The Ministry of Information Technology and Telecommunication (MoIT&T) has proposed a ‘Tax Reforms Committee for Digital Financial Inclusivity’.
The MoIT&T has also proposed clear objectives and timelines for the development of a ‘Smart Tax Plan’ — a phase-wise and time-barred strategy intended to digitally enhance the economy all across the country. The Smart Tax Plan will be submitted to the Ministry of Finance for approval, which may be ratified, and its implementation will be initiated in the fourth quarter of 2021.
The ministry has drafted the ‘National Broadband Policy-2021’ with a dynamic tax system as one of its targets. The draft policy states that the government while realizing the significance of tax application and interconnectedness simultaneously, is of the view that the timely achievement of national broadband targets will aid the creation of new opportunities for economic development. It will also allow the concerned authorities to increase their tax base and achieve new and fresh revenue targets.
The policy action on tax proposed that the Pakistan Telecommunication Authority (PTA) should conduct an impact analysis survey on different types of taxes, duties, and other charges applicable to Internet users and the industry.
The survey should include identifying direct or indirect impediments in service adoption and its utilization, and develop a correlation between the current tax regime, the early digital inclusion of the people, and achieving the strategic objectives for socioeconomic development.
Based on the outcomes of the survey, the PTA should propose its recommendations to the MoIT&T for further consideration.
After reviewing the recommendations of the survey report, the MoIT&T will form a Tax Reforms Committee for Digital Financial Inclusivity comprised of members from the Ministry of Finance, the MoIT& T, the federal or provincial Tax Authorities, the PTA, the FAB, the Universal Service Fund (USF), the industry and any other stakeholders, as it may deem appropriate.
The tax review process will be divided into two parts, each with a narrow focus on inclusivity and affordability. Each part will be strategized and linked with national broadband targets and the broadband for the sustainable development program of the USF so as to extend its benefits to the most deserving factions of society.
The plan may be built on a hybrid approach that includes short-term subsidies and the continuing of a relief program for sustainable digital financial inclusion. and shall be harmonized through all the federal or provincial Tax Authorities.
The PTA will conduct the survey and submit its recommendations to the MoIT&T before June 2021 for further consultation and the development of the Smart Tax Plan which will be submitted to the Ministry of Finance for further approvals.
The plan may be ratified, and its implementation will initiate in the fourth quarter of 2021. It may propose the gradual normalization of the Advance Income Tax on telecommunication services (voice and Internet for both fixed and mobile), while considering the telecommunication services as an essential utility service and the harmonization of the sales tax in the provinces and the FED in the federal territory on telecommunication services such as single and the market-aligned GST rate across the country.
Furthermore, the resolution of the SIM issuance Tax, Rs. 250 against the issuance of every new SIM, the introduction of simplified advance tax mechanism u/s 147 of the ITO, 2001 for telecommunication, and exemption from all withholding or collection provision under the ITO, 2001 is recommended.
Similar exemptions have already been afforded in the banking and oil industries, it added.
The inclusion of telecommunication operators (licensees of the PTA) in the definition of the Industrial Undertaking by the FBR under Section 2 (29C) of the Income Ordinance, 2001 may also be proposed.