Reduction of the demand for telecommunications in the withholding tax on income

KARACHI: The telecommunications industry, in its 2022-23 budget proposal, asked the government to restore the withholding tax on income to 10%, a level where it was before the introduction of a bill additional finance earlier this year.

“[The present] A 15% taxation reduced industry profitability while hampering the business case for network extensions and service improvements,” the industry said in the letter written to the Department of IT and Telecommunications.

“This hampers the affordability of cell phone ownership and internet services – essential for the entire population at this time, as well as for the country’s economic growth,” the industry wrote.

They added that it was applied unjustifiably to more than 70% of the population living below the poverty line, who had essentially been exempted from income tax.

“This economic segment of the population is neither a return filer with an option to adjust/recover said AIT. Therefore, implementing such tax collection measures across the entire telecom subscriber base only disproportionately increases the cost of owning a mobile phone. »

Pakistan has the largest gender gap in mobile phone ownership (34%) and mobile internet usage (43%) compared to its regional peers.

Sectoral taxes increase the cost of mobile services, which has a strong impact on poorer consumers, especially women, reducing their ability to become mobile broadband subscribers.

In the last budget, the government’s 2021 budget law reduced the AIT from 12.5% ​​to 10% for the 2021 financial year and to 8% beyond.

However, it was only withdrawn six months later through the (supplementary) finance law. 2022. The rate of AIT rose from 10% to 15%, the highest since 2014.

The industry has recommended that the AIT rate be increased in the Finance (Supplementary) Act. 2022 should be resumed and restored as it was until the 2021 finance law.

“As a policy, AIT under Section 236 of the Income Tax Order 2001 (ITO) should be phased out as it adversely affects the falling subscriber base below the taxable limit, and efforts should be focused on more direct tax measures aimed at terse, rather than essential service spending,” the industry players said in the letter.

The industry has also urged the State Bank of Pakistan to remove the 100% cash margin restriction on the import of telecom equipment.

“The telecommunications industry is totally dependent on its equipment to fulfill its obligations of quality of service and extension of network coverage, as required by our respective licenses. Telecommunications equipment is not a luxury item,” the stakeholders said.

“The above comprises nearly 85% to 90% of imported telecom equipment, and the new requirement will have a severe negative impact on the liquidity situation as well as the financing needs of telecom operators,” the industry explained. .

The industry has also called for the harmonization of federal and provincial sales tax laws.

Provinces have introduced their own sales tax laws in their respective jurisdictions, applicable to telecommunications services, Telecoms said.

“These laws are inconsistent with each other and the Federal Excise Act (applicable in Islamabad) has overlapping implications (such as FED in addition to provincial sales taxes, more of a withholding demand of same transaction tax, reverse charge rule) and geared towards short-term revenue goals rather than promoting a fair tax system for all economic segments,” they said.

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