Guess how Taxes impacted Telcos and the Government itself

We have discussed before, how the Government of Pakistan tried to recover their budget deficits from Telecom sector in 2008/09 budget. We had mentioned then that this is a clear misjudgment of the government to heavily rely on a single sector, and this could ultimately return results in negative manner.

After almost a year now, this has been proved that added taxes didn’t turn only negatively for government, as it received decreased (or lesser than estimated) taxes from telecom, but industry itself got impacted in a significant way.
Serious implications, that have been witnessed throughout the year, are shouting that government must re-consider its tax policy. Here I would opine that Pakistan Telecommunication Authority also failed to convince federal government over taxes issue, as I believe regulator had an idea of the high tax consequences.

It may be recalled that excise on telecom services were raised to 21%, which was previously 15 percent. Similarly, handset industry was not left behind, as Rs. 750 tax was imposed on import of each cell phone.

Cellular Industry

In order to study implications of taxes on cellular services, first let’s review following graphs and table to know the telecom contribution to Exchequer in recent years

gst_collection

activation-tax

pta_deposits

telecom-contribution-to-exchequertelecom-contribution_table

Clearly, growth rate of GST/FED contribution fell down, even the estimated value of Rs. 120 billion was not met in year 2007-08 for Telecom contribution.

Thanks to higher GST, rate of connected calls was low, resultantly low cellular revenues and ARPU, and in return the low contribution towards national exchequer.

You will agree with me after having a look at following graph

fedgst-subscribers1

See, how the growth rate of GST/FED collection is impacted, also the subscribers growth rate.

One may ask me that we should not term high taxes as only reason for this situation, for instance, he/she may question to add other elements too, such as, recession, then my answer is that recession should have impacted GST/FED Collection rate only, not the subscribers growth rate. Viewing the both lines hitting rock bottom level reveals that high taxes are playing pivotal role in all this.

Handset Industry

Rs. 500 custom duty and Rs. 250 regulatory duty on each handset has impeded handset growth in the country. This negative growth rate can be termed good, as few may comment that Pakistan saved some bucks for not buying phones, but unfortunately, this is not the case; as these high taxes encouraged illegal import of cell phones.

Federal board of Statistics reported that handset imports fell by 76 percent in the three-quarters of the current fiscal year 2008-09. However, on other hands, mobile manufacturers are of the view these high taxes hit the industry as well as the government alike.

Conclusion

Government must re-think the tax policy and must bring down GST to 15 percent level to help cellular companies achieve greater ARPU. Similarly, removal of activation tax can revive the lost growth rate of subscribers’ addition. Government should relieve handset market too by dropping the tax level on handsets

Tech reporter with over 10 years of experience, founder of ProPakistani.PK


  • Nadeem Ahmed

    no one is able to ask pta what pta is giving in return ?
    we awaam just need to pay taxes and taxes !
    BS system
    no politician is gona come fwd and say this is wrong !

  • M

    I respectfully suggest that usage of abbreviations should be limited to the most common in the general public. People don’t have the time to dig out what they stand for. For example take GST/FED. I know it has something to do with government tax but don’t know and don’t have time to dig out what letters stand for. Similarly ARPU has to do with …revenue per unit but don’t know what “A” stands for.
    In any case, all of the writing is soft copy so what is the motivation of using abreviations? Save white screen space?
    Communication needs to be efficient knowledge transfer but not at the cost of extra effort to decode abbreviations.
    However, I was a very good report. It was quite impressive.
    I was not clear on why the author felt that recession would not impact subscriber growth rate.
    Thank you

    M. Aslam

    • Your suggestions noted, and will be kept in mind

      Thanks

  • Even, Govt. take action on propakistani news and guesses and surveys ?

  • Uzair

    Well i think our Government is a fool. And now they have to pay the Price.

  • shahram

    well mr M in arpu A stands for average

  • obaid saeed

    Average revenue per user=arpu