. The optimal solution for a Pakistani SME is based on its individual situation, such as size, complexity, budget, and growth prospects.

Consider In-House Accounting if:

The company is large enough to cover the expense of a professional and experienced accounting department.

The needs of accounting are extremely specialized and need intimate internal expertise.

There is a high preference for direct management and tight integration of the accounting function in the operations of the company.

Consider Outsourced Accounting if:

The company is a small or budding SME with limited funds. Having access to specialized competence and state-of-the-art accounting tools is desired without the burden of maintaining a full-time staff.

Scaling and adaptability to evolve with shifting business demands are paramount.

The emphasis is placed on fundamental business activities, and administrative activities such as accounting are classified as non-core. 

 

 Conclusion: 

For many Pakistani SMEs, especially in the early stages of growth, outsourcing accounting can offer a compelling solution. It can provide access to professional expertise, improve efficiency, and offer scalability at a potentially lower overall cost compared to maintaining a fully in-house department. However, thorough due diligence in selecting a reputable and experienced outsourcing partner familiar with local regulations and business practices is essential. Ultimately, the decision should be based on a careful evaluation of the SME’s unique needs and a clear understanding of the costs and benefits associated with each approach. 

To know more in detail, visit our official website: https://www.cbmc.pk/

Pakistan’s 2025 tax reforms, driven by the Federal Board of Revenue (FBR), aim to enhance revenue collection, broaden the tax base, and modernize compliance processes. These changes are part of efforts to meet fiscal targets and secure international financial support. 

 

Key Areas of Focus in the 2025 Tax Reforms: 

While the full details will solidify with the upcoming budget announcements and FBR notifications, several key areas are expected to see significant developments: 

• Enhanced FBR Oversight and Digitalization: The FBR is likely to continue its push towards digitalization of tax processes. This means an increased reliance on the IRIS portal for registration, filing, and payments. Businesses should ensure their digital infrastructure is robust and their teams are proficient in using these online systems. Expect stricter enforcement and potentially more frequent digital audits. 

• Corporate Tax Adjustments: There have been discussions and recommendations regarding corporate tax rates. While the main rate currently stands at 29%, proposals for a phased reduction to enhance global competitiveness are on the table. Businesses should monitor announcements regarding potential rate changes and how these might impact their profitability and future planning. 

• Broadening the Tax Base: A major focus for the FBR is to bring currently under-taxed sectors into the formal tax system. This could mean increased scrutiny and new regulations for sectors like agriculture, real estate, and the wholesale/retail trade. Businesses operating in these areas should proactively prepare for potential changes in tax obligations and reporting requirements. 

• Sales Tax Harmonization: Efforts to harmonize sales tax policies between the federal and provincial authorities are crucial. Discrepancies in these policies can create compliance burdens for businesses operating across provinces. Any steps towards a unified system will be a welcome change, simplifying tax management and encouraging business growth. 

• Scrutiny on Exemptions and Concessions: The government is expected to review and potentially phase out existing tax concessions and exemptions across various sectors. Businesses currently benefiting from such provisions should assess the potential impact of these changes on their tax liabilities. 

• Focus on Withholding Tax: Compliance with withholding tax regulations will likely be under increased scrutiny. Businesses making payments to both residents and non-residents need to ensure they are correctly deducting and remitting the applicable withholding tax amounts. Staying updated on the latest withholding tax rates and rules is crucial. 

• Measures Against Tax Evasion: Expect continued efforts to combat tax evasion, including stricter measures against the illicit trade of goods like cigarettes and potentially increased monitoring of large transactions. Businesses should ensure their operations are transparent and fully compliant to avoid scrutiny. 

 

Key FBR Updates: 

• Amendments Ordinance 2025: Enacted to tackle fiscal problems and speed up tax litigation, this ordinance makes amendments to the Income Tax Ordinance 2001 and the Federal Excise Act 2005.  

