An insight into the “tax-free” Budget for FY 2020-21

IT and telecom is one of the most profitable industries that has contributed a significant part in the country’s economy over the last decade. The telecom sector has empowered more than 165 million cellular subscribers and 76 Million 3G/4G subscribers to gain access to mobile broadband services. This increased access to mobile broadband services has opened a wide range of benefits to the overall economy of the country. Mobile technology has revolutionized almost all the industries in the country. 

M-governance, m-commerce, m-health, m-agriculture, and m-education have played an important role not only in making the country more digital, but it also acted as a significant contributor to socio-economic growth in Pakistan 

M-governance, m-commerce, m-health, m-agriculture, and m-education have played an important role not only in making the country more digital, but it also acted as a significant contributor to socio-economic growth in Pakistan. The government is fully aware of the importance of the mobile sector in economic effectiveness and more meaningful social enclosure. However, Taxation has always been a matter of conflict between the government and the industry. Every year the government modifies its taxation policy. In FY 2017-2018 budget, the government had added the regulatory duty of PKR 250 on every imported mobile phone. Moreover, the government also merged the lower and middle duty lumps into one single chunk of PKR 650. 

The change in the policy did not affect the imports of high-end smartphones. However, it was more than 100% increase for the features phones. The government also introduced an additional tax on the import of smartphones according to the Excise Act 2005. Although the industry was not satisfied with this decision, the government considered it best to rein the burgeoning imports through regulatory duties. 

According to the Asian Development Bank, more than, 25% Pakistan’s population lives below the poverty line, which is most likely to increase due to the COVID-19 outbreak. It means more than 49 million people will be unable to buy even the affordable phones, which will be a great hindrance in making the country digital. There is a need for uplifting the tax on low-priced phones so that maximum number of people can take advantage of it and also the country could move towards the digitization. Besides, in developing countries like Pakistan, heavy taxation opened the ways for smuggling and tax evasion. 

In developing countries like Pakistan, heavy taxation opened the ways for smuggling and tax evasion 

Despite the uneven Taxation, the industry has managed to boost the economy of the country. Pakistan Telecommunication Authority (PTA) revealed in the Annual Report 2018- 2019, in terms of duties, taxes and levies, the telecom sector has subsidized over 96 billion to the national exchequer. The attracted investments were US$ 636 million, while sector revenue crossed Rs. 552 billion. The industry got USD 236 million FDI during the year. In the last quarter of 2019, the renewal of three mobile cellular licenses has brought in $688 million to the national exchequer. It is 50% of the total amount of license fee. Therefore, the relief in the form of lenient taxation is well deserved. 

Now, it is time for the new budget 2020-2021 policy. The government of Pakistan has eased the people by not bringing in any new tax in 2020-2021 budget. The total amount of budget 2020-21 is Rs 7,294.9 billion which is 11% lower than the size of budget 2019- 20. The government has targeted an unrealistic economic growth of 2.1% in FY 21 which seems to be a distant dream given the negative growth of -0.38% for FY20 and the uncertainty surrounding the country due to the coronavirus pandemic. 

The government has dropped the development budget for Information Technology and Telecom Sector and allotted Rs 6.672 billion in the recent budget compared to Rs 7.34 billion in 2019-20 under the Public Sector Development Programme (PSDP). The government has also assigned Rs 6.672 billion under the PSDP for budget 2020-21 including Rs 5.42 billion local components and Rs 1.25 billion foreign aid. The total size of PSDP for 2020-21 is Rs 1,324 billion in budget 2020-2021. 

PTA revealed in the Annual Report 2018-2019, in terms of duties, taxes and levies, the telecom sector has subsidized over 96 billion to the national exchequer 

The government has allotted Rs 4.78 billion for 13 ongoing and Rs 1.892 billion for 15 new development programs of Information Technology and Telecom sector. The sales tax rate has also been reduced from 14% to 12% for big retailers. The decision was taken to facilitate the retailers due to coronavirus outbreak. 

The government has allotted Rs 4.78 billion for 13 ongoing and Rs 1.892 billion for 15 new development programs of Information Technology and Telecom sector 

In the budget 2020-21, the government has proposed a sales tax exclusion to the corporations manufacturing mobile phones locally under the new mobile phone manufacturing policy. 

In the budget 2020-21, the government has proposed a sales tax exclusion to the corporations manufacturing mobile phones locally under the new mobile phone manufacturing policy 

The key highlights are: 

• If the C & F Value of mobile phone (in US Dollar) up to 30 except smartphones, there would be Rs 70 tax in CBU condition and no tax in CKD/ SKD condition, 
• Rs 100 tax if exceeding 30 and up to 100 and smartphones up to 100 in CBU condition and no tax in CKD/SKD condition 
• Rs 930 tax if exceeding 100 and up to 200 in CBU condition and no tax in CKD/SKD condition, 
• A tax of Rs 970 if exceeding 200 and up to 350 in CBU condition and no tax in CKD/SKD condition, 
• Rs 3000 tax if exceeding 350 and up to 500 in CBU condition and Rs 5000 tax in CKD/SKD condition, 
• Rs 5,200 if exceeding 500 in CBU condition and Rs 11,500 tax in CKD/ SKD condition. 

The Economic Coordination Committee of the Cabinet has also permitted the removal of fixed income tax on CKD/SKD manufacturing of mobile devices up to US$ 350 category and increase in fixed income tax on US$ 351-500 US$ category by Rs2, 000 and US$ 500 by Rs6,300 on CKD/SKD manufacturing only and removal of fixed sales tax on CKD/SKD manufacturing of mobile devices. 

With dismal Performance in a post- COVID-19 pandemic, it will be a challenge for the government to recover the shrinking economy and convert contraction into a definite growth spurt in the next fiscal year 

The COVID-19 outbreak has not only harmed the people physically, but it also damaged the economy of the country due to lockdown. With dismal performance in a post-COVID-19 pandemic, it will be a challenge for the government to recover the shrinking economy and convert contraction into a definite growth spurt in the next fiscal year.