Dispute on tax on inter-connect charges: FBR, telecom operators agree on out-of-court settlement

Telecom operators and the Federal Board of Revenue (FBR) on Thursday agreed to reach an out-of-court settlement on the issue of tax applicability. This was assured by the Chairman FBR Ali Arshad Hakim during a meeting of the sub-committee of the National Assembly Standing Committee on Information Technology (IT).
According to the Chairman FBR the issue would be amicably resolved through the constitution of Alternative Dispute Resolution Committee (ADRC) and no strict measures, including attachment of banks accounts of the telecom companies, would be taken. The ADRC, members of the sub-committee were informed, would resolve issues such as treatment of tax on interconnection charges and whether recovery could be done and other issues. Chairperson of the sub-committee Mrs Anusha Rehman Khan asked all CEOs of telecom companies about the settlement of the issue through the ADRC. All CEOs concurred with the constitution of the ADRC to amicably resolve the tax dispute.
Although the FBR and mobile phone companies agreed to settle the tax dispute Out of Court, it was been decided that the National Accountability Bureau (NAB) would continue to investigate criminal aspects of the case, determining whether kickbacks were involved in allowing exemptions from tax on inter-connect charges. The third and last meeting of the sub-committee was held at the Parliament House, which was attended among others by officials of Pakistan Telecommunication Authority (PTA). The meeting discussed in detail various aspects of the issue of Rs 47 billion tax evasion on interconnection charges.
During the meeting, Chief of FBR's Inland Revenue wing Dr Muhammad Iqbal informed the committee that provisions of the ADR law could only be invoked if tax demands were raised, adding that the matter was pending in appellate tribunals/courts. In this case, tax demands have been raised against two companies, and only they could apply for the ADRC. Concurring with the legal viewpoint, committee members said that the matter could also be resolved for the remaining telecom operators.
It was also decided by the committee that mobile phone companies would submit an application for an out-of-court settlement of the issue via ADR mechanism. The FBR would not be allowed to use coercive measures for making tax collection even if permitted under the law. It was recommended that FBR should have clearly defined tax regime for these companies and no tax in the head of "Others" Harmonised Codes to be collected.
It was decided that this issue to be settled between mobile phone companies and FBR well ahead of the bidding date for the auction of 3G and 4G spectrum expected to be held by December this year. However, Sub-Committee warned that tax defaulter mobile phone companies would not be allowed to participate in the bidding. Chairperson of the Sub-Committee instructed FBR officials that the issue should be resolved without any element of fear.
FBR Chairman informed the committee: "We will not harass telecom operators. We just need additional information." He also assured telecom operators that foreign investors would be encouraged to make more investments. "You (telecom operators) are not going to be harassed," Ali Arshad Hakim assured. Ali Arshad Hakim also said that the FBR would follow the notified legal ADR procedure.
Representatives of the telecom firms welcomed the move and said that it was encouraging to get such a response from the FBR Chairman and assured tax authorities that they would cooperate and provide all necessary information. They informed the committee: "We have nothing to hide."