Taxes Are Killing Telecom Industry: Experts

Telecom experts termed heavy taxation on the sector as the biggest impediment to growth and diversion of foreign direct investment to other regional countries.

The government is illegally collecting Rs 40 billion annually as withholding tax from telecom consumers which have brought the sector on the verge of decline, resulting in diversion of foreign direct investment to other regional countries.

This was the crux of the 60th meeting of Sustainable Development Policy Institute’s Study Group on Information Technology held here on Thursday.

Tariq Sultan Member of Pakistan Telecom Authority (PTA) proposed to the government that reducing GST may not impact the government revenues in the long run, and giving status of industry to this sector can further improve prospects.

He maintained that withholding tax should not be charged from those who cannot afford it. Customs duty on the import of equipment should be brought back to the previous level, he added.

There is a discrepancy between landline and mobile phone taxation. In case of landline, except from initial Rs 1,000, there are no further taxes but in case of mobiles, taxes are to be paid on recharge of every Rs 100.

He further said that FBR should develop such mechanism to exclude people which according to FBR’s own laws do not fall in tax bracket.

Dr Muhammad Saleem Director-General Commercial Affairs, Pakistan Telecom Authority, said the cellular sector in Pakistan falls among the most heavily taxed cellular sectors in the world, which is an impediment to its growth. Rationalization of taxes on telecom sector, he suggested, would lead to enhanced growth, better compliance and increased output in the long-run.

Provincial governments impose sales tax on the internet and data services, which is detrimental to the growth of broadband services, he said, adding that in comparison with other sectors, the rates are even higher in the telecom sector; for example, GST and WHT rates on telecom services are up to 19.5% and 14% respectively compared to average GST of 16% and WHT of 10% in other sectors.

To capitalize on the rapid growth in the telecom sector and the revenues being generated thereof, the government of Pakistan (GoP) gradually increased taxes on the sector. Various consumer and corporate taxes/duties have been levied on the telecom sector during the past decade.

He further said that majority of the subscribers are non-tax filers due to income BTL, hence, cannot get adjustment in their annual tax returns. He further said that GST / FED @19.5% in Punjab, KPK and Balochistan, 18% in Sindh and 18.5% in rest of Pakistan) much higher as compared to average 16% GST on other sectors of economy.

Custom Duty on the import of telecom equipment has been increased from 0% – 5% in 2012-13 to the current level of 5%-15%, at a stage when operators are required to up-grade their infrastructure for the speedy roll out and adoption of mobile broadband services in Pakistan, he added.

Vice-President of Telenor Aslam Hayat said that withholding tax is imposed on those consumers who either do not fall in the tax bracket or do not file tax returns and ultimately cannot get refunds.

During the last 10 years, the telecom sector has given more than USD 8 billion revenue to the government in the form of direct and indirect taxes, he said, adding that the sector is treated differently when it comes to tax collection regime. Hayat said instead of going to the IMF and asking for a tranche of $ 500 million, the government could have relied on the growth of this sector.

He said an average user spends Rs 2,250 annually for his/her cellular services out of which Rs 992 go to the government in lieu of taxes, which has put a bar on the growth of broadband services.

“According to the World Bank, in low and middle-income countries, such as Pakistan, every 10% increase in broadband penetration contributes 1.38 per cent to GDP growth.” Hayat said the government has yet to fulfill its promises including provision of industrial status to the telecom sector, and reduction in withholding tax from 15 per cent to 10 per cent.

He further said that government is minting Rs 42 billion as advance tax from poor who use telecom services and cannot claim it back. The average user spent about Rs 200/month on telecos, Rs.2250/year & get services worth Rs.1598 out of which Rs. 992 goes to the government.

He said that industry apprehended that it may not be able to provide affordable 3G/4G services to people due to heavy taxes.

International ICT Consultant Pervaiz Iftikhar briefed the participants about the usefulness and the power of internet, which what he said is clearly visible in the rise from the scratch of today’s mega corporations like Facebook, Amazon, and YouTube.

He said ICTs touch all aspects of life, and higher taxes on ICTs adversely impact everyone. “The high tax rates are causing smuggling, which can be stopped by tax rate rationalization,” he added.

“14% of the tax we pay on vouchers is advance tax which the rich can claim but the poor can not”, said Iftikhar, adding that 0.1 million out of 128 million SIMs are owned by the tax filers.

Deputy Executive Director of SDPI Dr Vaqar Ahmed said the growth in the telecom sector has stalled due to no significant Foreign Direct Investment in this sector during the recent past. “It is because of the multiplicity of taxes at federal and provincial levels.” He highlighted the SDPI’s research which says foreign investors are now more interested in other regional economies in South Asia due to rationalized tax burden, lower cost of doing business and investor-friendly regulatory regimes there.

Maj-Gen. (retd) Shazad Alam Malik, the former Chairman of PTA, termed the taxes on telecom sector unfair. He suggested that the government should give immediate relief for a long-term gain.

Dr Abid Suleri, the Executive Director of SDPI, assured the meeting that being member of Economic Advisory Council, he would take these recommendations to the government. He said bringing a balance between revenue and growth is the government consideration, which is under pressure after a massive reduction in the commodity prices.