Wednesday July 06, 2022

Govt to bring down FED on telecom, broadband to 16pc

June 24, 2021

LAHORE: Following the federal government decision to bring down federal excise duty (FED) on telecom services and broadband operators to 16 percent, the gap between FED and general sales tax (GST) on services imposed by the provinces on the sector has increased to a whopping 3.5 percent.

The federal government through finance bill announced a reduction in FED on telecom services, while the provinces kept GST on service at 19.5 percent. This gap between the provinces and federal administrative areas would create anomalies, while attracting big taxpaying companies to register their telecom services in the federal capital office for tax purposes.

Officials of the provincial revenue authorities talking to The News disclosed that in fact they agreed to bring down the tax rate to implement the single return-single tax rate model.

Provincial tax authorities were already working on harmonisation of taxes and tax rates to expand the tax base.

It has been decided among the provinces to fix the GST on services at 15 percent, except the special reduced rate of tax on certain services for broadening the tax base for a specific time.

Officials of Khyber Pakhtunkhwa and Balochistan revenue authorities said they had already fixed 15 percent GST on services, while Punjab was on the higher side at 16 percent, and Sindh on the lower side at 13 percent rate.

However, the issue lies with the federal government. The FBR has to bring down GST on goods to 15 percent as well in order to harmonise the tax policy.

Officials pointed out that it would be a big step towards a unified tax regime, which would end a lot of issues of input tax adjustment and other anomalies.

An official of the Punjab Revenue Authority (PRA) similarly said that the provincial government has agreed on it.

During the current budget-making exercise, bringing down the tax rate to 15 percent was discussed, but the decision was delayed till the National Tax Council (NTC) of the Federal Board of Revenue (FBR) took its decision.

NTC’s decision to bring down the rate to 15 percent would be challenging, as it would hit the FBR’s tax collection, and the board would have to adopt alternative means to expand the tax base.

However, an official of the revenue authorities believed it would be more difficult for Sindh to increase the rate, since Sindh Revenue Board (SRB) was charging services at 13 percent. Increasing the tax rate by two percent would have political implications. Therefore, the SRB would not take any decision until the NTC makes a collective decision.

Meanwhile, the tax officials have agreed to bring down service tax on telecom to the federal FED level. According to the estimates, even if the provinces bring down the tax rate of telecom and broadband services to 16 percent, the financial tax impact would be around Rs3 to Rs4 billion across the country.

This would have a positive impact on the operators’ incomes, which would increase with increase in consumption, thus generating more taxes for the FBR under the head of income tax.

Therefore, overall financial impact on national tax would be minor with reduction in GST on services by the provinces.

Officials also believed that the economic impact would be higher compared to the revenue loss of Rs3 to Rs4 billion, as trickle down would reach to all consumers and IT and communication industry like call centres etc.

According to latest numbers of the Pakistan Telecommunication Authority, telecom operators in Pakistan had 183 million subscribers. In the past one-and-a-half year of preventive lockdowns, the consumption of mobile internet and telecom services increased significantly as people shifted online for meetings, education, healthcare, ecommerce, and infotainment.

It is important to make telecom and ICT services affordable for the masses in order to realise the government’s vision for a ‘Digital Pakistan’, ie catalysing a sustainable digital economy in the country at par with other nations of the world.

Currently, Pakistan ranks 90th amongst 120 countries and one of the lowest in South Asia, on the ‘Inclusive Internet Index 2021’ of the Economist Intelligence Unit (EIU). Similarly, broadband penetration stands at 46.5 percent, which means more than half of the country’s population remains without access to the internet.

Telecom industry officials said that internet and telecom services have reached a saturation point, because the telecom sector has difficulty pushing further uptake amongst low-income segments of the population, who cannot afford pricy services.

By eliminating disproportionate taxation, these essential services can be brought within the reach of everyone, they believed.