ISLAMABAD: The Federal Board of Revenue (FBR) is examining budget proposals of the Cellular Mobile Operators (CMOs) including extending the facility of exemption from all withholding tax provisions under the Income Tax Ordinance 2001 to the telecom sector.
In this regard, the FBR has received budget proposals of the Telecom Operators Association for the next fiscal year (2025-26).
Presently, FBR’s budget team is seriously reviewing these proposals during ongoing budget exercise, the FBR officials told Business Recorder here on Wednesday.
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According to the budget proposals of the Telecom Operators Association for 2025-26, there are several fiscal and policy challenges that need to be addressed to ensure sustainable growth and the advancement of the sector.
The Cellular Mobile Operators (CMOs) proposed withdrawal of regulatory duty rates on telecom power equipment which are not locally manufactured. Moreover, telecom services sector should be excluded from retail price list because they don’t import the goods for direct sale. The rationalizing of duties on telecom equipment is key for improving 4G and broadband internet services plus communication, during the period of Covid it was essential goods so SIM / E-Sim Card/Wireless equipment is key product and non-manufactured goods to support telecom standards for better voice.
The COMs as major utility providers, face complex and costly withholding tax compliance due to the large number of transactions subject to income tax deductions under the Income Tax Ordinance (ITO) 2001 i.e. on utility bills, sales to corporate customers, imports etc. The current withholding tax framework creates significant administrative challenges and negatively impacts the business environment in the telecom sector.
To enhance tax compliance efficiency and foster a more business-friendly environment, we propose extending the facility of exemption from all withholding tax provisions under the ITO 2001 to the telecom sector. This would simplify the advance tax payment process, allowing CMOs to make quarterly instalment payments under Section 147 of the ITO 2001.
A similar facilitation has already been provided to the banking and oil sectors, demonstrating the positive impact on ease of doing business.
Currently,telecom sector is subject to withholding tax on imports, services/goods, utilities etc. which involves maiantaining documentation of millions of transactions resulting in verification challenges for both taxpayer and FBR. In case, exemption from withholding taxes is provided to telecom
sector there will be zero loss of revenue as Telecom companies will be paying the due taxes in their quarterly advance tax payments.
By taking this measure, there will be no loss of revenue to the FBR as the tax collection mechanism will be simplified in terms of real time payment of advance tax on quarterly basis. Furthermore, this measure will also make the tax claims and its verification mechanism more transparent with minimum operational hassles as maintaining the thousands of records especially for advance tax on utility bills and imports is itself a very cumbersome procedure.
The CMOs have also proposed that withholding tax taken from gross receipts
doesn’t account for the profitability of the company. Even if the business is not generating profits, it still needs to pay tax on its gross receipts. This can strain liquidity and make it difficult for companies to invest in growth or meet other financial obligations. When businesses are already experiencing losses, they should ideally be focusing on their recovery and sustainability. Deductions on gross receipts make it seem like businesses are being taxed on their capital, rather than actual profits, which is often more detrimental for companies in distress.
The budget proposals also revealed that current recovery measures are very harsh and resulting in freezing bank accounts and business disruptions. Administrative actions should be subject to the approval by Chairman FBR to
ensure fair treatment considering objective assessment followed by due process of law. Recovery proceedings shall not be initiated until the appeal has been decided by at least one independent appellate forum i.e Appellate Tribunal.
The CMOs have also proposed that section 147 of the Income Tax Ordinance, 2001 was amended through the Finance Act 2024, which empowers the Commissioner Inland Revenue to reject the advance tax estimate filed by a taxpayer. This has created significant challenges for businesses. This provision has led to increased litigation, financial disruption, and operational hurdles. It introduces uncertainty and operational complexities related to tax payments, audits, and appeals.
This is resulting in unnecessary litigation, business disruptions, tax recoveries and waste of resources/time of FBR and taxpayers Enhancement of ease of doing business and business continuity.
Given the significant negative impact on business continuity and the added strain on taxpayers, it is recommended that the power of the Commissioner to reject the estimate of advance tax filed by the taxpayer should be revoked. This would promote a more transparent, predictable, and business-friendly
tax environment, reducing unnecessary litigation and compliance challenges for taxpayers while maintaining the integrity of the tax system.
The CMOs have also proposed keeping in view the amendments made pertaining to ADRC, it appears that the very concept of “Alternate” has dissipated since the outcome is now binding on the taxpayer.
Copyright Business Recorder, 2025
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