Taxes on Mobile Cards are Not Coming Back (For Now)

After a landmark decision by Supreme Court of Pakistan earlier this month, mobile phone users in Pakistan have been enjoying tax-free mobile loads and calls for all cellular networks in Pakistan for past two weeks now.

This tax suspension was supposed to remain in place for 15 days but now we are getting reports that taxes on mobile phones will remain suspended for another few days until a new order is passed by the Supreme Court of Pakistan.

According to confirmation received by ProPakistani, taxes on mobile card loads will remain suspended till the next order, a hearing for which is scheduled during the next week.

Not to mention, it is very likely that some taxes will remian suspended after the next decision — but nothing can be said with certainty as of yet.

Background

Mobile customers used to pay at least 25% of their money in taxes / charges at the time of card load. Then there was another 18.5% general sales tax on each call taking the total toll of deductions to around Rs. 40 on a Rs. 100 card.

These taxes / charges included:

• At the time of load:
  • Withholding tax: 12.5%
  • Service Charges from telecom companies: 8-10%
• Taxes on each call
  • GST: 17% in capital while 19.5% in provinces

Supreme Court, in a suo moto case, decided to suspend all taxes and service charges starting from June 13th, 2018. The premier court said that withholding tax shouldn’t be applied on everyone as not every mobile phone user comes under tax net and hence it can’t be applied on every subscriber.

Court — in its last hearing — had asked FBR to submit proposals on how it plans to tax mobile phone users, in a manner that non-taxable individuals won’t have to pay the withholding taxes.

Losses to Government and Telecom Companies

As one may imagine, mobile phone companies and government had to bear loss amounting to billions of rupees after the decision.

PTA data shows that telecom company made around Rs. 370 billion per year or around Rs. 1 billion per day during 2016-17.

Based on these figures, suspension of around 10% service charge would mean that telcos lost around Rs. 100 million per day or Rs. 2 billion during past 20 days. If suspended forever, telecom companies will lose around Rs. 37 billion per year.

Similarly, the federal government collected around Rs. 51 billion under the head of withholding tax from cellular customers during 2016-17. Based on last year’s data, the federal government would have incurred a loss of Rs. 2.8 billion during past 20 days. If suspended forever, the government is set to lose some Rs. 51 billion per year due to the decision.

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GST was third element that was suspended on June 13th, 2018 — which is likely to come back after next hearing — provincial government would have lost around Rs. 3 billion during the period of 20 days.

What’s Next?

While we don’t know what proposal FBR will submit to the Supreme Court or what decision the highest court will make, here is what we think is going to happen:

• Services charges are likely to be gone forever. This means a Rs. 37 billion loss to telcos, that they are going to recover by jacking up the prices in near future.
• Withholding tax is likely to not to come back or may not be deducted in its current shape.
• GST is going to stay

This actually means that mobile customers are going to get Rs. 100 when they will load a card — just as now — but every call will be charged with GST, that will go to provinces.

It must be mentioned here that next hearing is scheduled for around Tuesday/Wednesday next week and FBR has reportedly prepared a proposal for submission in the Supreme Court.

Expect an update on this by next week.