• Enhanced Tax Recovery Measures: Additional amendments seek to enhance the efficacy of tax collection and compliance so that tax liability is settled early.  

 

Corporate Tax Changes 

• Additional Advance Tax on Exports: An additional 1% advance tax is suggested on proceeds realized  by exporters for the goods exported in addition to the already levied 1% tax by banks or foreign exchange dealers.  

• Revised Tax Rates for Non-Salaried Individuals: The tax structure of income has been revised, with entities making up to PKR 600,000 a year exempted from tax on income. Individuals making PKR 600,000 to PKR 1,200,000 are taxed at 15%, with rising charges for higher income levels. 

                                                                                                                   

Compliance Tips for Businesses 

1. Mandatory E-Invoicing: Every corporate entity shall be required to connect with the computerized system of the FBR by June 1, 2025, and non-corporate registered persons by July 1, 2025, in order to meet electronic invoicing obligations.  
2. Detailed Sales Tax Returns: From January 2025, businesses shall be required to report detailed information regarding goods’ value and quantity in monthly sales tax returns to increase transparency and compliance.  
3. Updated Sales Tax Registration Process: The 2025 Sales Tax Rules mandate electronic submission of Form STR-1, biometric verification via NADRA’s e-Sahulat Centre, and submission of additional documentation, including bank certificates and GPS-tagged business premises photos.  

 

Key Takeaways 

• The 2025 tax reforms introduce significant changes affecting income tax rates, export taxation, and compliance procedures. 

• Businesses must adapt to new electronic invoicing systems and provide more detailed tax return information. 

• Staying informed and compliant with these reforms is crucial for businesses to avoid penalties and contribute to Pakistan’s economic stability. 

For detailed information and updates, businesses should regularly consult the Federal Board of Revenue’s official website. 

Or you can visit our official website: https://www.cbmc.pk/

 

Starting your own business in Pakistan is a thrilling possibility! A rapidly developing economy and flourishing market present excellent opportunities for success. Navigating the registration process, though, might initially appear overwhelming.  This detailed, step-by-step 2025 guide takes you through the process of registering a business in Pakistan, guaranteeing an easy and compliant launch.   

 

Step 1: Decide on Your Business Structure 

The first crucial step is to determine the most suitable legal structure for your business. This decision will impact your liability, taxation, and compliance requirements. Common business structures in Pakistan include: 

• Sole Proprietorship: Owned and operated by one individual, with no legal separation between the owner and the business. Easy to establish but the owner has unlimited liability.  

• Partnership: A contract between two or more people to share the profits or losses of a business. Needs a partnership deed. Partners have joint and several liability. 

• Private Limited Company (Pvt. Ltd.): A distinct legal entity from the shareholders, with limited. Two directors are required and at least two shareholders (can be the same people). Regulated by the Companies Act, 2017. 

• Single Member Company (SMC-Pvt. Ltd.): A private limited company with only one member (who can also be the director). Offers limited liability. Governed by the Companies Act, 2017. 

• Public Limited Company (Ltd.): May issue shares to the public and has to comply with more stringent regulatory guidelines. Typically for bigger companies. 

Action: Carefully evaluate each structure based on your business needs, scale, and risk appetite. Consult with legal and financial professionals if needed. 

 

Step 2: Obtain a National Tax Number (NTN) 

No matter what business structure you opt for (other than extremely small sole proprietorships at the very beginning), securing a National Tax Number (NTN) from the Federal Board of Revenue (FBR) is an underlying necessity.  

• For Sole Proprietorships and Partnerships: Register for an NTN as an individual. You can do this online via the FBR’s e-portal or by making an appearance at your local FBR office. Bring your CNIC and the required personal details. 

• For Companies (Pvt. Ltd., SMC-Pvt. Ltd., Ltd.): The company will obtain its own NTN during the company registration process with the Securities and Exchange Commission of Pakistan (SECP). 

