The FBR has submitted a detailed response to the Supreme Court of Pakistan in the case of taxes being deducted on prepaid mobile cards.
Earlier this month, the Supreme Court had asked the FBR, federal and provincial governments to submit detailed responses on why upto 42% tax was being charged on prepaid cellular cards.
Upon being told that for every cellular charge, 12.5 percent was deducted as a withholding tax, up to 19pc as sales tax and another 10pc as services charges, the court had remarked: “Is this not exploitation? This is an illegal way to get money from people.”
In its detailed response, the FBR justified the levying of withholding taxes on mobile calling cards, saying that due to a lack of documentation of economic transactions in developing countries, the tax base and revenue collection is low, which is why “withholding taxes are the main source to broaden the tax base and generate revenue.”
“A person has the right to claim a refund if his annual tax liability is less than the tax withheld,” it added
The FBR said that the practice is “prevalent across many countries” and claimed that Pakistan still has lower taxes levied in the telecom sector than countries such as Bangladesh, Malaysia, Thailand, Indonesia and Turkey.
“Mobile phone usage is still cheaper in Pakistan than many countries,” the FBR’s response stated.
The FBR pointed out that the rate of withholding tax levied on pre-paid cards was in fact reduced from its peaks of 15pc in 2013-14 to 12.5pc for the fiscal year 2017-18.
Has FBR just dodged the Supreme Court?
FBR’s response is incredibly irresponsible for a number of reasons.
Firstly, the telecom sector is one of the most highly taxed sectors in Pakistan as well as the region. Secondly, the FBR is taking credit for cheap mobile phone usage while the fact is that mobile phone usage is cheap due to intense price war between operators, not because of low taxes.
If taxes are rationalized and brought to more sensible levels, the people of Pakistan will be offered even better rates for text, voice, and data and they can directly contribute towards the uplifting of the national economy.