Cellular phone operators seek withdrawal of tax on SMS

Cellphone operators have decided to approach the finance ministry to seek withdrawal of 20 paisa tax per SMS, which, they say, will hinder growth of the industry. It is learnt that cellular phone operators have started evolving a strategy and are preparing to make a presentation to the finance ministry in this regard.
Before going to the ministry, top officials of cellular phone companies will separately meet with each other in a couple of days to make their case strong. Officers of one of the operators are also considering to approach the Competition Commission, as, according to them, the government has offered extra support to one of the companies at the cost of the whole industry.
The government, in the federal budget for 2009-10, has levied 20 paisa tax per SMS, which is in addition to the rate specified for the telecommunication sector. At present, all mobile phone companies except one are offering bulk SMS packages, which are seen greatly favourable for consumers. However, the new levy will reduce revenues of operators, and rates charging process will also become complex as most of the operators are offering unlimited SMS at a fixed rate.
According to data collected from the industry, out of 90 million registered cellular phone customers, over 45 million use the SMS service, each sending an average of seven SMS daily. Daily SMS traffic in the country is estimated at around 315 million and monthly traffic at around one billion.
The Pakistani market is very responsive to SMS-based packages. There has been tremendous growth in SMS usage, estimated at 30 per cent in recent years. Interestingly, a company earned about $50 million from SMS service during 2008-09. But the government's decision will affect the business of this company too.
However, cellular phone companies have appreciated the government's announcement to reduce SIM activation tax to Rs 250 from Rs 500. But they are unhappy with the ratio of reduction in federal excise duty/general sales tax, terming it insufficient.
This tax was not reduced according to their demand to 16 per cent, the equivalent rate of GST for other sectors. In the budget 2009-10, the federal government has reduced general sales tax to 19 percent from 21 percent. In the last budget, the telecom industry was the only industry that was imposed 21 percent GST.