Interconnection charges: IHC rules in favour of CMOs

Mobile operators exempted from Rs47b in taxes.

KARACHI: The Islamabad High Court on Wednesday ruled in favor of the cellular mobile operators (CMOs) in a case regarding evasion of federal excise duty (FED) on interconnection charges.

While presiding over the case, Justice Shaukat Aziz Siddiqui termed the FED on interconnection charges illegal, The Express Tribune has learned.

A decision on the issue of FED on interconnection charges – the amount charged by one operator from the other for terminating cross-network calls – had been long overdue.

The national exchequer had sent show cause letters to CMOs in July 2012, seeking the latter’s explanation regarding FED on interconnection charges which, according to an investigation by the National Accountability Bureau, amounted to Rs47 billion.



The FBR was of the view that interconnection charges were taxable but the CMOs had not been paying any since 2007. The telecom operators, however, sought to take the matter to the IHC in September 2012.

The CMOs maintained that the total tax on the telephone call was already deposited in retail mode. According to industry sources, no tax was due on interconnection as the tax was deposited on the gross amount by each of the five telecom operators from whose network the call was initiated.

According to the PTA, double tax cannot be charged on the income of telecom operators, The News had quoted a senior PTA official as saying in July 2012. It said that no tax could be received on interconnection charges because the CMOs had paid the FED on their collective income − the telecom sector has contributed Rs124.7 billion to the national exchequer during FY13.

Industry officials are of the view that in order to bring Pakistan’s calling regime in line with that of developed counties, the telecom regulator had implemented the Calling Party Pays (CPP) regime. The purpose of CPP was to encourage subscribers to make higher contribution to voice services and ensure wider penetration of mobile cellular services.

The subscribers are charged by both operators – the operator that initiates the call and the one that terminates/receives it – for the service. Under the CPP regime, according to industry sources, the operators do not have to pay anything on these interconnection charges.

The exchequer and the FBR were unable to respond with a statement to our queries.

Published in The Express Tribune, January 9^th, 2014.

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