ISLAMABAD: 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.
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