PRESS RELEASE
ROUNDTABLE PROPOSES TAX CUTS ON TELECOM FOR THE BUDGET 2022-23
(Islamabad, April 25, 2022) Policy Research Institute of Market Economy (PRIME) has organized a roundtable session on the Telecom Sector of Pakistan with an objective to enable discussion on major tax issues in the sector and gather further recommendations for the upcoming Budget 2023. The meeting incorporated stakeholders including Cellular Mobile Operators (CMOs), fixed broadband operators, telecom equipment vendors, mobile phone manufacturers, telecom industry specialists and the Ministry of IT and Telecom.
During the meeting, following recommendations were made for the upcoming Budget 2022-23:
- Reduce withhold tax on Internet use to 8% – ideally abolish it
- Harmonize Sales Tax rate on Telecom Services, across all jurisdictions (provinces) to facilitate ease of doing business.
- Abolish Advance Tax on spectrum auction to reduce the extra burden on Cellular Mobile Operators’ (CMO)
- Bulk Electricity billing for Mobile Base Stations, in order to remove complexities of Withholding Tax claims by CMOs
- Reduction in Customs Duty on telecom equipment and optic fibre cables from 20% to 5%, and on batteries necessary for the telecom service providers. Also abolish Additional Custom Duty (2% and 6%) and Regulatory Duty (5%) on these items.
- Abolish Withholding Tax on import of all types of telecom equipment
Telcos representatives believe that withholding tax on usage is a stumbling block in the growth of the telecom sector, which, through the Finance Act 2021 was reduced from 12.5% to 10%, and 8% was promised for future years. However, through the Finance (Supplementary) Act, 2021 the rate of withholding tax was increased from 10% to 15%. As per one of the officials from the industry, Rs.40 billion tax collection by the FBR every year remains unclaimed, which is extracted from the poor users who do not fall under the income tax category.
During the meeting, stakeholders also proposed a uniform Sales Tax rate for telecom services across all the provinces, that should be in line with other services, in order to promote ease of doing business.
In addition to that, they believe that spectrum is not a property therefore, Advance Tax on spectrum auction should be completely abolished.
Similarly, in case of Withholding Tax on electricity bills of thousands of mobile base stations, the roundtable demanded bulk billing for the CMOs in a move to reduce complexities involved due to the very large number of claims on advance tax. Same is already done in case of bank branches.
Moreover, it was proposed that the Custom Duties on batteries used by the telecom sector (8507.6000 & 8507.2000) should be reduced from 11% and 20% to 5% whereas, Regulatory Duties and Additional Custom Duties should be completely abolished.
Representatives from the Industry added that only 10% of the towers in Pakistan are connected with optical fibers. However, according to research done by the Huawei Company, countries entering the 5G regime have 40% to 50% of towers connected with optical fibers. Neighbouring countries in the region also average between 27% to 30%. On this account, representatives informed that the industry is currently paying 68% in form of duties on imports of optical fiber cables. It was agreed that these levies must be brought down in order to progress towards 5G.
Due to excessive taxes on telecom, the telecom operators claimed that their rate of return on investment is now below the weighted average cost and that they are unable to service their debts.
The discussion concluded with remarks from the Additional Secretary Ministry of IT & Telecom, Aisha Humera, who was of the view that striking the right balance between revenue and growth is a challenge for the government. On a positive note, the Ministry agrees on taking the draft proposal forward to the concerned authorities including the Finance Ministry and FBR. Additional Secretary expressed the hope that while the government will consider these tax cuts, the industry should also commit increasing their investment.
For inquiries, please contact saad@primeinstitute.org or call at 03345397644.