Pakistani Telecom Companies plead with government for Tax cuts and Industry status

Telecom companies ask for tax break and industry status

Telecom sector since its birth has contributed a sum of billions of rupees in terms of taxes and regulatory duties. As the new budget 2017-18 is closing in, the last one before the tenure of the sitting government ends, the telcos are looking towards them as their last hope for the amendments in the taxation policies for the telecom sector.

Telenor Pakistan today led the telecom sector of Pakistan by organizing a gathering of various stakeholders and has presented the following five proposals on behalf of the entire industry:

  • Eliminate Withholding tax (WHT),
  • Rationalize Federal Excise Duty (FED)/General Sales Tax (GST),
  • Grant of industrial status to telecom sector by Federal Board of Revenue (FBR)
  • Eliminate advance Income Tax on auction price of 4G spectrum
  • Eliminate SIM issuance and IMEI  taxes

Every year telecommunications companies pay billion of rupees in withholding taxes and are part of one of the highest tax paying sector of Pakistan. On every mobile recharge, consumers have to pay 14 percent of their charged amount in taxes, which is not a small number considering the rising rate of mobile subscriptions in the country.

Aslam Hayat, Vice President Government Relations and Corporate Affairs Telenor Pakistan addressing the issue of taxation said; ” Taxes imposed on the telecom sector should be rationalized. Telecom companies pay the highest amount of taxes as compared to other sectors but still, we haven’t been awarded the status of an “Industry,” which was promised to us back in 2004 and then again in 2014 at the time of 3G/4G spectrum auction. The adverse taxation policies are not fair to a complete sector that pays a significant amount to the national exchequer.”

At the end of the Fiscal year of 2015-16, the telecom sector’s revenue stood at Rs 452.8 billion and the total GST collected by telecom operators stood at Rs 41.65 billion. Moreover, the total funds collected from telecom sector stood at Rs. 157.85 billion.

Telecom sector despite being the most taxed sector of the country still hasn’t received an Industrial status. The difference in the tax rate can be seen from the fact that GST and WHT rates on telecom services are up to 19.5% and 14% respectively but in other sectors, it average GST of 16% and WHT of 10% can be observed.

Government cannot justify the 14% WHT on a segment of our society which earns less than PKR 14,000 a month

It is not fair for a single sector of to be burdened with filling up the national exchequer. Recently, FBR officials while briefing the Senate Standing Committee on Information Technology and Telecommunication proposed a new legislation where telcos would exempt the consumers from paying the WHT.

While the telecom sector is hopeful to get their message and concerns across, it is likely that the government would provide tax breaks especially after PTA rejected the demands of telecom operators to change the base price of the upcoming 4G spectrum which is $290 million.

The presence of advance income tax on 4G spectrum would make the situation worse for the companies as apart from achieving a license for exuberant amount of money, they have to buy the infrastructure, equipment and then pay taxes for a service that they won’t be able to charge much because of price sensitivity in the country.

Around the world, telecom companies flourish when they are provided with incentives rather than heavy taxes which is the case with telcos in Pakistan. With high taxes and increasing price wars, the only thing that suffers is the quality of service provided to the customers where they fail to get the value for their money.

Previously, the Government of Pakistan also moved towards imposing a 14% tax on the Internet in the country. But after facing a severe backlash and unprecedented pressure, the government withdrew their “over the edge” taxation policy.

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