Despite numerous complaints from telecom operators, the Federal Board of Revenue (FBR) is considering a new tax to add to the pile. The board is considering to increase the 0.4% tax applied to banking transactions on mobile banking services (for non-filers of tax returns) in the upcoming budget.
They will, however, remove the tax on cash withdrawals by branchless banking agents.
Currently, they are paying 12% tax on commission earned from banks as well as 0.3% tax on cash withdrawals.
Contrary to SBP’s Intentions
State Bank of Pakistan suggested the removal of tax on cash withdrawals for branchless banking agents. The Bank is following the “National Financial Inclusion Strategy” which is why they put the recommendation forward in the first place. SBP believes that taxes on cash withdrawals could be a potential barrier towards expanding the banking services to more than half of the Pakistani population by 2020.
Over Rs. 110 million has been paid as withholding taxes by the banking agents.
FBR’s idea to add mobile banking services into the 0.4% withholding tax net goes in the opposite direction to the goals set in the National Financial Inclusion Strategy put forward by SBP. The government implemented the tax on all banking transaction to broaden the tax net but failed to achieve that goal.
Lion’s Share of Taxation Revenue
The telecoms industry paid Rs. 158 billion as taxes in FY 2015-2016. This was 34.7% of the total tax (Rs. 455 billion) in the same fiscal year. The Telcos have sought to reduce the withholding tax from 14% to 10% for the next financial year 2017-2018. However, it’s unlikely that FBR will accept this proposal as this would mean roughly Rs. 50 billion in lost revenues for them.
The Board charges 14% withholding tax for both prepaid and postpaid consumers even though most of the pre-paid customers are below the taxable income threshold of Rs. 400,000 per year. FBR might, however, come up with a method of excluding the untaxable customers.
It should be noted that telco subscribers pay the most taxes compared with customers in other sectors. They can’t reclaim the withholding tax either as they don’t file tax returns.
Demands By Telcos
Industry players have tried to get the government to reduce federal excise duty (FED) and general sales tax (GST) from 19% to the standard 17%. In addition, they have also demanded the removal of FED and GST on SIM cards, IMEI number activation, and data.
None of these demands have been met or will be met for the foreseeable future as the FBR considers it a mere wish list.