Pakistan telecom sector has given $8 billion revenue to the government

Censuring the exorbitant tax burden on telecom sector, the 60th meeting of Sustainable Development Policy Institute (SDPI) Study Group on Information Technology and Telecommunication on Thursday concluded that Rs40 billion annual withholding tax on telecom consumers has brought the once lucrative sector on the verge of decline resulting in diversion of Foreign Direct Investment to other regional countries.
Speaking on the occasion, Vice-President of Telenor Aslam Hayat said that withholding is imposed on those consumers, who either do not fall in the tax bracket or do not file tax returns and ultimately cannot get refunds.
During the last 10 years, the telecom sector has given $8 billion revenue to the government in the form of direct and indirect taxes, he said, adding that the sector is treated differently when it comes to tax collection regime.
Hayat said instead of going to the IMF and asking for a tranche of $500 million, the government could have relied on the growth of this sector. He said an average user spends Rs2,250 annually for his/her cellular services out of which Rs992 go to the government in lieu of taxes, which has put a bar on the growth of broadband services.
“According to the World Bank, in low and middle-income countries, such as Pakistan, every 10% increase in broadband penetration contributes 1.38 per cent to GDP growth.” Hayat said the government has yet to fulfil its promises including provision of industrial status to the telecom sector, and reduction in withholding tax from 15 per cent to 10 per cent.
Earlier, Deputy Executive Director of SDPI Dr Vaqar Ahmed said the growth in the
telecom sector has stalled due to no significant Foreign Direct Investment in this sector during the recent past. “It is because of the multiplicity of taxes at federal and provincial levels.”
He highlighted the SDPI’s research which says foreign investors are now more interested in other regional economies in South Asia due to rationalized tax burden, lower cost of doing business and investor-friendly regulatory regimes there.
Dr Muhammad Saleem, the Director-General Commercial Affairs, Pakistan Telecom Authority, said the cellular sector in Pakistan falls among the most heavily taxed cellular sectors in the world, which is an impediment to its growth. Rationalization of taxes on telecom sector, he suggested, would lead to enhanced growth, better compliance and increased output in the long-run.
Provincial governments impose sales tax on the internet and data services, which is detrimental to the growth of broadband services, he said, adding that in comparison with other sectors, the rates are even higher in the telecom sector; for example, GST and WHT rates on telecom services are up to 19.5% and 14% respectively compared to average GST of 16% and WHT of 10% in other sectors.
International ICT Consultant Pervaiz Iftikhar briefed the participants about the usefulness and the power of internet, which what he said is clearly visible in the rise from the scratch of today’s mega corporations like Facebook, Amazon, and YouTube.
He said ICTs touch all aspects of life, and higher taxes on ICTs adversely impact everyone. “The high tax rates are causing smuggling, which can be stopped by tax rate rationalization,” he added.
Tariq Sultan, the member of Pakistan Telecom Authority, suggested to the government that ”Reducing GST may not impact the government revenues in the long-run, and giving status of industry to this sector can further improve prospects. He maintained that withholding tax should not be charged from those who cannot afford it. Customs duty on the import of equipment should be brought back to the previous level, he added.
There is a discrepancy between landline and mobile phone taxation. In case of landline, except of initial Rs 1,000, there are no further taxes, but in case of mobiles, taxes are to be paid on recharge of every 100 rupees.
Maj-Gen. (retd) Shazad Alam Malik, the former Chairman of PTA, termed the taxes on telecom sector unfair. He suggested that the government should give immediate relief for a long-term gain.
Dr Abid Suleri, the Executive Director of SDPI, assured the meeting that being member of Economic Advisory Council, he would take these valuable recommendations to the government. He said bringing a balance between revenue and growth is the government consideration, which is under pressure after a massive reduction in the commodity prices. ‘Slaughtering the goose that lays golden eggs is not the option,’ he said.
Brig (R) Muhammad Yasin, who has convened the meeting on behalf of SDPI, briefed the participants about the importance of SDPI’s study group on Information Technology and Telecom.
The group comprises consultants, scientists, educationists and economists, who meet periodically to discuss and evaluate the current developments in the rapidly evolving fields of telecom, computers, data processing, and other relevant issues.