So far as optics is concerned, the Information and Communications Technology (ICT) industry figured prominently in the finance minister’s budget speech. But a reading of the FY18 budget documents shows that the measures announced are not exactly ground-breaking in nature. Nonetheless, they should help allay some of the concerns the stakeholders have been raising in the past.
Over in the telecom sector, the federal government has taken the step to bring down the WHT on account recharge – from 14 percent to 12.5 percent – and FED on usage – from 18.5 percent to 17 percent. But the applicable taxes on telecoms, especially WHT, are still too high to make any meaningful impact on telecom usage. In any case, these changes don’t apply to provinces, which the finance minister hoped would follow the “same spirit”.
Telecom apparatus also figured in the budget. Instead of three, there will be two sales tax slabs for different categories of mobile phones – Rs650 per set and Rs1,500 per set. This move will positively affect the low-end Smartphone imports, which are relatively affordable for a largely low-income market. On telecom equipment, a uniform 9 percent regulatory duty will be levied, thereby withdrawing existing level of custom duties ranging from 11 percent to 16 percent.
This directional shift in telecom taxes is welcome, as it wouldn’t be healthy to squeeze the golden goose even more. In any case, the federal government is only paring back the same taxes that it had increased not too long ago. It would be nice if the provinces follow suit on FED reduction, besides making the Internet usage tax-exempt, which is only allowed by federal and Punjab governments.
In the mobile payments sector, the budget announced setting up at SBP an e-gateway system, costing Rs200 million. This measure may provide the much-needed boost to digital economy in Pakistan, where commercial banks have been reluctant. It is hoped that SBP’s incubation of this payment gateway will give vendors and customers added confidence to transact more in the digital space.
Another notable development was in the branchless banking (BB) segment. Previously, agents were being charged a WHT of 0.3 percent (filers) and 0.6 percent (non-filers) on their daily cash withdrawals in excess of Rs50,000. Now BB agents operating under “Asaan Mobile Account Scheme” will be exempt from WHT on their cash withdrawals for customer-related transactions. This may incentivise agents to start treating mobile wallets as less of a competition to their OTC business. In the IT arena, the federal government has announced that start-ups in the software space will be income-tax-exempt for first three years. The government has also decided to make IT exports in the federal jurisdiction free from sales tax. The Korean-government sponsored IT Park got one more mention. Set to cost Rs6 billion now, one wonders when the IT Park, talked about for years, will come online.
In another development, software exporters have been allowed to open FCY accounts in Pakistan to receive “export earnings” and make their “business-related payments outside Pakistan”. This may help document the true extent of software exports. Let’s see how much of an impact such measures create in the coming fiscal.
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