The mobile phone companies have approached the Central Board of Revenue (CBR) to persuade the Azad Jammu and Kashmir (AJK) government not to collect sales tax on extending coverage to the quake-hit areas.
Sources told Business Recorder on Saturday that the CBR had received budget proposals from mobile phone companies, which included issues pertaining to sales tax registration in Azad Kashmir.
The Income Tax Policy Wing is examining these proposals in the light of the Income Tax Ordinance, 2001, they said.
The companies have informed the CBR that Pakistan Telecommunication Authority (PTA) had requested the mobile phone operators to participate in the relief efforts by providing cellular phone facilities in the affected areas of AJK. For this purpose, PTA had granted temporary permission to these companies for carrying out emergency communications.
Meanwhile, the Collectorate of Excise and Sales Tax, Mirpur (Azad Kashmir), directed the mobile operators to register with the regional sales tax department and deposit sales tax with the AJK government.
Sources said that the companies have approached the Ministry of Finance, CBR and AJK government to resolve the issue.
The companies say that extension of mobile phone coverage to the quake-hit areas was a humanitarian operation and not business venture. Thus, AJK government should be persuaded to hold all such proceedings in abeyance till such time as the operators started commercial operations, after obtaining the required licence from PTA.
The CBR should intervene and convince the AJK government to stop tax proceeding against the companies, they said.
The mobile phone companies, in other budget proposals, have suggested different amendments in the Income Tax Ordinance 2001:
CARRY FORWARD LOSSES: The mobile operators have been given licence for a period of 15 years. Therefore, their business plan is based on the entire 15-year period, and it is conceivable that the companies may have planned to incur heavy loses in the initial years to earn a better return in the remaining year. But the companies will only be allowed to forward those losses for the next six years.
It has been suggested that the period for carrying forward losses be increased to 15 years, under the Income Tax Ordinance 2001.
EXEMPTION FROM MINIMUM TAX: Under section 113 of the Ordinance, minimum tax is payable by a resident company where no tax is payable by it during a tax year. This provision was primarily inserted to ensure that the resident companies may make some contribution to the development and welfare of Pakistan even if they are not making a profit.
However, the mobile phone operators are already making contribution in other forms of levies. Besides paying royalty to PTA, the mobile operators have to contribute to a universal service fund (USF) @ 1.5 percent of revenue, a research and development fund (R&D) @ 0.5 percent as well as annual licence fee @ percent. All of the above-mentioned contributions have to be paid irrespective of whether the mobile operators are making a profit or not.
It has been demanded that the mobile operators be exempted from this requirement of minimum tax under section 113.
CERTIFICATE OF TAX EXEMPTION FOR PAYMENT TO NON-RESIDENT: The companies have also recommended that where a person intends to make a payment to a non-resident person without deduction of tax of at a reduced rate under the provisions of tax law or double tax treaty, the person, before making the payment, needs to obtain tax certificate from Tax Commissioner. The Tax Commissioner takes 30 days to issue such certificate.
There are many practical difficulties that the taxpayers as well as non-resident companies are facing, as this provision is becoming a major bottleneck in doing business efficiently.
It has been suggested that the order of the Income Tax Commissioner should be contract-specific and cover all payments under that agreement, instead of individual payments. The CBR should also reduce the time of passing the order from 30 to 15 days. In case of disagreement, officer of higher cadre should be designated for hearing appeals against the order.
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