Budget for 2010-11 announced no tax cut for Telecom industry. Earlier, there had been confusion in the industry at all levels that leveling of GST may have reduced taxes on Telecom sector from 19.5 percent to 17 percent.
However, after confirmation from FBR officials, Telecom experts and senior journalists, we can now safely say that there has been no change for any taxes on Telecom industry.
Here is the reason: 19.5 percent tax that telecom customers pay on services is FED or Federal Excise Duty and not the GST. Hence, leveling of GST at 17 percent will not impact any taxing on telephony services.
It is interesting that previous year, when FED was reduced from 21 percent to 19.5 percent, then everyone had termed it GST, but now we come to know that it was FED and not the GST.
Mr. Abdul Rehman, Director at FBR has confirmed us that taxation on telecom services come under FED, hence telecom customers will keep paying same amount of taxes as they were paying before budget.
Mr. Zahid Khawaja, telecom reporter at NNI (News Network International) also confirmed us the same.
Apology: We apologize for mis-representing the facts earlier. Though this happened due to a fact that media had been terming taxes on telecom as GST. Here and Here are examples. Whatever the reason was, we mis-represented the information and we are sorry for this.
Government of Pakistan has increased General Sales Tax from 16 percent to 17 percent, across the board for all the sectors.
Following is the excerpt from Finance Bill:
Increase in the rate of sales tax from 16% to 17%.
Increase in the rate of sales tax from 16% to 17% is aimed at distributing the burden of extra tax measures on all sectors of the economy.
Enforced through amendment in Section 3 of the Sales Tax Act, 1990, effective from the 1st July, 2010 and Notifications Nos. SRO 395 to 398(I)/2010, dated 05.06.2010.
This action will impact other economies but for Telecom sector GST has lowered to 17 percent, which was previously 19.5 percent.
Others taxes for telecom sector have remained unchanged, including Rs. 250 SIM activation tax and 10 percent withholding tax. Taxes for Import on telecom equipment and handsets didn’t change as well.
It merits mentioning here that GST was 21 percent earlier, which was lowered to 19.5 percent in year 2009-2010, and now it is further slashed by 2.5 percent. This reduction in GST is likely to help the customers and the government alike.
It is observed that reduction in taxes in past two years generated more tax amount for the government.
According to revised GST, consumption of each rupee will result 17 paisas of taxes compared to 19.5 paisa taxes previously.
Following are taxes/services charges for Rs. 100 Card:
- 10 percent withholding tax (is deducted at the time of card load)
- 5 percent service charges – deducted by all cellular companies (is deducted at card load)
Amount customer will get on card load of Rs. 100: Rs. 85
For Calls/SMS/VAS, another 17 percent tax will be deducted. For instance, if a 30 second call charges are Re. 0.68 then:
- Call Charges: Re. 0.68
- GST: 0.68 X 17/100 = 0.12
- Total Call Charges, including tax, of 30 seconds (if call charges are Re. 0.68) = Re. 0.78
If Finance Bill gets passed by National Assembly, implementation of new GST on telephony services will start from July 1st, 2010.
Moreover, VAT will be imposed on Telecom services by replacing GST from October 1st, 2010.