Mobile phone cards tax suspension

LAHORE: The government and cellular operators are likely to face an annual loss of around Rs 150 billion if a new taxation policy is evolved by the Federal Board of Revenue (FBR) according to the orders passed by the Supreme Court on Monday.

According to the information gathered by this correspondent from different cellular operators and government officials, around Rs 150 billion cumulative loss would be faced by the government and cellular operators in case a new policy is evolved in which withholding tax, general sales tax/federal excise duty (FDE) and mobile services charges are withdrawn.

However, the major loss will be faced by national exchequer to the tune of Rs 100 to 110 billion, while cellular operators are going to face a loss of Rs 35 to 40 billion after withdrawal of service charges.

As of December 2017, on a load of Rs 100 by a customer of Ufone, the deduction of withholding tax is 12.5 per cent, admin fee 5 per cent plus 19.5 per cent FED which is Rs 5.98, maintenance fee 3 per cent and plus 19.5 per cent FED which is RS3.59. Thus, the total deduction on Ufone recharge of Rs 100 is Rs 22.07 and balance received by an individual after all the deductions are 77.93.

Similarly, on Telenor Rs 100 balance load, deduction of withholding tax is 12.5 per cent, service charges 7 per cent, GST on remaining Rs 83 is 19.5% [Rs 16.19] and thus total deduction is Rs 35.69 and Rs 64.31 balance received.

Likewise, a Zong customer loads a balance of Rs 100 and suffers service Fee 5 per cent or Rs 5, service fee + operational fee Rs 10, withholding tax Rs 12.28, operational fee 5 per cent or Rs 5 and Sales Tax Rs 1.95 and receives Rs 75.77 after all these deductions.

Furthermore, on Jazz Rs 100 balance load, withholding tax is 12.5 per cent, 5 per cent service charges plus 19.5 per cent FED which is Rs 5.98, and 5 per cent operational fee which is Rs 5 – hence a total deduction of Rs 23.48. Thus an individual after all the deductions receives Rs 76.52 balance.

According to Pakistan Telecommunication Authority (PTA) annual report 2017, cellular operators contributed Rs 161.43 billion taxes to the national exchequer, out of which Rs 46.20 billion in tune of GST/FED and Rs 82.10 billion in the tune of others (withholding tax, income tax, customs duty and other taxes).

On the other hand, according to the FBR, the withholding tax on telecom sector is one of the highest as most sectors are paying in the range of 1-5 per cent.

Official data shows the FBR received Rs48 billion as withholding tax in 2015-16 from 140 million mobile phone users while only Rs 4 billion were claimed by the taxpayers through tax returns while major portion of Rs 44 billion remained unclaimed as most subscribers were either below the tax threshold or did not submit a return for claiming it.

The FBR officials say almost Rs 50 billion financial loss could be faced in case of withdrawal of withholding tax, while the almost similar amount of Rs 50 billion in tune of GST/FED. Thus, a straight minimum of Rs 100 downfall in revenue collection will come in case of abolishing withholding tax and GST/FED. On the other hand, the PTA has set a benchmark of maximum10 per cent of total revenue of any company as service charges in case cellular operators who are following this benchmark in the deduction of service charges which directly goes to their kitties.

The telecom industry officials say they in past had asked the FBR to rationalise the taxes on the telecom sector, especially GST/FED and withholding taxes. The tax rate of both taxes is the highest for the telecom sector in the country.

On withdrawal of service charges charged by the cellular operators, they say the PTA allowed it to the industry. This is allowed in the backdrop that investment of the sector is capital intensive while dormant users (top-up load after 60 to 90 days of Rs 20 to 30) also use the same infrastructure. The component of such users is also substantial in total users of Pakistan. They further say average revenue per user (ARPU) of Pakistan’s telecom industry is lowest in the world with less than $2.However, they added, the industry will follow the instruction in the line of policy made by the FBR after Supreme Court orders.