Cellular Companies Get to Prime Minister to Get Rid of NAB

Tax-EvasionCellular companies are under the hammer of National Accountability Bureau for allegedly evading tax payment that they earn through interconnection charges collected from mobile phone customers.

NAB has said that the tax evasion amounts to Rs. 47 billion and mobile companies must pay this tax to avoid consequences.

However, cellular companies are naturally trying to save this money by not paying the tax – though, at the same time, they have offered the government to waive the tax till now and get tax deducted on interconnection charges from July 1st, 2012. Request was turned down by the authorities, we have learned.

Cellular companies have now collectively written a letter to Prime Minister of Pakistan to explain their viewpoint and to seek his sympathy and probably support too,  in getting rid of NAB enquiry.

Here is the letter (which reached to us through a source, while a copy of it was produced in The News today)

We want to draw your kind attention to the recent media reports that have given the inaccurate and unwarranted impression that the telecom operators have evaded tax on interconnect calls and that some exemption is being allowed to the operators under Section 65 of the Sales Tax Act, 1999.

We would like to apprise that all cellular mobile operators (CMOs) are multinational companies (MNCs) working under the direct control of their foreign parent companies/investors. Being multinational companies, the CMOs are therefore required to strictly follow the corporate governance procedures and under the guidelines of their shareholding groups as well as adhering to the governing legal framework of the countries they are operating in. These are also subject to group internal audit and statutory audit requirements which ensure transparency and legal compliance.

It is pertinent to mention that mobile telecommunication is THE LARGEST tax collecting and paying sector at the moment. The total contribution of the telecom sector to national exchequer for finance year 2011-12 was in excess of Rs. 120 billion. This is in addition to billions paid as other fees and levies to the federal and provincial governments and their concerned authorities.

Furthermore, this is noteworthy to be mentioned here that the telecom operators are making a significant contribution towards the overall economy of the country by making 5% contribution ($79m) in the total foreign direct investment made in the country in FY2011, Rs117b contribution towards the national exchequer in FY2011 and a total of around 1.4m direct and indirect jobs created by the telecom industry.

Over the past couple of years the telecom industry has shown slower growth as compared to earlier years due to the grave challenges faced by the industry. Despite all the grave challenges the telecom operators have provided their best services to the customers and are still expanding to serve the untouched areas with most modern infrastructure, which shows their commitment in terms of service provision and roll out obligations.

This is to inform that based on the caller party pays regime implemented by PTA; the calling party is required to pay FED for the entire charges of telephone call (calling party network + receiving party network) which is subjected to tax in sales tax mode @ 19.5%.

We believe that

  • Department cannot collect tax beyond what is due on telephone calls;
  • Total tax on the telephone call has already been deposited in retail mode;
  • No tax is due on interconnect as it is mere after tax sharing of revenue on which tax has been collected/deposited on gross amount by each of the concerned telecom operator from whose network the call was initiated;
  • Departmental contention that tax should be paid in two parts by the calling party network and receiving party network is a mere procedural matter with no additional tax revenue for the government;
  • Arbitrary proceedings contrary to sales tax mode cannot survive the test of appeals.

Further, to avoid litigation the telecom operators offered to adopt the procedure proposed by the department who in turn provided waiver of past practice of industry under Section 65 of the Sales Tax Act, 1990 through notification issued by Revenue Division on June 30, 2012 which was proposed to be published in official gazette effective 30th June 2012. Please note that there was no loss to the government exchequer as alleged in the news media.

The notification issued was to ensure that CMOs may not be subjected to litigation on procedural matters. Needless to mention that in the past Revenue Division has issued numerous procedural waivers through notifications issued under Section 65 of the Sales Tax Act, 1990, being fully within its powers. Accordingly, the impression being created by some quarters as to tax evasion by telecom operators is incorrect and based on insufficient understanding of facts and related provisions of law.

We therefore request your august authority to please give us an opportunity to present correct state of affairs to your good self and your intervention and directions to the authorities including NAB to stop media trial and harassment of the telecom companies as there is no factor of corruption or loss to government exchequer involved therein even in terms of Section 9 of the NAB Ordinance, 1999. Simultaneously, directions may be given to FBR to withdraw the cases related to interconnect from all forums being baseless and against the interest of the economy of Pakistan.

Moreover, we would also request for the gazette notification of the above referred SRO issued by FBR on 30th June 2012 as well. However, if that SRO is not formally notified by the government, then since there is no loss of revenue to the national exchequer, the current practice of collecting and depositing FED in GST mode by he originating operator covering both the originating and terminating operators, which is based upon CPP (caller party pays) regime promulgated by government itself, should continue as it is. Accordingly, suitable amendments in relevant laws should be made, if deemed necessary and, as such, all proceedings by tax authorities against telecom operators in this regard should be dropped.