The 60th meeting of Sustainable Development Policy Institute (SDPI) Study Group on Information Technology and Telecommunication concluded that Rs. 40 billion annual withholding tax on telecom consumers has caused the diversion of Foreign Direct Investment to other regional countries.
Pakistan Telecom Sector Has Given 8 Billion US Dollars Revenue to Government
Speaking on the occasion, Vice-President of Telenor Aslam Hayat said that
withholding is imposed on those consumers, who either do not fall in the tax bracket or do not file tax returns and ultimately cannot get refunds.
During the last 10 years, the telecom sector has given $8 billion revenue to the government in the form of direct and indirect taxes, the sector is treated differently when it comes to tax collection regime.
Hayat also highlighted that the government can rely on the growth of this sector, instead of going to the IMF for investment. According to him, an average user spends Rs. 2,250 annually for his/her cellular services out of which Rs. 992 go to the government in lieu of taxes, which has put a bar on the growth of broadband services.
“According to the World Bank, in low and middle-income countries, such as Pakistan, every 10% increase in broadband penetration contributes 1.38 per cent to GDP growth.”
Hayat said the government should fulfill its promises including provision of industrial status to the telecom sector, and reduction in withholding tax from 15 per cent to 10 per cent.
Earlier, Deputy Executive Director of SDPI Dr Vaqar Ahmed said
the growth in the telecom sector has stalled due to no significant Foreign Direct Investment in this sector during the recent past. “It is because of the multiplicity of taxes at federal and provincial levels.”
According to the SDPI’s research, foreign investors are now more interested in other regional economies in South Asia due to rationalized tax burden, lower cost of doing business and investor-friendly regulatory regimes there.
Dr Muhammad Saleem, the Director-General Commercial Affairs, Pakistan Telecom Authority, said
the cellular sector in Pakistan falls among the most heavily taxed cellular sectors in the world, which is an impediment to its growth. Rationalization of taxes on telecom sector would lead to enhanced growth, better compliance and increased output in the long-run.
Tax imposed by Provincial governments tax on the internet and data service is harmful to the growth of broadband services.Moreover the tax rate in telecom sector is high as compared to others. for example, GST and WHT rates on telecom services are up to 19.5% and 14% respectively compared to average GST of 16% and WHT of 10% in other sectors.
International ICT Consultant Pervaiz Iftikhar attended the meeting and also briefed the participants about the usefulness and the power of internet.
“The high tax rates are causing smuggling, which can be stopped by tax rate rationalization,”
Tariq Sultan, the member of Pakistan Telecom Authority, suggested to the government that
”Reducing GST may not impact the government revenues in the long-run, and giving status of industry to this sector can further improve prospects. Also the withholding tax should not be charged from those who cannot afford it. Customs duty on the import of equipment should be brought back to the previous level.
There is a discrepancy between landline and mobile phone taxation. In case of landline, except of initial Rs 1,000, there are no further taxes, but in case of mobiles, taxes are to be paid on recharge of every 100 rupees.
Maj-Gen. (retd) Shazad Alam Malik, the former Chairman of PTA, also suggested that the government should give immediate relief for a long-term gain.
Dr Abid Suleri, the Executive Director of SDPI, assured the meeting that as being member of Economic Advisory Council, he would take these valuable recommendations to the government.
bringing a balance between revenue and growth is the government consideration, which is under pressure after a massive reduction in the commodity prices. ‘Slaughtering the goose that lays golden eggs is not the option,’.
Brig (R) Muhammad Yasin, also briefed the participants about the importance of SDPI’s study group on Information Technology and Telecom.