The cellular industry has proposed the government to eliminate taxes on SIM activation /supply and IMEI registration, abolish custom duties and sales tax on imported mobile phones and network equipment (SRO 575) and rationalise tax rate for subscribers in the upcoming budget for 2015-16.
"Pakistan is 4th among the heavily taxed telecom industries in the world. Taxes on telecom industry account to over 30% of the total cost of mobile ownership," said Aslam Hayat, Vice President Cooperate Affairs Telenor representing the industry at pre-budget seminar organized by the Institute of Chartered Account of Pakistan (ICAP). Hayat said that currently 18.5% FED on telecom customers, 14% advance tax on consumption of telecom services, 16% FED on banking services is being collected. He recommended that FED rate should be aligned with other services @ 16% while advance tax rate should be reduced to 5%. If passed on to consumers, these savings can support additional two million connections by 2020. This has the potential to increase the GDP by up to US $1.1 billion and increase productivity by 0.3%, Hayat added.
He further said that SRO 575 has been rescinded in Finance Act 2014-15 consequently customs duties on network equipment have been increased from 5% to 15-20%. Exemption of imported equipment from sales tax has been removed. The increase in custom duty has affected the telecom industry negatively in term of slow investment. Therefore, custom duties and sales tax on imported mobile phones and network equipment SRO 575 should be eliminated. Restoring the previous SRO 575 would make investment in essential network rollout and quality improvements more affordable. He recommended that SRO 575 should be reinforced and exemption should be provided. Reducing the custom duty increases investment and access to mobile services, promoting digital inclusion with wider economic impact. As sales tax is charged in VAT mode which is recoverable as input tax adjustment so restoring the SRO 575 will not reduce sales tax revenue of the government in fact it will reduce administrative complexity for the government and operators.
He further proposed status of industrial undertaking to cellular mobile operators for tax purposes. The tax paid at the time of import of telecom equipment @ 5.5% is considered as final tax rendering it nonadjustable against final tax liability. Fixed tax on import of telecom equipment increases the cost of network, an additional barrier to mobile network coverage in Pakistan. The Ministry of Information Technology and Ministry of Industries both already have granted the status of industry to mobile operators but the FBR still has not. Telecom companies are not commercial importers and equipment imported is used in the network to provide telecom services rather than for further sale. He said that removing income tax on imports can reduce the cost of electronic network equipment, increase economic viability of infrastructure investment in remote areas and impact 3G coverage.
He further proposed elimination of taxes on SIM activation /supply and IMEI registration. Multiple taxes on SIMs and handsets including SIM card sales tax @ PR 250, SIM activation tax @ PR 250, sales tax of PR 150-500/ handset on imports and IMEI tax on handsets PR 150-500/handset. He said that these taxes restrict the investment in telecom sector. Activation Tax should be reduced from PR 250 to PR 150, sales tax on SIM issuance should be clarified/ removed while IMEI tax should be eliminated as this is double taxation.
Removing the tax could increase the number of mobile connection. As SIM activation tax was reduced in the past, mobile penetration increased causing increase in government tax revenues, Hayat added.
He further proposed harmonisation of provincial sales tax laws, single return, and single audit. Both federal and provincial revenue collectors have been pursuing the taxpayers with regard to deposit of tax/ duty within their respective jurisdiction, as per the provincial/ federal laws, creating undue hardship and double taxation claims for taxpayers.
All the revenue boards should agree on jurisdictions and common rules so that issues of 'origin' and 'consumption' on services and claim of input taxes should be clarified in a simple and understandable manner, including basis of apportionment of revenues. Secondly, the resolution should be facilitating for the taxpayer, rather than creating hardship in compliance. He said duplicate taxation is causing hardships to taxpayers and has given a rise to unnecessary litigations.
Habib Fakhruddin, Member ICAP board, said that there are about 4,000,000 NTN holders while compliant taxpayers stood at 9,00,000. Reasons behind non-complaints are absence of writ of law, non-tax culture and no fear of non-compliance, he added. Fakhruddin said the FBR has needs to design framework for complaints for identification, assessment, prioritisation and treatment of complaints risk.
The FBR should conduct survey of properties and business with the objective to identify non-complaints and new tax payers. The FBR has not conducted any such survey for last 10-12 years, he maintained. He further proposed that FBR should declare 2015 as year of compliance /broadening. He further said that unnecessary relaxations eg 236H and clause (81) OF Part IV of 2nd schedule, exemption from filing wealth statements and extension in due date should be eliminated to broaden tax net.
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