Action: Register for your NTN through the FBR’s designated channels. Keep your NTN active by filing tax returns regularly. 

 

Step 3: Register Your Company with the Securities and Exchange Commission of Pakistan (SECP) (If Applicable) 

If you’ve opted to form a Private Limited Company, Single Member Company, or Public Limited Company, you will have to register it with the SECP. This is a very important step that gives your business legal status as a separate entity.  

• Name Availability Search: First, visit the SECP’s website (or their e-services portal) to check if your desired company name is available. 

• Preparation of Documents: You’ll need to prepare several documents, including:  

• Memorandum of Association (MOA) 

• Articles of Association (AOA) 

• Copies of CNICs of directors and shareholders 

• Information about the company’s registered office 

• Form-I (Declaration of Compliance) 

• Online Submission: File the required documents and pay the registration fee online through the SECP’s e-services portal. 

• Physical Submission (If Required): In some cases, you might need to submit physical copies of the documents to the SECP. 

• Certificate of Incorporation: Upon successful verification, the SECP will issue a Certificate of Incorporation, officially registering your company. 

Action: Navigate the SECP’s online portal, prepare the necessary documents meticulously, and complete the registration process. 

 

Step 4: Obtain Necessary Licenses and Permits 

Depending on the type of business, you will usually need to procure particular licenses and permits issued by different federal, provincial, and local governments. These may include: 

• Business License/Trading License: Issued by local government authorities (e.g., Metropolitan Corporation, Cantonment Board). 

• Sector-Specific Licenses: For a particular industry (e.g., manufacturing, healthcare, education, food). Contact the concerned ministry or regulator.  

• Professional Licenses: For professionals to practice their profession (e.g., lawyers, doctors, engineers).  

Action: Research the specific licensing requirements for your business sector and location. Contact the relevant authorities and complete the application processes. 

 

Step 5: Register for Sales Tax (If Applicable) 

If your business’s taxable supplies exceed the prescribed threshold (currently PKR 10 million per annum), you’ll need to register for Sales Tax with the FBR. 

• Online Registration: Apply for Sales Tax registration through the FBR’s e-portal. 

• Required Documents: You’ll need your NTN, bank account details, and information about your business activities. 

Action: Assess your business’s turnover and register for Sales Tax with the FBR if required. File your Sales Tax returns regularly. 

 

Step 6: Open a Business Bank Account 

Having a dedicated business bank account is essential for managing your finances and maintaining clear records. 

• Choose a Bank: Select a reputable bank that offers services suitable for your business needs. 

• Required Documents: You’ll typically need your NTN, Certificate of Incorporation (for companies), partnership deed (for partnerships), business license, and identification documents of the owners/directors. 

Action: Open a business bank account and manage all business-related transactions through it. 

 

Step 7: Register with Other Relevant Authorities (e.g., EOBI, Social Security) 

Depending on the size and nature of your business, you may also need to register with other authorities, such as the Employees’ Old-Age Benefits Institution (EOBI) and provincial social security institutions, especially if you hire employees.    

Action: Identify and register with all relevant authorities based on your business operations and employment status. 

 

Key Considerations for 2025: 

• Online Portals: The government is increasingly focusing on digitalizing the registration process. Utilize the online portals of the SECP and FBR. 

• Compliance with the Companies Act, 2017: Ensure your company’s structure and operations align with the requirements of the Companies Act, 2017. 

• Staying Updated: Regulations can change. Regularly check the websites of the SECP and FBR for the latest updates and notifications. 

• Professional Assistance: Don’t hesitate to seek guidance from lawyers, chartered accountants, and business consultants to navigate the complexities of the registration process. 

 

Conclusion: 

Registering your Pakistani business takes some planning and perseverance in following every step. Understanding the various structures of a business, registering for necessary licenses and registrations, and keeping up to date with changing regulations will enable you to create a strong base for your future entrepreneurial success in 2025 and beyond. Best wishes for your business!