LAHORE: Telecom and IT sector has evolved the most because it has altered the impact that government was expecting by implementing tax rates. Why is that so? It is because, higher tax rates on cellular phones and laptops have provoked people to smuggle these gadgets that makes it affordable for everyone to buy.
Government has still managed to get some gains from cellular mobile operators and network operator because you cannot even make a call without paying tax.
Instead of paying actual chargeable taxes of Rs 15,000-17000 on the import of luxury mobiles and branded laptops, vendors have paid only Rs 2,100 per piece of device to the FIA officials to get them cleared from the port.
The highest rate of withholding taxes from Pakistan was getting paid by only this sector as claimed by Finance Minister Ishaq Dar in February 2016. The new government increased the tax rate of withholding tax on telecom services by five percentage points to 15% in the budget released for 2013-2014. The government reduced the taxes by only one per cent in the budget release of 2014-2015 while it was kept the same for the previous year budget of 2015-2016. Deloitte’s study of February 2015 on ‘Digital inclusion and mobile sector taxation in Pakistan’ states, “The withholding tax for telecoms is higher than for most other sectors, for which it varies between one per cent and 12 per cent”. This tax is adjustable and people who file their income tax returns are able to claim refunds, told Ishaq Dar.
During the budget year of 2014-2015, Federal Board of Revenue (FBR) collected Rs43 billion on account of withholding tax and only 9 lac users claimed refunds that makes an amount of less than Rs 3 billion. Consequently, the remaining figure of amount had automatically gone down to the government’s pockets by the end of financial year.
Provincial Sales Tax on phone calls and broadband usage also ranges from 18.5 to 18.5 per cent while for the remaining sectors of economy Provisional Sales Tax remained the same at the rate of 17%.
The quarterly report released by State Bank of Pakistan July-September 2016 revealed that, “The number of broadband users, though increased significantly, could not translate into increased number of data users due to price competition and high tax incidence in the telecom sector.”
The higher tax rate for Broadband internet services ranges from 19.5% in Punjab for 2mbps speed and 18% in Sindh but if the internet bill exceeds Rs 1,500 then 10% duty on import of gadget used for voice reception, switching and routing of data with a corporate tax of 32% is charged. The withholding tax rate on mobile phone services is 14% while the custom duty ranges from Rs 250 to Rs 2,500 on import of different cellular phone sets.
The information and communication services have exceptional and excessive gains of taxes ranging from 41.5% to 45% as concluded from the studies. The exceptional rates on information and communications technology services has kept the use of it lower in Pakistan and Telecommunication authority of Pakistan reports that an average mobile phone user spends around Rs 205 in a whole month.
When users are spending less on telecommunication services then economic growth of Pakistan has been highly compromised. The average revenue per user in Pakistan is said to be the lowest in the region and also lowest worldwide.
Deloitte revealed that, “The World Bank has found that in low- and middle-income countries, such as Pakistan, every 10% increase in broadband penetration accelerates economic growth by 1.38% – for every new job created in the Pakistani mobile sector, 11 are generated in the wider economy”.
But the rise in taxes could not stop the users to buy cell phones and to use mobile data services either. It is so because, 3G/4G services has been introduced in the world of telecom that increased the number of mobile phone users to an unmatchable figure of 130.41 million this March. The broadband users are also not behind with an increasing number of 31 million.
The fast growth of users in this sector is likely to assist the central bank to achieve its goal of including finance from unbanked people. The number of unbanked financial inclusions of mobile phone users in central bank will account to 30 million by the year 2020.