Mobile cards tax suspension: Federal, provincial govts to bear Rs123 bn revenue loss

ISLAMABAD: After suspension of tax on mobile phone cards by the Supreme Court of Pakistan, the national exchequer both at federal and provincial levels will have to bear revenue loss of Rs123 billion, including Rs48 billion to the FBR at Centre and Rs75 billion to all provincial governments, over next 12 months.

The Federal Board of Revenue (FBR) is going to face revenue loss of Rs4 billion per month with the existing rate of 12.5 percent tax deducted on phone pre-paid card, so the annual tax loss to the national exchequer will be standing at Rs48 billion.

The provinces used to collect around 19.5 percent tax on phone card, so their total collection would be impacted in the range of Rs75 billion on annual basis. Total accumulated losses in terms of revenue for all over the country can climb to Rs123 billion if this tax on mobile cards remained suspended for whole next fiscal year 2018-19.

Who is going to fill this gap over revenues of the country where tax to GDP ratio is already lowest in the world? This is a question mark as implementation this verdict can hike the budget deficit by over 0.3 percent of Gross Domestic Product (GDP) in one financial year.

The FBR had submitted in its written reply before three-member bench of the apex court that another three-member bench of Supreme Court in 2003 had declared income tax on phone cards as valid tax, so it was a decided matter on behalf of the apex court. The FBR said if the SC wanted to take up this issue again, then a larger bench should be constituted.

Secondly, the FBR prayed in its written statement that the withholding tax on mobile phone cards was adjustable tax which could be obtained back by return filers at the time of filing returns. The FBR said it was conscious about rising burden so they were on the path of reducing the tax as they slashed down the rate from 14.5 to 12.5 percent and the rates were to be brought down further gradually.

Thirdly, the FBR had argued that it is tax on consumption. The FBR officials argued that the poor man paid sales tax on buying a matchbox at Rs10, so how tax on mobile card could be termed illegal. It said it means that all other taxes would have to suspend if one buys this argument that the poor should not pay consumption tax on mobile cards. The FBR said it is applied on all other sectors, then the concept of consumption tax would die in Pakistan.

The FBR argued that tax on mobile phone card is phenomena in all other countries including India, Bangladesh, Thailand and others, but the mobile calls in Pakistan are cheapest among the neighbouring countries as well as around the world. However, the apex court bench did agree to the viewpoint of the FBR and suspended collection of tax on phone cards.