Here’s an interesting fact you might not be aware of: people living in Federally Administered Tribal Areas are exempt from taxes on cellular services. Customers in FATA can use SMS, Voice and Data services without the hefty tax levied in other provinces of Pakistan.
However, this isn’t an oversight or a loophole. No federal or provincial laws ,which include tax laws, are applicable in FATA according to the Constitution of Pakistan. While this is loss of revenue for Pakistan, telecom operators — as per Constitution of Pakistan — are bound to not deduct any taxes from the people of FATA.
Ironically, FBR issued a statement last week saying that Telenor was bound to deduct withholding tax from people residing in FATA.
In its statement, the federal tax agency said:
Initial data analysis has reflected short deduction of tax amounting to Rs. 267 million. This default is primarily due to non-deduction of withholding tax upon cards sold/balance used in FATA/PATA.
Telenor Pakistan was bound to withhold income tax. Proceedings in this case under the Income Tax Ordinance, 2001 are underway.
Not only this, a Senate Committee — in an official statement — went a step ahead and alleged Telenor Pakistan of tax evasion.
As an industry practice, no telecom operator — except one — deducts WHT or GST from customers in FATA, and hence no tax is deposited to the government.
So for instance if you reload Rs. 100 card in FATA, there are no deductions (except service charges, or maintenance charges). Similarly, there is no GST deducted when you make a call while living in FATA.
The one operator deducting GST and WHT in FATA is doing so because of technical limitations. Its systems aren’t capable of offering location based tax exemption.
It is completely baffling that not only the tax authorities, but even senate bodies are singling out telecom operators — mainly Telenor — for not deducting taxes while it would in complete opposition to the Constitution of Pakistan. It’s not even a new issue that has emerged out of nowhere — a verdict out of Peshawar High Court clearly states that no taxes are applicable in FATA.
This is another reason why the Parliament of Pakistan needs to expedite FATA’s inclusion into KPK as the government is losing out of hundreds of millions of rupees in taxes.
However, until the merger actually goes through, FBR and Senate Committees should refrain from pushing cellular operators to deduct taxes from FATA residents.