TUESDAY AUGUST 23: Double taxation issue: cellular companies approach PTA

ISLAMABAD: All five leading cellular companies have approached the Pakistan Telecommunication Authority (PTA) to resolve issue of double taxation on telecom services due to retention of the Federal Excise Duty (FED) on such service providers under the Federal Excise Act 2005.
Sources told Business Recorder here on Monday that the mobile phone companies are confused about the imposition of the provincial sales tax or FED in VAT mode under the Federal Excise Act 2005. The mobile phone companies have asked the PTA as well as the tax authorities that before finalising the revenue sharing mechanism among the provinces, the existing anomalies in the taxation system should be addressed.
First, the Federal Excise Act, 2005, has not been suitably amended in accordance with 18th Amendment to exclude the telecom service from the purview of FED. After promulgation of provincial sales tax legislation on Telecom services by Punjab, Sindh and KPK, Telecom service taxed twice.
Secondly, the provincial sales tax rates on telecom services differ. Currently the applicable rates are 16% in Punjab and KPK and 19.5% in Sindh, whereas no legislation exists in Balochistan and Federal Capital Territory. Thirdly, the existing Federal Excise Act contains exemptions on Internet Services, DCNS, value-added data services and receipts by the LDI under agreements from foreign telecommunication companies. Sindh government has provided similar exemptions, whereas no other province has provided these exemptions.
Fourthly, the procedure and mechanism pertaining to payment of provincial tax and claim/ apportionment of input tax has not been finalised. Fifthly, the CCP (interconnect services) settlement between the operators should be zero rated as it will not add any revenue to any province.
Sources said that the cellular companies have further informed the regular that at the time of discussions on VAT regime proposed in 2010, various meetings were held with the special Secretary of the Ministry of Finance (MoF) in August and September 2010. In response to the meetings and as required by the MoF the telecom sector provided ratios of revenue from all the provinces based on outgoing voice calls from the BTS located in the geographical boundaries of the provinces. The ratios were Balochistan 4.2 percent, Khyber-Pakhtunkhwa 15.5 percent, Punjab 48.4 percent, the ICT 7.2 percent and Sindh 24.8 percent.
The revenue of Data service, Value-added services and any other revenue for which the point of origin is not determined was agreed to be apportioned on the basis of above agreed percentages. Accordingly, mobile phone companies have suggested that the Federal and Provincial laws relating to taxation on telecom services may be suitably amended to incorporate the 18th Amendment. Moreover, the collection of tax on telecom services should be centralised to avoid input tax adjustment issues and other complexities.
The percentages as discussed and communicated to MoF may be used for allocation at net revenue between the provinces after resolving the points mentioned above. The representatives of telecom sectors should be included in the committee working for devolution of sales tax on services from Federal to provinces and formulation of rules by the Federal/Provincial Governments, sources added.