The federal and provincial budgets are in the preparatory phase.The budgets are expected to be announced in next month for the next financial year 2016-17.
Telecom industry watchers see no sign of improvement, given that no operator in the telecom sector is set to raise issues of taxation that adversely affect the profitability of the overall industry. Especially considering the billion dollar investments made by them in the past two years.
Telecom operators have been late but they should now start a rigorous campaign in lobbying public opinion in the media about how heavy taxation is hurting the masses and financial stability of industry. Efforts should also be undertaken to illustrate how suggesting a price floor for the telecom authority is an anti-competitive measure in nature.
The profit growth of telecom sector is coming back on track but two out of three operators are still facing losses as reported earlier by Pakistan Telecommunication Authority (PTA) in its recent report. However, reduction in tax rates could further give impetus to profit growth of telecom operators.
In March, PTA chief Dr Ismail said the government was brief on how low tax rate on telecom services could boost its overall revenue for national exchequer, and the government had shown its interest in reducing the tax burden on the telecom sector and consumers.
But mere authority role is not sufficient here, and the telecom operators should pave a way for the government to reduce taxes on telecom services through lobbying among policymakers and by media advocacy.
At present, Panama Leaks is dominant on the television screens. The overall political environment is hot with this Pandora’s Box which is likely to stretch for next many weeks. Most, if not all, sectors have not presented their budget proposals so far but we can expect in the coming weeks.
Taxation in Last Year
Exactly one year ago in May 2015, the telecom industry was shocked with the newly introduced internet tax by the provincial government of Punjab which took almost six months to be waived off subsequently. The internet tax did not affect telecom’s profitability heavily but instead it impacted negatively on customers and the whole economy.
The situation is improving for telecom operators and their customers as a continuous increase is being witnessed in the adoption of mobile broadband services and the same improvement in the earnings of the operators and taxes as revealed by recent profits by Telenor Pakistan and Mobilink.
Budget in 2015
In the last budget, Federal Government abolished SIM activation tax of Rs 250. But it increased taxes on handsets from Rs 150 to Rs 500 per unit which translated to Rs 300 to Rs 1,000 per handset depending on the features of handsets.
Tax Relief in Next Budget
The government should revise downward tax on handsets that ultimately costs the customers, industry and economy. For instance, it increased the price of handsets and slowed down the adoptability of 3G/4G services of customers as well besides increasing smuggling from the different markets.
Heavy taxation hurt the government as high taxes paved the way towards smuggling of handsets in high volumes that deprived the national exchequer of revenue and opened the door to corruption at customs level on the other hand.
Data Taxes on KPK and Sindh
Telecom operators should convince provincial governments of Sindh and Khyber Pakhtunkhawa to waive of General Sales Tax (GST) on mobile broadband and data services, which are non-implemented at present due to stay order of the court, but can be imposed on customers again.
Withholding Tax
The government should reduce withholding tax from 14 percent to 10 percent in the upcoming budget, which will give direct relief to customers. PML(N) government increased this tax to 15 percent its first budget and then decreased to 14 percent in the last year budget.
Custom Duties on Equipment
Custom Duties on telecom equipment should be reduced. Right now, they have increased by up to 25 percent on selected apparatus. This caused telecom operators to pay extra taxes to the government while rolling out new advanced infrastructure for their networks.
The relief in duties will encourage operators to increase the coverage areas of 3G/4G networks which ultimately increases the foreign direct investment of the telecom operator in the coming years.
General Sales Taxes
Telecom sector has been treated with a discriminatory high tax rate of GST which is 18.5 percent to 19.5 percent in different provinces as against 14 percent to 16 percent GST on different services and goods.
This tax should be gradually reduced, which will result in increased uptake of the services by customers.
Due to overall high tax regime, customers of cellular phones avoid using telecom services such as voice calls and SMS particularly people with eroding purchasing power. On other hand, people are trying to save the utility of services through free or cheaper sources like Facebook, Whatsapp and Viber. As a result, the government revenues continue to shrink.
Exactly how is setting a price floor anti-competitive measure? Perhaps it would be better if you can share both pros and cons of price floors instead?
If setting a price floor ensures 4 operators survive in the market instead of 2, would that be anti-competitive in the long run?
Good topic discussed at the right time. Just to highlight that telecom operators r fighting a hard battle against these taxes with FBR and govt. authorities. A little bit of more research will give u this visibility.
Telecom Sector is the only sector perhaps where sharifs, dars and their buddies don’t have any direct stakes. It will continue to get screwed.