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Telecom industry asks govt to withdraw advance WHT

By Mehtab Haider
May 14, 2020

ISLAMABAD: The telecom industry has asked the government to do away with advance withholding tax charged from all subscribers, and to harmonise GST on voice and bring it down at 16 percent in the next budget.

They also asked for abolishing GST on usage of data services in order to promote internet services on mobile phones in the post COVID-19 scenario.

A presentation titled “Reforming mobile sector taxation in Pakistan” given to the government top functionaries and available with The News states that unlocking economic and social benefits could only be achieved through tax reforms in the mobile sector of the country.

In order to build-up their case for seeking tax incentives, the telecom sector argued that the mobile sector accounts for 1.1 percent of Pakistan’s GDP as in 2017 this sector generated $3.4 billion total revenues.

The mobile sector, they stated, contributed 1.5 percent of GDP indicating that its contribution was more than its share in the country’s GDP. Its contribution was 1.7 percent in Pakistan’s total tax revenues, as the sector paid $638 million in taxes and fees excluding the withholding tax on mobile services, official data showed.

On the other hand, mobile sector’s tax contribution represented 29 percent of market revenue shares, whereas this ratio stood at 20 percent in India, 15 percent in Bangladesh and 5 percent in Sri Lanka. Pakistan has the highest share of corporate income and high sales tax in a sample of South Asian countries. The rate of corporate tax stands at 32 percent, import duty 9 percent, other taxes 6 percent, sales tax/VA 40 percent, spectrum fees 1 percent, and regulatory duty 12 percent.

The telecom sector argued that the proposed reforms would have positive results over a period of five years. It said that harmonisation of sales tax on mobile services to 17 percent would result in 0.9 percent decline in prices of services, $55 million gain in tax revenues by 2023, and an additional investment of $120 million in the country.

Harmonisation and reduction in sales on mobile services to 16 percent would result in 1.2 percent reduction in price of services, annual gain in tax revenues by $76 million, and an additional investment of $167 million.

Elimination of 8 percent minimum withholding tax on income from mobile services could reduce prices of services by 0.6 percent, annual gain in tax revenues by $36 million in 2023, and an additional investment of $75 million.

One industry expert said the world was moving towards digitalisation at an increasing pace and the COVID-19 has proven to be a catalyst in adoption of online mediums of communication for business continuity, such as e-education and m-health, especially in developing countries like Pakistan.

The expert also pointed to the digital divide among the 165 million mobile users, as over 53 percent were unable to use mobile data. This could be a hindrance in growth of not only individuals, but the country’s economic growth as well.

The withholding tax of 12.5 percent was collected from all telecom service users regardless of their income tax liability. Out of Pakistan’s population of over 220 million, approximately 2.3 million people were tax filers, which was only one percent of the total population.

This means that a majority of the population earned minimum wage and thus had non-taxable income. However, they were still paying this tax which they could never claim back.

The sector said this undue tax collection from those with non-taxable income was only a burden on them.

Instead of the authorities collecting undue taxes and then disbursing the amount to the same people during a crisis, there should be a long-term approach to bring ease by abolishing advance income tax, making the service more affordable and giving people increased purchasing power.

There is also general sales tax (GST) in provinces and federal excise duty (FED) in the centre which is tax levied on usage of services. Currently, the GST is 19.5 percent and FED is 17 percent for all cellular and data customers.

Levying such heavy taxes on usage of services is another reason for slow uptake of digital services. If this tax is reduced to 16 percent and harmonised across the country, it will increase affordability and scope of services across the country.