Telecom customers: GSMA advocates reduction in taxes through finance bill

ISLAMABAD: The Global System for Mobile Communications Association (GSMA) has proposed the government for a reduction in taxes on telecom customers in the Finance Bill for the fiscal year 2023-24 to enhance the affordability of digital services.

With Pakistan being one of the highest-taxed telecom markets globally, where telecom users face an overall tax burden of 34.5 percent, including 15 percent WHT and 19.5 percent GST, GSMA’s proposal aims to address the impact of high taxes on the mobile industry.

The mobile industry in Pakistan plays a crucial role in driving digital transformation and achieving the Digital Pakistan Vision.

However, the current tax contribution from the mobile sector in Pakistan exceeds that of similar markets in the region, severely limiting the industry’s capacity to invest in network infrastructure, hindering the realisation of the Digital Pakistan Vision.

In light of the challenging economic conditions, the GSMA recommends that the government implements tax reforms that improve the business environment without significantly impacting the exchequer.

These reforms would not only expand broadband services but also accelerate digitization and enhance productivity across various sectors in the country.

GSMA’s recommendations, submitted to the Ministry of IT and Telecom and the Pakistan Telecommunication Authority for the Finance Bill fiscal year 2023-24, emphasised the adverse effects of high taxes on mobile broadband services and handsets.

These taxes particularly burden the affordability of essential mobile and broadband services, disproportionately affecting the poor. The GSMA emphasised the importance of reducing Advance Income Tax (AIT) to enhance the accessibility of mobile handsets and broadband services.

The regressive nature of AIT is highlighted, as many low-income users are not required to file tax returns and therefore cannot claim tax refunds. By reducing AIT, the proposed tax reform would support government initiatives such as “smartphones for all” and stimulate mobile broadband adoption, resulting in increased productivity and economic growth.

The GSMA also advocates for a predictable and simplified tax system in the telecom sector. It suggests implementing uniform sales tax rules, drafted and agreed upon by federal and provincial tax authorities, aligned with international and regional practices.

This includes a single tax rate, uniform principles for tax audits, input adjustment rules, and compliance requirements. The goal of this tax reform is to enhance the ease of doing business while ensuring no loss of tax revenue to the exchequer.

Furthermore, the GSMA recommended granting reductions and exemptions to the telecom sector from all types of withholding taxes, similar to those granted to the banking and oil sectors.

This tax reform would simplify the tax collection mechanism through quarterly advance payments and reduce compliance costs, ultimately supporting investment and contributing to a simplified and predictable tax system.

By implementing these tax reforms, Pakistan can foster the adoption of mobile broadband services, drive economic growth, and empower its citizens with affordable access to essential digital services.

Copyright Business Recorder, 2023