Removal of Rs 500 mobile activation charges, 10 percent withholding tax sought

Pakistan Telecommunication Authority (PTA) has approached the Central Board of Revenue (CBR) for removal of Rs 500 activation charges and 10 per cent withholding tax on mobile sector in the upcoming budget, sources told Business Recorder on Wednesday.
Sources said both PTA and cellular operators believe that reduction in activation charges would increase the subscriber base generating more revenue for the government. The mobile sector in Pakistan pays much higher taxes as compared to other regional countries such as India, Sri Lanka and Malaysia, they argue.
To prove their point, sources said that the PTA in a comparative analysis says that taxes on cellular sector in Pakistan are 16.3 percent higher than India and 21.5 percent more than Malaysia.
It says that Rs 500 activation tax being charged to every new connection in addition to 10 per cent withholding tax to most of the cellular users, majority of them of lower income groups, not liable to pay income tax.
Previously, activation tax was Rs 2,000 and was further reduced when the PTA had taken up the issue with the President and Prime Minister contending that any cut in tax would result in generating more revenues.
The government reduced the tax by 50 percent in the budget 2004-05 which industry claims stimulated the subscriptions which grew from mere 5 million to 12.8 million (154 percent growth) in one year.
Similarly, revenue collection by government increased from Rs 11.5 billion to Rs 21.9 billion while activation tax collection increased by Rs 3.5 billion in the same period. Keeping in view the growth trends, PTA again recommended the government to further reduce activation tax from Rs 1000 to Rs 500 and recommendation was accepted in the budget 2005-06.
Resultantly, the subscriber base jumped from 12.8 million to 34.5 million (169 percent growth) while total revenue to government in the form of taxes increased by 77 percent. PTA had also submitted a proposal to the CBR last year requesting to abolish 10 percent withholding tax on cellular mobile tariffs and reduce activation charges from Rs 500 to Rs 250 in 2006-2007 budget.
The cellular mobile sector paid Rs 8.58 billion as withholding tax in 2005-2006 against Rs 4.47 billion in the same period last fiscal. The contribution of general sales tax (GST) and excise duty was Rs 18.77 billion against Rs 9.88 billion in the last fiscal, whereas Rs 11.39 billion was collected as 'activation charges' in 2005-2006 against Rs 7.57 billion in the same period last fiscal. Earlier, Rob Conway, CEO of GSMA, the global trade association of mobile phone operators, had also voiced against activation charges during his visit to Pakistan in March when he met with the Prime Minister.
He had said that the charges were being subsidised by the operators, and passing them on to consumers would harming the fast growing telecom sector whereas its removal would eventually boost mobile use, and would add to revenue when the operators would expand their subscribers' base to rural areas.