The Finance Ministry has confirmed that telecom is one of the highest tax paying sectors in terms of withholding taxes.
The parliamentarians in the National Assembly asked in writing from the Finance Ministry whether or not the “Telecommunication Sector” was one of the highest tax payers in the country currently. They further asked about double taxation and whether tax was being collected first at the time of re-charge and again at the time of making calls.
In written reply to the queries raised by the Parliamentarians, the Finance Ministry confirmed that telecom sector is one of the highest tax paying sectors in terms of withholding taxes; however, the withholding income tax deducted from consumers is adjustable at the time of filing of their returns.
Details of rates of various taxes charged from consumers are as under:
- Withholding Income tax @ 14% of the amount of bill or sale price of internet prepaid card or prepaid telephone card or sale of units through any electronic medium or whatever form.
- Federal Excise Duty (FED) @ 18.5% on telecom services (Islamabad territory).
However the Ministry maintained that it is not correct that double taxes are being collected/charged by the cellular mobile companies.
There are actually two different types of taxes being collected from the consumers under different tax statutes, one is advance income tax u/s 236 of the Income Tax Ordinance, 2001 and other is sales tax/FED charged at the time of making calls.
Only 900,000 of 120 million mobile subscribers filed tax returns
Advance income tax is adjustable against income tax liability of the consumer and in case of no tax liability, the tax deducted is refunded.
The Federal Board of Revenue collected Rs 43 billion on account of withholding tax during 2014-15. Only 0.9 million out of 120 million total users deposited tax return claims and got back what they paid in advance. The remaining amount of more than Rs 40 billion was automatically confiscated by the government at the end of the financial year.
The telecom companies and thousands of franchisers were charging the 14% advance tax from consumers on every recharge but neither FBR nor PTA has human or technological expertise to check whether the huge advance tax collected from users was actually deposited in national exchequer or not.
It is a fact that majority of the mobile phone subscribers in Pakistan do not claim the tax return that is deducted in the form of Withholding Tax. FBR should create awareness among people for claiming their tax return, which would not only be helpful for the public but also for the government to increase its tax net by registering more people.
Government confiscated Rs 40 billion in WHT in last financial year
It is quite surprising that despite the fact that government is openly admitting that Telecom sector is one of the highest tax paying sectors, they are still not addressing their concerns.
According to the latest figures from the State Bank of Pakistan, Foreign Direct Investment (FDI) decreased in Information Technology sector by $21 million in the first seven months (July-January) of 2015-16 on a year-on-year basis.
It is openly acknowledged that high tax ratio is one of the major reasons behind capital plight. If situations remain the same, further decline is expected in the sector which may negatively affect economic growth, besides increasing the number of unemployment.