The Overseas Investors Chamber of Commerce and Industry (OICCI) has recommended the government abolish the rate of advance tax on telecom subscribers completely as the majority of the subscriber base falls below the taxable limit and is hampering the affordability of mobile service.
In its taxation proposals for budget 2024-25, the OICCI also recommended the government revamp the withholding tax regime as it will make the tax claims and its verification mechanism more transparent with minimum operational hassles.
The chamber stated that advance tax on telecom services was reduced via Finance Act, 2021 from 12.5 percent to 10 percent for fiscal year 2021 and to eight percent for future years. However, through the Finance (supplementary) Act, 2021, the rate of withholding tax increased from 10 percent to 15 percent. Increased tax hampers the affordability of mobile service which is a critical service for the entire population and more than 70 percent population of Pakistan lives below the poverty line. Telecom service is also critical for the economic growth of a country.
Additionally, Pakistan has the widest gender gap in mobile ownership (34 percent) and mobile internet use (43 percent) as compared to its regional peers. Sector-specific taxes increased the cost of mobile services which has a strong impact on the poorest consumers especially women, lessening their ability to become mobile broadband subscribers.
Since more than 70 percent of the population lives below the poverty line and the percentage of return filers is also nominal so the implementation of withholding tax to the entire subscriber base is not logical. Further, the reduction in withholding tax will also promote the affordability of internet and data services to the low-income group of people.
The Chamber recommended that the rate of advance tax on subscribers should be abolished completely as the majority of the subscriber’s base falls below the taxable limit or the withholding tax reduction made through Finance Act, 2021 should be reinstated i.e. eight percent effective fiscal year 2024.
There will be no loss of revenue to the exchequer as the tax collection mechanism will be simplified in terms of real-time payment of advance tax under Section 147 on a quarterly basis. Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of records, especially for advance tax on utility bills and imports is itself a very cumbersome procedure.
Recommendations
- WHT regime should be totally revamped for the telecom sector and tax should be collected in advance tax mode u/s 147 on quarterly basis.
- Companies appearing in ATL and having obtained exemption certificates by discharge of full-year tax liability in advance should be dispensed with requirements to obtain separate withholding tax exemption certificates under 151, 234, 235, 236, 236G, and 236H.
- Payments to non-residents cannot be processed without obtaining an exemption certificate from the Commissioner (within 30 days of request).
- To facilitate timely payments the period of 30 days under 152(5A) shall be curtailed to 15 days and in the absence of any confirmation within 15 days, a request shall be deemed to be approved.
- The change is to ensure that a fresh demand notice is issued to the taxpayer after an appellate order for which the period for making the payment shall be curtailed to seven days instead of 30 days.
- To ensure that no recovery steps are taken before the decision on appeal filed before the Commissioner (Appeals) or alternatively where no appeal has been filed before the Commissioner (Appeals).
- The proviso is being introduced to ensure that a clear period of seven days is provided to the taxpayer after the decision in appeal before coercive recovery measures can be adopted.
- Where any tax amount is payable under any order issued by the Commissioner, a notice u/s 137 shall be served upon the taxpayer and the amount shall be paid within 30 days from the date of service of the notice;
- Notice for recovery of tax from the person holding money on behalf of taxpayer u/s 140 shall not be issued where the appeal is pending before CIR(A) subject to the condition that 10 percent of tax demand has been deposited;
- Where any tax amount is payable under any order issued by the Commissioner, Commissioner (Appeals), the Appellate Tribunal, or the High Court, a notice u/s 137 shall be served upon the taxpayer and the amount shall be paid within 30 days from the date of service of the notice. However, in case of an order by the Commissioner (Appeals), the Appellate Tribunal, or the High Court, the time of 30 days shall be curtailed to seven days.
- Notice for recovery of tax from the person holding money on behalf of taxpayer u/s 140 shall not be issued in the following cases:
- where an appeal is pending before CIR(A) or an appeal has not been filed.
- Further, where a decision has been made before the lapse of seven days from the date of receipt of an order by the Commissioner (Appeals), the Appellate Tribunal, or the High Court.
I remember for a brief moment we had the option to top-up Rs.100 and got Rs.100 in our prepaid sim cards. But then it was abolished very quickly.
It would be really nice if this is back because I think the revenue of telecom is already declining continuously and this might help them survive PLUS it will also help consumers a bit!