ISLAMABAD: The Overseas Investors Chamber of Commerce and Industry (OICCI) has proposed rationalisation of withholding tax on telecom services, harmonization of federal/ provincial sales tax law and exemption from withholding taxes to telecom sector in the budget for 2022-23.
The budget proposals a copy of which is available with Business Recorder, the OICCI demanded that rate of withholding tax on subscribers should be abolished completely as majority of the subscriber’s base falls below the taxable limit, or the withholding tax reduction made through Finance Act, 2021 should be reinstated, i.e., eight percent effective fiscal year 2023.
Advance tax on telecom services was reduced via Finance Act, 2021 from 12.5 percent to 10 percent for fiscal year 2021 and to eight percent for future years. However, through Finance [supplementary) Act, 2021 the rate of withholding tax increased from 10 percent to 15 percent. Increased tax hampers the affordability of mobile service which is a crucial service for entire population and more than 70 percent population of Pakistan lives below poverty line and the percentage of return filers is also nominal, so the implementation of withholding tax to entire subscribers’ base is not logical. Further, the reduction in withholding tax will also promote the affordability of internet and data services to the low-income group people. Telecom service is also critical for economic growth of a country.
The budget proposals further added that all four provinces and federal have introduced distinct sales/ service tax laws in their respective jurisdictions, with some of the clauses in clear conflict with each other, resulting in undue hardships coupled with harassment by the federal and provincial revenue collectors demanding tax on the same transactions tantamount to double taxation.
This situation is highly undesirable and creates complexities for taxpayers leading to unnecessary litigations. Furthermore, there should be a single sales tax rate across all jurisdictions to remove the atonalities and undue hardships being faced by telecom sector in terms of compliances in different jurisdictions, thus to provide ease of doing business. Telecom services should not be discriminated by being subjected to higher rates of tax; sales tax rates should be in line with other services.
Advance tax on Auction/ Renewal of licenses is liable to be collected on Sale by Auction or property. Grant or Spectrum is not a sale of property. Firstly, spectrum is not a property, it does not have any physical form as it cannot be seen or is not capable of being in physical possession. Secondly, spectrum is not sold, only a right to use spectrum for a specified term is granted to telecom operators; they are only granted for a specific term.
Therefore, spectrum is never sold to telecom operators, they are only granted licenses for a specified term. While the term sale means that the absolute ownership is transferred permanently to the buyer with a right to transfer ownership to another person which is not the case.
Therefore, this tax should be abolished being irrational. Further telecom sector has already paid huge amount of advance taxes much beyond its tax liability. Secondly, no such advance tax is collected on grant of other licenses like oil exploration. This tax should be removed being irrational and burdensome on CMOs.
As large utility providers, Cellular Mobile Operators (CMO) are subject to deduction/ collection withholding or income tax on large number or transactions, e.g., electricity bills and cell sites which are thousands in number, thus increasing the cost and complexity of tax compliance and an additional administrative burden for the telecom sector which negatively impacts the overall business environment. Furthermore, it is also not possible for tax authorities to verify the claim of advance tax paid on electricity bills being a very laborious task. Similar exemptions have already been granted to banking sector to curtail the administrative cost.
Exemptions should be given to the telecom sector from deduction of collection of all types of withholding taxes, like banking and oil sector. There will be no loss of revenue to the exchequer as the tax collection mechanism will be simplified in terms of real time payment of advance tax Under Section 147 on quarterly basis. Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of the records especially for advance tax on utilities bills and imports is itself a very cumbersome procedure.
The OICCI further recommended for reducing the custom duty rates for batteries (8507.6000 & 8507.2000) from 11 percent and 20 percent to five percent and abolish Additional Custom duty (two percent and six percent) and Regulatory duty (five percent), as these batteries are used with solar and power system, and are core asset for telecom infrastructure service provider. Reduction in duties will further encourage alternate energy resources for telecom sector, i.e., solar, etc.
The Finance Act, 2018 inserted a new clause in sub-section (3) of section 101 of the ITO’2001, under which Pakistan source income from business derived by a non-resident person, would include income on account of import of goods, whether or not the title to the goods passes outside Pakistan, if the import is part of an overall arrangement for the supply of goods, installation, construction, assembly, commission, guarantees or supervisory activities and all or principal activities are undertaken or performed either by the associates of the person supplying the goods or its permanent establishment, whether or not the goods are imported in the name of the person, associate of the person or any other person.
Keeping in view the amendment in section 101(3), corresponding amendments have also been made in sub-section (7) of section 152, whereby, a taxpayer would invariably now be required to obtain an order of the Commissioner Inland Revenue u/s 152(5A) of the ITO2001 for making payment on account of such transaction without deduction of tax or at lower rate.
Since the title of goods passes outside Pakistan, hence deduction of withholding tax at much higher rate, i.e., 20 percent will increase the cost of the equipment as the supplier will jack up the prices by including the withholding tax factor; resultantly, telecom operators will have to bear the extra cost which will halt the expansion of the telecom services, especially in far-flung areas where the cost of doing business is already on much higher side.
Copyright Business Recorder, 2022