Telenor Goes to Court Against Withholding Tax on 3G/4G Spectrum Fee

Telenor Pakistan has refused to pay withholding tax of $39.5 million i.e. 10 percent of the total spectrum fee ($395 million) of next generation mobile services (3G/4G) that it won earlier in June, while terming it unlawful, baseless and based on a gross misinterpretation of provision of the law, ProPakistani has learned.

Telenor Pakistan, in this regards, has filed petition in the Islamabad High Court (IHC) against the Government of Pakistan, FBR and Pakistan Telecommunication Authority (PTA).

Telenor Pakistan earlier this month was declared the winner of its 850MHz spectrum (3G/4G) auction with base price of $395 million.

Telenor submitted to the court that the advance tax — or withholding tax — under section 236A of the Income Tax Ordinance 2001 is payable where there is a sale by public auction or auction by tender of any property or goods.

Telenor has deposited half price of spectrum fee and remaining fee will be paid in installments as allowed by PTA, but authority hasn’t awarded the spectrum to Telenor because of nonpayment of withholding tax

It was further contended that in the instant case the use of spectrum rights were offered for sale through tender. However, no auction took place as there was no excess demand.

The company has already deposited half price of the spectrum fee i.e. $197.5 million while the remaining 50 percent will be paid in five equal annual installments along with cumulative mark-up @ LIBOR + 3% from effective date of license to date of payment.

According to Telenor — after it paid the first installment of $197.5 million — PTA directed the company to deposit withhold advance income tax of US$39.5 million being 10 percent of the total auction price before awarding the license to the petitioner.

PTA, in this case, is acting as a withholding agent of the government and falls under the jurisdiction of Large Taxpayer Unit (LTU) Islamabad. LTU had obligated PTA to recover any taxes before finalization of the transaction.

Petitioner added that the demands raised by the FBR of deduction of withholding tax at 10 percent of the gross sale price are unlawful, baseless and based on a gross misinterpretation of the said provision without jurisdiction.

“The FBR has grossly misinterpreted and twisted the law to the detriment of the petitioner”, said the petition.

Telenor, in the petition, submitted that for any transaction to constitute a ‘sale’ certain components are essential.

  • Firstly, there must be an owner of property.
  • Secondly, there must be property.
  • Thirdly, there must be a person willing to buy property.
  • Fourthly, there must be an agreement to transfer title.
  • And finally, there has to be an actual transfer of title in the property.

Telenor said that all these ingredients are missing in the present case because of radio spectrum’s basic lack of proprietary qualities.

“The Petitioner is clearly not being transferred any title in the radio spectrum through the award of the license. In fact, no one had title in radio spectrum in the first place which could be transferred to another”, the petition said.

In the absence of a transfer of title, it is submitted that, a transaction cannot be called a “sale”.

The licence awarded to the Petitioner does not even grant any limited proprietary rights, let alone ownership rights, and merely contain an authorization for use of the radio spectrum

Petition said that the government does not own radio spectrum but merely has the right to maintain control over its use under the laws of Pakistan.

Petitioner has requested the court that the demand of advance withholding tax from the mobile phone company be declared to be illegal, without lawful authority and of no legal effort.

Meanwhile, IHC has refrained the Federal Board of Revenue (FBR) from any measures for recovery of 10 percent withholding tax.

Islamabad High Court issued notices to the FBR to submit their comments and next date of hearing has been fixed for June 29, 2016.

Update: IHC Reserves Judgment on Telenor’s Petition Against WHT on Spectrum Fee

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  • Quite interesting. Shows malafide intent of petitioner to evade WHT. If they are allowed to skip that WHT, others will seek the same from old date. Then they will all be able to skip all sorts of taxes even income tax (or equivalent) because WHT applies on taxable proceeds and vice versa.
    Does PP have a copy of the petition etc?

    • I think it certainly is interesting but nowhere near being with malafide intent. It is smart and appropriate as FBR and the GOP is leaned on burdening regular promising businesses with taxes while making little effort to expanding the tax net in its real spirit.

  • Good job Telenor. we all Pakistanis are sick and tired of this sort of policy by the govt. Even stupid people have placed such taxes on bank transfers. What shall people do here? Do transactions in dollars? This govt is stupid at its best.

  • If any tax is to be imposed, it should be imposed on PTA. The spectrum auction fee is the income of PTA and in line with the normal withholding tax practice, the withholding tax shall be deducted from the income of the seller (which is PTA) and be deposited in the national exchequer.

    • PTA is auctioning spectrum on the behalf of Frequency Allocation Board (FAB). PTA has nothing to deal with this income, It will go directly into the Finance account of Pakistan. And for your info there is no country in the world which charge taxes on Govt means its own income.

        • Frequency Allocation Board. A department like PTA Who manage Frequencies in Pakistan.

            • 2600 frequency is worst for LTE in my opinion and 1800 is best if you keep managing and Tower cost in mind . 2600 frequency has very low range. Companies has to manage more towers to cover areas. Where there is very little difference in speed but a better coverage with 1800

      • That is exactly my point Rizvi. This is governments income. Why impose tax on it. And that too on the buyer. Tax laws world over charge the withholding tax to the seller not the buyer. There is no justice in this demand from govt of Pakistan. First they sell something and then they charge withholding tax on it. On one side they ask for Foreign investment and then when somebody comes with investment they charge tax on it?

        As for government for charging tax to its own departments; income/withholding taxes are charged to all the state run organizations like PIA, railways, NTC, TIP. You name it.

      • BTW PTA sells spectrum itself. Not on FAB’s behalf. FAB only allocates the frequency and charges a nominal annual fee for frequency. The spectrum auction money is PTA’s own income shown in its own books of accounts.

  • What about others when they got the license…did they pay WHT or its a sudden urge of Gov to collect more taxes ???

  • I think the MoI are same as the previous auction, And if it is true than telenor has already paid withholding tax on its previous 5 MHz 3G spectrum. And this will go against telenor in court as once it has accepted the taxation law and refusing now.
    And If this tax is new than Best wishes to Telenor for today’s hearing.

  • Good job Telenor. best of luck for today’s hearing.. but I am afraid if Telenor has already paid WHT on their 5MHZ 3G Spectrum then this would be rejected as well :(

  • WHT tax is nothing but bhata tax. If someone is paying his taxes, then why is he forced to pay it in advance?. and if someone’s income is less then taxable threshold, then why would he pay this bhata tax? e.g on mobile loads. This is “Mr. Dar’s Doctrine” to force indirect income tax on everyone :(

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