Cellular companies operating in Pakistan were not paying taxes for interconnection charges, since 2007 for reasons not ascertained as of now. However, it is believed that cellular companies were relying on section 65 of the Sales Tax Act, 1990 to escape from taxes on revenues they earn from interconnection charges.
It merits mentioning here that interconnection charges of 90 paisas per minute are charged from customers for cross-network calls and is paid to operator that receives call.
Federal Board of Revenue somehow didn’t question the companies about non-payment of this sales tax but it was caught by FBR tax auditors in 2010.
When FBR asked these companies to pay the tax, the companies filed a case with the Commissioner Inland Revenue (CIR). The CIR told them to pay the tax, but cellular companies escalated the issue and filed an appeal in the Appellant Tribunal Inland Revenue (ATIR).
The Tribunal gave a decision in favor of interconnect charges. This was when all cellular operators appealed to the Chief Commissioner of Large Tax Unit with a plea that they were ready to pay tax from July 1, 2012, but asked him to waive the tax of the last four years, claiming the tax evasion had happened inadvertently.
Meanwhile FBR was evaluating the tax exemption application but probably it was too late as the file had hit the National Accountability Bureau table and matter came into limelight.
Admiral (retd) Fasih Bokhari, Chairman NAB, took suo moto notice and asked Chairman FBR to appear in person to explain details about defaulted amount.
Chairman FBR was also directed not to take any further action in terms of waiver of tax worth Rs 47 billion to cellular companies. Chairman NAB, along with, constituted a fact-finding committee comprising DG Operations, Director Special Operations and a senior Banking Officer of NAB to probe into the matter.
The Chairman FBR when appeared before NAB’s fact-finding committee, NAB officials pointedly questioned him on grounds for considering a tax waiver to cellular companies amounting to more than 40 billion (26 billion principal amount, default surcharge and penalty) based on interconnect charges.
Initially Chairman FBR said that he is going to give waiver to cellular companies. He (Chairman FBR) tried to convince the inquiry committee that waiver is in line with the law and he was intended to grant waiver on very next day. However, once he was confronted with evidence and supporting documents, he thanked NAB for timely intervention and guidance provided to him by NAB in safeguarding the interest of national exchequer and the interest of FBR.
He accepted view point of NAB and agreed on 4-point agenda.
- No waiver whatsoever will be granted to cellular companies on grounds of interconnect charges.
- He will depute his lawyer to get stay vacated by producing evidence in the honorable court which has been pointed by the NAB.
- He will approach NAB where the necessity of recovery arises.
- He expressed his commitment to work closely with NAB in larger interest of safeguarding the national exchequer.
Yesterday NAB has summoned representatives of five major cellular companies to know their viewpoint. Reportedly, representatives of all cellular companies held a meeting yesterday to figure out how best to deal with the situation.
It is likely that cellular companies will have to eventually pay the taxes, with some concession maybe, to get the file closed.