Telcos Demand Industry Status, Tax Cuts for Telecom Sector

The cellular operators demanded of the government to eliminate Withholding tax (WHT), rationalize Federal Excise Duty (FED)/General Sales Tax (GST), grant of industrial status to telecom sector by Federal Board of Revenue (FBR) and elimination of advance Income Tax on auction price of spectrum (4G) in the upcoming budget for 2017-18.

The operators have conveyed to Pakistan Telecommunication Authority (PTA) the rollout of network associated with the auction will require considerable Capex and the importing of equipment. This should be exempt from the import duties currently levied.

They further requested for free passage of bonded shipments between provinces as Customs intelligence in Punjab inspects every shipment especially from Sindh. Other investment incentives should also be considered that will accelerate the roll out of NGMS services such as exemptions on withholding tax and adjustments to the GST system that would allow a net payable position to be adopted.

PTA is required to coordinate with FBR and other stakeholders including members of Auction Advisory Committee on the above mentioned issues; and share the outcome with potential impact on cellular mobile operations in the context of upcoming Finance Bill, fiscal year 2017-18. This is critical for the investment decision by shareholders for this auction.

They requested for:

  1. Elimination of WHT
  2. Rationalization of FED/GST
  3. Granting of Industrial status to Telecom sector by FBR
  4. Elimination of Advance Income Tax on Auction price of spectrum.

Telecom operators maintained that failure of the Federal Board of Revenue (FBR) to implement the decision of the Ministry of Industries and Production which classifies the Cellular Operators as “Industry” (SRO No. 1(II)/2004-InvIII dated April 20, 2004), and to recognize the Ministry of Information Technology (“MoIT”) reference to the CMO’s as Industry in the Cellular Policy 2004 and in its letter to the FBR in June 2014 has over the course of the past many years has imposed considerable hardship in the industry.

This demand was also acknowledged by government of Pakistan after NGMS Auction, 2014 but has not yet been notified and implemented by FBR.