Hear, hear. In a sharply pro-consumer turn, the honorable Supreme Court has itself taken up the matter of heavy deductions on prepaid account recharge for cellular services. BR Research has, for years, been arguing for a reduction in those upfront levies – which consume close to a quarter of the recharge value before a customer even uses the service – in the interest of improving affordability of cellular services in this low-income market.
Folks may disagree with the apex court intervening in matters economic. But reality is that federal government never took this particular issue seriously. Currently, a withholding tax – or advance income tax – of 12.5 percent is levied upfront on every prepaid recharge. The rate has been brought down over time, but it is still high. And it is regressive, too, for it taxes every consumer the same way, regardless of their income.
Emboldened, cellular firms also started deducting some years back a few percentage points out of every prepaid recharge under the hood of fees like “service charges”, “maintenance charges”, “operational fee”, etc. Currently, up to 10 percent of a user’s recharge value is said to be exhausted by those charges. And all of that is taking place at the time of recharge without providing consumers any “service”; the actual service the firms provide is telephony and Internet services.
This practice has been going on for past many years, with gradual increment in lieu of those charges. The government didn’t do anything; the cellular operators, in private, often cited difficult operating conditions in Pakistan as the rationale behind those fees and charges. This resulted in a double whammy for poor users: taxes plus operator fees.
What is left for consumers after paying off those two totally avoidable levies is not much; on the remaining amount, there is a massive sales tax (FED) on airtime usage. Federal government charges 17 percent FED on telecom usage on phone calls and texts services (but not on broadband) under its tax jurisdiction. The provincial governments – all four of them – levy a 19.5 percent on both telecom and Internet usage.
Thus, a telecom user, depending on whether s/he is residing in a federal territory or in the provinces, ends up losing Rs37-39 out of every Rs100 of account recharge. It is time for corrective action. The government should stop taxing consumers upfront; and the operators, instead of charging inexplicable fees, must adjust their tariffs to improve their business case. It will be interesting to see what course of action the apex court adopts at the hearing scheduled on this public-interest issue later this week.
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