Telecom tax dispute lands in SIFC

Taxation on international services, govt's constitutional authority challenged

KARACHI:

The ongoing tax dispute between provincial governments and Long Distance and International (LDI) telecom operators has been escalated to the Special Investment Facilitation Council (SIFC) for resolution. Sources from the Ministry of IT and Telecommunication told The Express Tribune that provincial taxation policies have raised concerns among LDI operators, leading them to challenge the taxes imposed.

The LDI operators argue that provincial taxes on international incoming voice services exceed the provinces' constitutional authority. This tax dispute has been a long-standing issue, with neither side able to find a resolution. After failed attempts to reach a consensus, the Ministry of IT decided to bring the matter to the SIFC, seeking a resolution through their intervention.

LDI operators continue to provide international incoming and outgoing telecom services, but most of their licenses expired between July and August 2024. In addition to the tax dispute, the operators also owe outstanding payments to the Universal Service Fund (USF), further complicating the situation.

On the other hand, the Ministry of IT and provincial governments maintain that the taxes are in line with international practices. During discussions at SIFC, the Ministry of IT suggested that an impartial entity be tasked with conducting due diligence and finding a workable solution in collaboration with the provinces, LDI operators, and the Federal Board of Revenue (FBR).

To provide clarity on the legal and regulatory aspects, the Ministry of IT recommended that the Law Division and the Attorney General of Pakistan (AGP) consider both domestic and international regulations while pursuing the pending cases related to the tax dispute. The matter, they said, requires a clear legal interpretation to move forward.

The sources said the Ministry of IT updated the SIFC on the National Cloud Procurement Framework, which had been adopted by the governments of Khyber-Pakhtunkhwa (K-P), Gilgit-Baltistan (G-B), and Azad Jammu and Kashmir (AJK). However, AJK and G-B have yet to adopt the Cloud Policy, and AJK was asked to provide a milestone-based timeline for developing its IT policy, which includes the adoption of the Cloud Policy.

It was further reported that G-B must expedite the approval of its draft policy and update the federal government on its progress. The Cloud Procurement Framework, which was officially notified on May 14, 2024, requires all provinces to take necessary steps toward its adoption, including AJK and G-B. A milestone and timeline-based plan for its adoption will be submitted to the federal government for review.

The telecom industry in Pakistan continues to struggle with various challenges. The previous Pakistan Muslim League-Nawaz government imposed taxes on smartphones, which further strained the industry. Additionally, Telenor's sale to PTCL highlighted the ongoing issues within the sector.

Government policies, such as linking license renewal fees to the dollar exchange rate, have not been favourable for the telecom sector. This policy contributed to the lack of participation by most telecom operators, except Ufone, in previous spectrum auctions.

Heavy taxation remains a significant burden on the industry, further complicating efforts to address other critical issues.