Tax applicability on interconnection charges: telecom companies seek to explain position to Prime Minister

Telecom companies have requested Prime Minister Raja Pervaiz Ashraf to provide an opportunity to explain their position about the applicability of tax on interconnection charges, as no revenue loss is involved in the whole issue, presently taken up by National Accountability Bureau (NAB). It is learnt here on Tuesday the cellular companies have collectively written a letter to PM on the issue of alleged tax evasion by the telecom companies.
In a letter to the PM, six telecom companies have informed the PM that based on the Caller Party Pays regime implemented by PTA; the calling party is required to pay F.E.D for the entire charges of telephone call (calling party network + receiving party network) which is subjected to tax in sales tax mode @ 19.5%. The telecom companies believed that the department cannot collect tax beyond what is due on telephone calls; total tax on the telephone call has already been deposited in retail mode; no tax is due on interconnect as it is mere after tax sharing of revenue on which tax has been collected/deposited on gross amount by each of the concerned telecom operator from whose network the call was initiated; departmental contention that tax should be paid in two parts by the calling party network and receiving party network is a mere procedural matter with no additional tax revenue for the Government and arbitrary proceedings contrary to sales tax mode cannot survive the test of appeals.
Further, to avoid litigation the Telecom operators offered to adopt the procedure proposed by the Department who in turn provided waiver of past practice of industry under section 65 of the Sales Tax Act, 1990 through notification issued by Revenue Division On June 30, 2012 which was proposed to be published in official Gazette effective June 30, 2012. Please note that there was no loss to the Government Exchequer as alleged in the news media.
The notification issued was to ensure that CMOs may not be subjected to litigation on procedural matters. Needless to mention that in the past Revenue Division has issued numerous procedural waivers through notifications issued under section 65 of the Sales Tax Act, 1990, being fully within its powers. Accordingly, the impression being created by some quarters as to tax evasion by telecom operators is incorrect and based on insufficient understanding of facts and related provisions of law.
Telecom companies requested the PM to give an opportunity to present correct state of affairs as there is no factor of corruption or loss to Government Exchequer involved therein even in terms of section 9 of the NAB Ordinance, 1999. Simultaneously, directions may be given to FBR to withdraw the cases related to interconnect from all forums being baseless and against the interest of the Economy of Pakistan.
Moreover, we (companies) would also request for the Gazette Notification of the above referred SRO issued by FBR on 30th June'20 12 as well. However if that SRO is not formally notified by the Government, then since there is no loss of revenue to the National Exchequer; the current practice of collecting and depositing FED in GST mode by the originating operator covering both the originating and terminating operators, which is based upon CPP (Caller Party Pays) regime promulgated by Government itself, should continue as it is. Accordingly, suitable amendments in relevant laws should be made, if deemed necessary and, as such, all proceeding by tax authorities against telecom operators in this regard should be dropped, they added.
It is pertinent to mention that mobile telecommunication is the largest tax collecting and paying sector at the moment. The total contribution of the telecom sector to National Exchequer for Financial Year 2011-12 was in excess of Rs 120 billion. This is in addition to billions paid as other fees and levies to the Federal and Provincial Governments and their concerned authorities, Furthermore, it is noteworthy to be mentioned here that the Telecom Operators are making a significant contribution towards the overall economy of the country by making 5% contribution ($79M) in the total Foreign Direct Investment made in the country in FY 2011, Its 117B contribution towards the national exchequer in FY 2011 and a total of around 1.4M direct and indirect jobs created by the Telecom industry. Over the past couple of years the Telecom industry has shown slower growth as compared to earlier years due to the grave challenges faced by the industry. Despite all the grave challenges, the Telecom Operators have provided their best services to the customers and are still expanding to serve the untouched areas with most modern infrastructure, which shows their commitment in terms of service provision and roll out obligations, they added.