Telecom users feel pain of ‘mini-budget’

Advance tax rate of prepaid cards hiked to 15% from 10%

ISLAMABAD:

The nation is beginning to feel the effects of the federal government-imposed “mini-budget” as after the hike in medicine prices, the users of telecom services will also be affected.

The consumers of cell phone services have started receiving text messages that after the government’s increase in the advance tax rate, they would have to purchase prepaid cards with a deduction of 15% instead of the earlier 10%.

Consumers are already paying heavy taxes on telecommunication services and now they have to bear extra burden after the mini-budget.

For prepaid customers, most taxes are deducted when they recharge their cards.

After the mini-budget, consumers will pay an additional Rs3.9 for every Rs100 recharge.

Consumers will receive a balance of Rs72.20 instead of Rs76.10 on a recharge of Rs100 after tax deductions.

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After the increase in the rate of advance tax, the balance has been reduced to Rs72.20.

The government, at present, collects 10% or Rs9.10 in advance tax on every Rs100 prepaid card.

From the remaining Rs87, Rs14.80 or 19.5% are deducted as General Sales Tax (GST).

As a result of increase in the rate of advance tax, the deduction will be Rs13 instead of Rs9.10 while the GST will remain at Rs14.80.

Now the customers will get a deduction of Rs27.8 for every Rs100 recharge and receive a balance of Rs72.20.

In addition, consumers will also be subjected to 15% withholding tax (WHT). For example, for a recharge of Rs100, customers will receive a balance of just Rs86.96 instead of Rs90.91.

The government’s budget for the outgoing fiscal year had recently reduced the WHT from 12.5% to 10%, promising to further reduce it to 8% next fiscal.

Although the advance tax can be adjusted, 98% of the 187 million telecom service users in the country are prepaid subscribers, belonging to the low-income segment and do not file returns. Therefore, they cannot file for tax adjustment.

As per PBS data, Pakistan’s imports of cellular mobile phones during fiscal year 21 were 21.8 million units, valuing at Rs229 billion.

Assuming that 20% of the country’s annual mobile phone imports by value are made up of handsets priced $200 and above, the 17% GST imposition on high-end phones may yield incremental taxes somewhere between Rs4 billion to Rs7 billion.

These telecom-related steps may generate the government between Rs30 billion to Rs33 billion in fresh taxes, equivalent to roughly a tenth of the Rs350 billion of additional tax receipts envisaged under the mini-budget.