All of us already know that Pakistani nation is one of the highest tax paying nations when it comes to Telecom industry. To be exact, Pakistan is the fourth highest tax paying nation via telecom.
Aslam Hayat Khan, Chief Corporate Affairs and Security Officer of Telenor Pakistan on behalf of Telecom Industry stated the above and explained that how Pakistani government could have gained much more from telecom industry by rationalization of taxes.
Aslam Hayat Khan stated that the following are the key telecom indicators of Pakistan Telecom market:
- 137 million connections per 60 million users
- 2014 revenues of telecom industry in Pakistan are 466 Billion PKR
- Foreign direct investment in 2014 is PKR 90.3 Billion PKR (34.1% of total Foreign Direct Investment)
- Contribution through taxes to national exchequer in 2014: 130 Billion PKR
- Telecom related imports in year 2014: 123 Billion PKR
Aslam Hayat Khan explained the taxation system in Pakistani telecom market as
- Sales Tax on mobile phone ranges from 150-500 PKR
- IMEI Tax also ranges from 150-500 PKR
- Activation of SIM is taxed @ 250 PKR (Usually this amount is paid by telecommunication companies)
- FED/Sales Tax (on voice calls and SMS): 18.5% and 19.5%
- Advance Tax (WHT) is 14%
- FED on branchless banking transfer services is charged at 16%
- 33% of Taxable profit or 17% of accounting profit or 1% Annual turnover (Whichever turns out to be highest)
- Advance Tax at import stage is 5.5% of value of goods which is considered as final tax
According to Mr. Hayat, all these taxes on telecom users only lowers the consumption ability of the consumers and this results only in hurting the overall tax collections by the government as well as hurt the economic growth of Pakistan.
This is quite evident by the fact that in the past few years, the tax collection from telecom industry of Pakistan has stayed flat. During 2007-08 the amount collected as taxes via telecom was 111 Billion PKR and in 2014 this amount managed to reach only 130 Billion PKR. The subscribers and coverage grew multiple folds during this tenure but tax amount couldn’t reach much higher.
Aslam Hayat Khan proposed on behalf of telecom companies that taxes on SIM sales and handset restrict the investment in telecom sector hence SIM activation tax should be reduced from 250 to 150 PKR while sales tax on SIM issuance should be removed completely. In addition he proposed that since handsets are already taxed therefore IMEI tax should be removed completely as it is considered double tax on devices. According to Mr. Hayat, removal of these taxes will increase the number of telecom subscribers and as a result the usage will grow which will provide the operators with more revenue and will ultimately result in higher tax amounts for the government of Pakistan.
Vice President of Telenor Pakistan also opined that once the SIM activation tax was reduced in the past and it resulted in better mobile penetration and it increased the tax revenues for Pakistani government.
Pakistanis pay more than 30% taxes for the telecom services and it stands fourth highest in the world. In Pakistan all other industries are charged at 16% while only the telecom sector is charged at 18.5% and 19.5% FED taxes which is quite surprising. Telecom operators urged Pakistani government to reduce FED taxes to 16% as industry standard while WHT taxes should be reduced to only 5%.
As a matter of fact, when the WHT (advance tax) was being imposed on telecom sector, the government of Pakistan had argued that consumers can get advance tax back at the time of filing for their annual taxes but the cellular operators claim that more than 80% of their consumers are non-taxable and 14% advance tax is never returned.