Manufacturing businesses are the backbone of Pakistan’s industrial sector, ranging from textiles and pharmaceuticals to food processing, chemicals, and consumer goods. These businesses deal with raw material procurement, production costs, labor, warehousing, and multi-tiered supply chains—making their financial management complex and critical.

This article outlines the accounting and tax services a manufacturing business in Pakistan needs throughout the year to ensure compliance, improve efficiency, and optimize profits.

Why Manufacturing Businesses Need Strong Accounting and Tax Systems

• Tracks raw material, labor, and overhead costs accurately

• Helps determine the actual cost of production and profit margins

• Ensures compliance with FBR, SECP, and provincial tax authorities

• Prepares for audits, investor reporting, and expansion planning

• Avoids legal issues, tax penalties, and inventory discrepancies

Monthly Services Required

1. Bookkeeping and Journal Entries

• Record all purchases (raw materials, fuel, packing materials, consumables)

• Record sales of finished goods to wholesalers, retailers, and direct customers

• Maintain cash, bank, and inventory ledgers

• Classify entries by department, production unit, or product line

2. Cost Accounting and Job Costing

• Allocate direct material, labor, and overhead to products or batches

• Maintain work-in-progress (WIP) records

• Track actual vs. standard production costs

• Prepare cost sheets per product or process

3. Inventory Management and Valuation

• Track stock levels of raw materials, WIP, and finished goods

• Use FIFO, LIFO, or weighted average method for valuation

• Reconcile stock registers with physical counts

• Monitor purchase-to-production-to-sale flow

4. Sales Tax Filing

• File monthly sales tax returns with FBR or provincial revenue authorities

• Maintain input tax and output tax reconciliation

• Claim input tax on raw materials, electricity, and machinery

• Generate tax invoices as per FBR format

5. Payroll and Labor Cost Management

• Record factory and office staff salaries

• Calculate overtime, bonuses, and allowances

• Deduct payroll taxes under Section 149

• Manage EOBI, social security, and gratuity records

6. Withholding Tax Compliance

• Deduct tax on supplier payments (Section 153), rent (Section 155), and salaries

• Deposit withholding tax via FBR’s CPR system

• Issue WHT certificates to vendors and service providers

Quarterly Services Required

1. Financial Reporting and Performance Review

• Generate profit and loss accounts, balance sheet, and cash flow statements

• Analyze gross margin per product line

• Review plant-wise or unit-wise profitability

• Assess material usage efficiency and production yields

2. Advance Tax Payments

• Calculate and deposit quarterly advance tax under Section 147

• Avoid default surcharge and penalties

3. Budgeting and Forecasting

• Prepare operational budgets by department or production unit

• Forecast production output, cost of sales, and raw material needs

• Plan for seasonal sales cycles or high-demand periods

Annual Services Required

1. Income Tax Return Filing

• File corporate income tax return under Section 114

• Submit audited accounts, tax computation, and supporting schedules

• File wealth statements and reconciliations for directors (if required)

• Declare production-wise turnover and expenses

2. Financial Statement Preparation

• Prepare audited financial statements in line with IFRS or SME standards

• Include cost of production reports, segment reporting, and inventory valuation notes

• Required for SECP filings, bank loans, or foreign investment

3. SECP Annual Compliance (for Companies)

• File Form A (Annual Return) and Form 29

• Maintain statutory records and board resolutions

• Update shareholding or address changes with SECP

4. Audit Support and Documentation

• Coordinate with external auditors

• Provide reconciliations for ledgers, inventory, fixed assets, and tax accounts

• Ensure timely completion of statutory and internal audits

One-Time or As-Needed Services

1. Business and Factory Registration

• Register with SECP, FBR, and provincial tax authorities

• Register manufacturing unit with local development authority or industrial estate

• Register for EOBI and social security coverage for workers

2. Tax Planning and Incentives

• Claim depreciation, R&D, and investment tax credits

• Avail exemptions for greenfield or export-oriented units

• Structure operations for minimum tax liability under Section 113

3. Machinery and Capital Asset Accounting

• Capitalize new machines, tools, and plant installations

• Maintain asset registers and depreciation schedules

• Allocate borrowing costs related to capital expenditure

4. Response to FBR Notices

• Respond to audit notices under Section 177 or Section 122

• Assist with assessments and show-cause replies

• File appeals or rectification requests where needed

5. Export Compliance and Rebates

• Prepare documentation for duty drawback and sales tax refunds

• Maintain export sales ledgers and inward remittance records

• File refund applications through FASTER or provincial portals

Recommended Software for Manufacturing Accounting

• QuickBooks / Xero – for small-scale units with basic inventory

• SAP Business One / Odoo / Oracle NetSuite – for large or multi-unit factories

• Tally ERP 9 / Peachtree – widely used for cost accounting in Pakistan

• Customized Excel-based costing sheets – for specific product or batch costing

Benefits of Outsourcing Accounting and Tax Services

• Access to experts in manufacturing cost and tax laws

• Clean records for audits, investor pitches, and bank loans

• Timely filing of returns, exemptions, and rebates

• Real-time insights into product-wise and plant-wise profitability

• Saves time and resources for operational focus

Frequently Asked Questions (FAQs)

Q: What taxes are applicable to manufacturing businesses in Pakistan?
Manufacturing businesses may be liable for income tax, minimum tax (Section 113), sales tax, withholding tax, and in some cases, excise duty depending on the products.

Q: Is job costing necessary for a manufacturing business?
Yes. Accurate costing is critical for pricing, profitability analysis, and inventory valuation.

Q: Can I claim input tax on electricity and fuel used in manufacturing?
Yes, provided that the business is sales tax registered, and invoices are in compliance with FBR rules.

Q: What is Section 113 minimum tax?
This is a tax payable even if there is no profit. It’s based on turnover and applies to most companies unless exempt under specific criteria.

Q: Are manufacturers required to get audited?
Yes, companies are required to have their accounts audited annually by a Chartered Accountant. This is also essential for SECP and tax compliance.

Conclusion

Manufacturing businesses have layered financial needs—ranging from raw material procurement and production tracking to complex tax compliance and inventory valuation. Whether you are producing locally for the domestic market or exporting goods abroad, maintaining accurate books and complying with tax regulations is essential for sustained growth and legal protection. Working with qualified accountants and tax consultants helps you streamline operations, save money, and make better business decisions throughout the year.