Telcos Seek Relaxation on Withholding tax for Customers

Communication has become an essential need in today’s time especially when everyone is locked inside their homes due to the threat of coronavirus. The role of telecom companies has become pivotal in this regard. Despite increased data usage telcos have not revised or increased prices of internet packages rather prices have been further decreased to facilitate lack of liquidity in the market. Most of the services are being provided at the same rate and in quite a few cases certain services are being offered free of cost.

However, when it comes to taxes telecom companies are helpless because taxation solely comes under the federal government’s domain. Currently, a significant amount is deducted on balance recharge in the form of withholding tax. Under these extraordinary circumstances, telecom companies have advised the government to revisit the tax policy and abolish withholding tax in order to allow customers to take maximum advantage of mobile balance.

Telcos Seek Relaxation on Withholding tax for Customers

Temporary suspension of applicable Taxes on Data services by the Federal and respective Provincial governments will facilitate the growth of online applications and use of mobile data which is the need of the hour. The government stresses the importance of staying indoors but this would only be possible if people have online access through which they could continue routine operations.

Up till now, the telecom sector has provided relief in the form of free data, voice, WhatsApp, balance sharing and waiver of transaction fee on Mobile Financial Services.

After more than a month under the lockdown, the telecom sector is now also struggling to keep up the fight. Due to closure of retailer shops sales have dropped down almost by 50% whereas Network O&M costs to keep the telecom networks up and running on 24×7 basis across the country with extreme mobility restrictions, have shot up to a great extent during reduced working hours.

Telcos are now facing a double-edged sword and are finding it difficult to navigate a way out. A large influx is seen in terms of inbound calls and customer services are dealing with an increased load of queries related to balance recharge. Although operators have not increased their charges, the shopkeepers/ retailers are charging a premium on top of the actual price due to scarcity. The telecom sector is being unduly blamed for an increase in prices whereas the case is otherwise.

With decreasing margins, low revenue, shutdown at the sales and retail channel and higher cost of business, the situation poses a great threat to the sector as a whole. This will force telcos to take strict actions in the near off including layoffs especially at lower executive levels in order to reduce losses.

It is high time that the government intervenes to ensure measures which could help the sector move out of this conundrum. Government needs to consider announcing a relief package in order to curtail financial losses of the Telcos in the current emergency. There is a clear need to rationalize taxes on telecom sector in the coming budget (2020-2021) and review budget proposals of the Pakistan Telecom Authority (PTA) to harmonize service sales tax.

If taxes are rationalized ahead of the new budget and spectrum options are opened then the sector could further thrive and allow millions of Pakistanis to enjoy seamless communication. There is a clear demand for effective communication across the country and with the crisis created by Covid 19 these needs have multiplied. It is now upon the government to take timely actions to accelerate growth.