NTC seeks exemption from 8% turnover tax

Tax has gone up from 1.25% to 8% after Finance Act 2015

ISLAMABAD: National Telecommunication Corporation (NTC) has approached the government, seeking exemption from 8% minimum tax on turnover.

The Ministry of Information Technology and Telecommunication, in its request, informed the government that NTC was established under Section 41 of the Pakistan Telecommunication Re-Organisation Act 1996 in order to provide telecommunication services to the armed forces, defence projects, federal government, provincial governments or any other government agency or institution as the federal government may determine.

Initially, in accordance with Section 41 (18) of the Act, NTC had been granted tax exemption for a period of three years. NTC, being a company in terms of Section 80 (2)(b)(ii) of the Income Tax Ordinance 2001, has been paying income tax as per applicable rules.

Secondly, it was paying 1.25% of turnover (revenue) as minimum tax as per Section 113 of the Income Tax Ordinance 2001.

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The IT ministry argued that in the Finance Act 2015, Clause 79 of the ordinance was omitted. The omission resulted in application of Section 153 (b) of the Income Tax Ordinance to NTC.

Consequently, NTC's tax liability increased drastically from 1.25% to 8% of its turnover. In light of the development, the NTC board of management, in its 93rd meeting held on July 19, 2018, agreed that "NTC should forward the case for grant of exemption from 8% minimum tax and request for applicability of the tax imposed before the amendment ie 1.25% of turnover, to the Ministry of Finance through the Ministry of IT".

The IT ministry sent the NTC request to the Finance Division, arguing that NTC was not a general commercial telecom licence holder and was not a competitor of any another telecom service provider but was an essential entity of the state machinery. The ministry requested the Finance Division to take necessary action as per rules.

The Finance Division forwarded the case to the Revenue Division which, in its response, stated that NTC "is a taxable entity and falls within the ambit of a company". Thus, the 8% tax constituted minimum tax.

The Revenue Division said the proposal could not be accepted. In response, NTC again contended that it could not be treated like other telecom companies as its area of service was restricted to government organisations only with a view to providing safe, secure and independent telecom services free from private control.

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The IT ministry took up the matter with the Revenue Division, which stated that exemption could only be given after making amendment to the law, which was the prerogative of the legislature. A summary may be moved to the federal government, requesting the grant of tax exemption, it said.

The IT ministry also proposed that the government should approve the bill for making further amendments to the Income Tax Ordinance. The government has constituted a committee to deliberate on the issue.

Published in The Express Tribune, December 7^th, 2019.

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