FBR bosses have never been shy of upping the ante on the folks already taxed. And so they just can seem to ignore the burning urge to overtax the telecom sector.
The sizable, lucrative and well-documented sectors contribution to the national exchequer has been more than Rs100 billion every year since 2006, according to PTA, and FBR hopes to further squeeze the golden bird.
The landline, mobile and wireless operators act as withholding agents on behalf of their subscribers for FBR. They deduct 19.5 percent federal excise duty (FED - collected in GST mode), 10 percent withholding tax (WHT), and 15 percent flood surcharge on WHT. Voice, text, value-added services, subscription of call packages and SMS bundles - everything is taxed!
This is in sharp contrast to the (maximum) 17 percent GST collected by FBR from other sectors. Moreover, mobile network operators (MNO), pay Rs250 to the government on account of activation charges per sim from their own pocket. Flood surcharge on WHT will be inoperative from July 1, 2011.
The higher taxation regime in the telecom sector manifests the governments defeatist strategy to increase its revenues by levying more consumption-based taxes rather than taxing people on the basis of their income.
This discriminatory taxation regime towards mobile subscribers is taking its toll on the MNOs bottomline and overall industry growth. These taxes are not only higher in Pakistan, they are also high compared to the region.
It is reported that among the MNOs, only Ufone is making profits, while others are in loss. Since the loss-making entities are not listed, it is not possible to gauge the extent of their losses or the related reasons. The revenues of the telecom sector crossed Rs350 billion in FY10; however, its profitability has dampened over the years.
The telcos are subject to a corporate income tax regime which requires them to pay a higher of either a 35 percent of pretax income or a turnover tax of 1 percent of net revenues (in case of lower or negative net margins).
The effect of lowering the consumption taxes (FED and WHT) needs be explored in detail. Some telecom analysts believe that a cut in FED or abolition of WHT would mean more airtime and usage available to mobile subscribers, potentially increasing the consumption pie.
The additional revenues would improve MNOs operating performance and reflect in their bottom lines. Moreover, slashing SIM activation charges would reduce their customer acquisition costs.
Cut-throat competition among the MNOs has already led to very low tariffs for voice and value-added services such as SMS.
In the face of a stagnating subscriber base growth, demand is somewhat depressed, not the least due to higher taxes. FDI in the sector is waning fast and there is reluctance on telcos part to opt for new technologies, like 3G, or 4G.
Yet there are no signs of rationalisation of taxes in the telecom sector, not unless new taxation avenues come up.
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