The government has given industrial status to the telecom sector in the federal budget for fiscal year 2021-22.
Unveiling the budget measures on Friday, Finance Minister Shaukat Tarin emphasised that the government was committed to providing all possible facilities to the law-abiding taxpayers to reduce the burden on the common man.
“In order to expand the telecommunication network and promote investment, it is proposed that the telecom sector is given the status of industrial undertaking,” said Tarin during his speech.
The upgrade to the industry level will help the sector get bank financing for new projects. This will also enable the telecom industry to attract fresh investment.
“Several new measures have been announced to facilitate telecom and IT exports; and recognising telecom as an industrial establishment will bring it at par with other sectors of the economy,” commented Overseas Investors Chamber of Commerce and Industry (OICCI) Secretary General Abdul Aleem while talking to The Express Tribune.
“However, certain additional taxes on the use of telecom facilities will negatively impact telecom companies and the authorities should review them,” he added.
The finance minister also announced incentives for IT and IT-based services.
Details of the budget show that IT and IT-based services, under the Tax on Services Ordinance 2001, will be provided zero-rated facility by changing the tax regime.
Tarin said that in order to provide relief and business facilities to the public, it was proposed to reduce the rate of federal excise duty on telecommunications from 70% to 16%.
Zero-rating measures had been removed from the Income Tax Ordinance, but they were restored for the telecom sector, which would be beneficial, said Topline Securities ICT expert Umair Naseer in comments to The Express Tribune.
Similarly, IT services, cloud computing and IT equipment were also exempted.
The federal minister, however, lamented that one of the most difficult tasks for the government was to eliminate the informal economy and encourage the digital economy. “We are introducing several tax measures and incentives to promote the digital economy,” he added.
Currently, the withholding tax on mobile services is 12.5%. “To reduce the burden on the common man, it is proposed that this rate should be reduced to 10% for the next financial year and should be brought down to 8% gradually.”
Taking to his Twitter handle, Jazz CEO Aamir Hafeez Ibrahim lauded the government for the much-needed relief provided in the budget.
However, he hoped that the regressive tax proposals would not be implemented as “any additional levy on internet is detrimental to the digital Pakistan journey.”
Earlier, after the announcement of the federal budget, Energy Minister Hammad Azhar on his official Twitter handle clarified that the prime minister and cabinet did not approve the federal excise duty on use of internet data.
“It will not be included in the final draft of Finance Bill that will be placed before parliament for approval,” he wrote.
The clarification came in the wake of severe criticism on social media.
Alpha Beta Core CEO Khurram Schehzad said despite the budget being tax-light and business-friendly, taxes on internet were increased.
“Internet is a basic commodity. We are now learning and interacting more through internet than ever before,” he said, adding that Pakistan was already at number 16 while India topped the list for 1GB internet price.
During the budget, the federal minister clarified that regulatory duties had been imposed to protect the local industry so that imports could be substituted in the country, such as the mobile phone industry and tyre manufacturing industry.
“Regulatory duty on many items has been revised, at the same time, it has been abolished on other items,” he added.
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Pakistan is the world’s eighth largest mobile phone user market and a significant amount of foreign exchange is spent on the import of mobile phones to meet annual demand, the minister pointed out. However, after the announcement of mobile phone device policy, Pakistan’s mobile phone industry has started production.
“The day is not far when Pakistan will also start exporting mobile phones,” the federal minister remarked.
While the local mobile phone industry is still in its infancy, the regulatory duty on mobile phone imports has been increased to promote local import substitutes and attract foreign investment, Tarin said.
The government has also announced Special Technology Zones, which is also a positive step to boost the digital landscape in the country, added OICCI’s Aleem.
Endorsing the views, Supreme Court Advocate Zaheer Minhas said that the government has also announced to increase use of technology in the tax system, which is a positive step.