Cell phone charges

The Central Board of Revenue (CBR) appears to be balking at the Rs 6 billion shortfall in revenue if the activation charges on mobile phones and withholding tax on prepaid cards are abolished on the proposal of the Pakistan Telecom Authority (PTA).
This proposal had been sent to the President and the Prime Minister, after which the Cabinet directed CBR to examine the issue.
CBR's objection to the proposal is based on the argument that the activation charges replaced direct levy of custom duty and sales tax on imports of mobile phones in the 2001-02 budget as a mechanism to discourage smuggling.
In effect, these 'foregone' custom duties and sales tax are now collected from the captive end-user.
The withholding tax on telephones introduced in 1996 on the other hand, the CBR maintains, placed telephone subscribers under a legal obligation since 1997 to file income tax returns, as a measure to widen the tax base and promote the documentation of the economy.
The tax mandarins assert that the incidence of withholding tax is insignificant and in any case it is adjustable against the user's final tax liability.
Further, the current gap between 4.6 million landline subscribers and actual filers of income tax returns suggests this is an effective means to achieve the twin objectives of widening the tax net and documentation of the economy.
While it is of the opinion that the sharp increase in government revenue and earnings of telephone companies/operators during fiscal 2002-03 shows a steep rise in demand for mobile and landline phones, CBR also thinks that these taxes are not hindering the growth of the telecom sector.
This is disputed by at least the mobile phone companies who say the increase in activation charges from Rs 1250 to Rs 2000 has made the up-front cost of mobile phones unaffordable for the common man.
Last but not least, CBR defends these taxes by arguing that their withdrawal would have serious implications for meeting the targets agreed with the IMF.
Let us take up the last argument first. Pakistan is on the verge of coming out of the IMF programme in September this year. If these taxes are withdrawn, the relief will only come into effect from July.
So the IMF plea does not really hold water. More important, gone are the days when a telephone or even a mobile phone was considered a luxury only the rich needed.
The world has shrunk, and with it, the telecommunications revolution has changed telephone usage to a necessity of life in the modern world.
Why should Pakistani citizens be denied entry into the world of telecommunication connectivity because the CBR wishes to cling short-sightedly to its Rs 6 billion revenue?
In any case, if these taxes are withdrawn, encouraging the rightful growth of the telecommunications sector, it would help increase telephone companies' earnings and profits, the taxes from which would replenish the CBR's coffers.
At worst, CBR may have to suffer a shortfall in revenue for just one year. Surely, that would not be high price to pay for nudging Pakistan onto a level playing field in the telecommunication sector with the rest of the world.
The departmental narrow vision of the CBR should not be allowed to become an obstacle in the path of the growth of telephone and mobile phone usage.
As it is, the Pakistani citizen suffers enough already at the hands of our bureaucracy.
The President, Prime Minister and Cabinet should step in to decide the issue in the broader perspective of Pakistan's modernisation needs. The PTA proposal is worthy of being accepted and implemented at the earliest.