No Tax Cut for Telecom Sector in 2012-13 Budget

cell_phone_userTelecom customers will live on without any tax reduction, that is announced in 2012-13 budget, for majority of other sectors which were paying greater than 16 percent general sales tax.

Though the government announced the reduction in GST for various sectors from 22.5% and 19.5% GST to level sales tax at 16 percent, but telecom sector isn’t included in this relief.

Announcing the reduction in GST for various sector, finance bill 2012-13 said:

Removing aberrations in rates of sales tax @ 22% and 19.5% to standard rate of 16% through rescinding of SRO 644(I)/2007 dated 27-06-2007 vide SRO 594(I)/2012, dated 01.06.2012, effective from the 02.06.2012.

Since, the 19.5 percent tax that telecom customers pay is not GST (instead it is FED) along with the fact that telecom sector’s tax wasn’t increased with above mentioned SRO (i.e, SRO 644(I)/2007), hence order for leveling of GST at 16 percent will not apply for telecom sector.

For reference, you can download:

The situation resulted into a misunderstanding in telecom sector (just like we had in 2010-11) as media, telecom officials and customers considered this leveling of general sales tax valid for telecom sector as well.

However, Federal Board of Revenue officials confirmed ProPakistani that telecom sector will keep paying 19.5 percent tax, which is termed as Federal Excise Duty.

It maybe recalled that telecom sector has repeatedly urged the government to rationalize taxes on the sector, which is among the most competitive markets in the world with one of the lowest call charges in the world but still telecom sector remains highest taxed in the region and third in the world.

Cellular customers pay 19.5 percent FED, 10 percent advance withholding tax in addition to 7 percent service charges that is deducted by telecom operators.

Put in simpler words, a telecom subscriber has to pay Rs. 34.55 out of every Rs. 100 as taxes and service charges.

It maybe recalled that telecom sector recently become biggest utility services consumed by customers as they paid Rs 39.828 billion on the account of taxes on telephony services in the first half of financial year 2011-12.

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