Telecom sector calls for reducing advance tax

Laments around 193m telecom users paying exorbitant taxes

ISLAMABAD:

The telecommunication sector in its tax proposals for fiscal year 2022-23 has urged the government to reduce advance income tax (AIT) from 15% to 8%. Currently, over 193 million telecom users in the country are subjected to exorbitant taxes of 34.5% – including 19.5% goods and services tax (GST) and 15% AIT, making Pakistan one of the highest taxed telecom markets in the world.

Understanding the importance of affordability of mobile ownership and internet, AIT was reduced from 12.5% to 10% in fiscal year 2020-21, with a commitment to reduce it to 8% vide Finance Act 2021. However, the move was withdrawn merely six months later, without giving due consideration to its long-term ramifications. Through the Finance (Supplementary) Act 2022, the AIT rate has been increased from 10% to 15%.

Currently, the AIT is collected at the rate of 15% from all telecom users, regardless of their taxable obligations. A majority of the country’s population has non-taxable incomes. These individuals are required to pay the AIT, which they will never be able to recover, industry players say. AIT on telephone and internet services has been a contentious tax revenue measure as it hampers the affordability of mobile ownership and internet services, which is critical for the entire population as well as the economic growth of Pakistan, they say.

The exorbitant taxes on telecom services are also detrimental to the digitalisation drive for the economy and undermine the ‘Digital Pakistan’ vision. The industry players say such exorbitant taxation severely affects the poorest consumers, especially women, lessening their ability to become mobile broadband users while hindering the growth of telecom sector, hampering business case for network expansion, service improvement and eventually further foreign direct investment.

It has also been proposed to gradually abolish AIT on telecom services as it adversely affects the subscriber base falling below the taxable limit, and efforts should be focused on more direct taxation measures aimed at income, rather than expenditure on an essential service. Various consumer protection rights activists and associations have also urged the government to abolish AIT on telecom services aimed at making cellular and data services affordable for the low-income groups.