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22 July 2017 Last updated 30 minutes ago

Telecom sector seeks reduction in withholding tax

Telecom sector seeks reduction in withholding tax Telecom sector seeks reduction in withholding tax

At a time when the government is giving final touches to proposals for the upcoming budget, the telecom sector is seeking reduction in withholding and sales tax rates in a bid to provide relief to subscribers.

In the first budget of PML-N government in 2013, the withholding tax rate was increased to 15 per cent from 10pc. It was reduced to 14pc in the following year but still emerged as one of the leading sources of revenue for the tax machinery.

Withholding tax on telecom at 14pc is one of the highest as most sectors are paying in the range of 1-5pc. Official data shows the Federal Board of Revenue (FBR) received Rs48 billion as withholding tax in 2015-16 from 140 million mobile mobile phone users.

Of these, only Rs4bn was claimed by the taxpayers, while bulk of the Rs44bn remained unclaimed as most subscribers were either below the tax threshold or did not submit a return for claiming it.

In the wake of these consumer taxes, for every Rs100 pre-paid mobile phone card, the users get only airtime for Rs66.5 after deduction of Rs33.5 in for 14pc withholding tax and 19.5pc sales tax. Around 70pc or 98 million mobile phone users pay these taxes every time they load the Rs100 pre-paid cards.

“We have submitted detailed proposals to the FBR for reduction in the tax rates on withholding tax and sales tax to provide relief to people especially in the election year,” Telenor’s Chief Corporate Affairs and Strategy Officer Muhammad Aslam Hayat told a select group of journalists on Thursday.

Ufone’s Chief Officer Corporate and Regulatory Affairs Naveed Khalid Butt was also present at the briefing. Mr Hayat said the government should reduce the withholding tax to the level of 2013.

Mobile consumers are unable to reclaim the withholding tax paid on mobile services due to most subscribers’ incomes falling below the taxable limit and this tax effectively acts as an excise duty, he said.

As with the sales tax, the withholding tax rate for mobile services is markedly higher than the rate for other sectors, he said. The tax rate is also higher for mobile telephony and internet services than for fixed-line equivalents. Reducing the withholding tax rate could produce very similar impacts to a reduction in sales tax/FED on mobile services, he added.

As per proposals for the next budget, it was proposed to rationalise rate of FED/GST and bring it at par with other sectors.

GST on telecom in Sindh is 19pc and 19.5pc in other provinces, while the level of GST on other services and sectors is 13pc-16pc. Similarly FED on telecom services is 18.5pc while it is 16pc for other services.

Sales tax rate of 19pc on telecom is one of the highest in Pakistan, second only to Uzbekistan among Asian countries. In Myanmar it is as low as 5pc. India and Iran have a sales tax on telecom of 14pc and 8pc, respectively.

According to the telecom industry, bringing GST/FED to 17pc alone can create 1.8 million additional connections and increase GDP by $1.2bn generating 4,200 jobs by 2021.

Similarly, removing SIM sales tax and eliminating annual licence fees have the potential to further add 1.2 million connections , increase GDP by $800m and generate 4,500 jobs.

Under the proposals, it was suggested to abolish FED/GST on Data Services and harmonisation of taxes across all provinces. Currently, there are different GST rates for voice and data in different provinces.

It was also proposed to reduce custom duties and sales tax on imported mobile phones. Currently the import taxes constitute 37pc of device value.

Other proposals include abolishing of SIM Issuance and Supply Tax of Rs250 and IMEI tax of Rs300-1500 which is currently on hold.

The booming mobile phone industry yielded over Rs158bn in taxes to the national kitty in 2015-16, providing the tax officials an easy way to pocket more from end users irrespective of their incomes.

Instant and extensive connectivity that mobile phones provide has helped all entrepreneurs, big and small, to expand their economic activity but the PML-N government seems to look at it differently.

Instead of considering it a useful tool for economic revival, the government has also taken it to be an easy way to squeeze more in taxes from the millions of cellphone users.

Income tax is exempted in the Provincially Administered Tribal Areas (Pata) and Federally Administered Tribal Areas (Fata). However, there is no provision in the law that the income tax will not be deducted from the users in those areas.

In the year 2004, the government held out an assurance to telecom sector to grant it industry status. However, the government has yet to fulfil its promise.