National News

ISLAMABAD, (APP): The telecom sector has contributed
more than US $ 8 billion revenue to national exchequer in form
of direct and indirect taxes during last 10 years but the area is
treated differently when it comes to tax collection regime.
An average user spends Rs. 2,250 annually for his/her cellular
services out of which Rs. 992 go in lieu of taxes which has put a
bar on growth of broadband services.
Keeping in view the situation, Pakistan Telecommunication
Authority (PTA) has prepared proposals to be submitted to
concerned authorities aimed at increasing revenue from telecom
sector and at the same time revolutionizing the sector in near
future.
The Commercial Affairs Division of PTA for the purpose, has
prepared a presentation which shows impediments in telecom sector
growth and also propose its remedies.
A point by point rundown of the issues has revealed that
in domain of Withholding Tax (WHT) (current Tax Rate: 14%), majority
of subscribers are non-tax filers due to income BTL, hence, cannot
get adjustment in their annual tax returns.
There are a total of 3.5 million NTN holders in Pakistan.
Our active tax payer userbase is around 0.8 million. Only 0.6%
of mobile subscribers could be actual tax payers, which is a
staggeringly low amount. Since for rest of the economy, WHT is
mostly charged @10 %, tens of billions of rupees in advance
income tax are not being claimed.
With regard to its remedy, the Authority proposes that
Federal Board of Revenue (FBR) should either abolish/rationalize
this tax or devise a mechanism to charge withholding tax from only
those subscribers who are otherwise taxable and are liable to file
a tax return.
Regarding General Sales Tax (GST) (current Tax Rate: 18-19.5%
GST/FED is being charged @ 19.5% in Punjab, KPK and Balochistan, 18%
in Sindh and 18.5% in rest of Pakistan) much higher as compared to
average 16 % GST on other sectors of economy.
The remedy is that the GST/FED on telecom services needs to be
reduced to average GST rates in other sectors.
Similarly, regarding Tax on Supply of SIM (current Tax Rate:
Rs. 250/new or replaced SIM), the Authority proposed that the
re-introduction of SIM Activation Tax on supply of a new or replaced
SIM Tax @ Rs 250 per SIM is burdensome.
Specially since more than US$ 25 million has been invested in
Biometric Verification System (BVS) exercise in 2014-15 and US$ 1.2
billion was spent on acquiring 3G and 4G spectrum in the auction.
The remedy is that the tax should be removed.
With regard to Industrial Undertaking’ Status (current
status: telecom sector not classified as `industry’) and issue is
that in absence of Industrial undertaking status, telecom operators
are unable to adjust income tax paid at time of import which is
treated as final tax liability.
The remedy is that to classify telecom sector as “Industrial
Undertaking” under clause (b) of section 2(29C) of the Income Tax
Ordinance 2001.
Similarly, Custom Duty on import of telecom equipment has
been increased from 0 % – 5 % in 2012-13 to current level of 5%-15%,
at a stage when operators are required to up-grade their
infrastructure for speedy roll out and adoption of mobile broadband
services in Pakistan. The remedy is that FBR should revert the
increase in custom duty.
Meanwhile, telecom experts at a meeting of Sustainable
Development Policy Institute’s Study Group on Information Technology
have also termed enhanced taxation on sector as the biggest
impediment to growth and diversion of foreign direct investment to
other regional countries.
The experts proposed that reducing GST may not impact the
government revenues in the long run, and giving status of industry to
this sector can further improve prospects.
They suggested rationalization of taxes on telecom sector
would lead to enhanced growth, better compliance and increased
output in the long-run.