Non-deduction of WHT from subscribers: FBR, cellular firms yet to evolve formula

Fearing a huge revenue shortfall of around Rs44 billion per annum, the Federal Board of Revenue (FBR) and cellular companies remained inconclusive to devise a mechanism for non-deduction of withholding tax from mobile subscribers who do not fall under the tax net, official sources revealed to Business Recorder on Friday.
Sources further told that a meeting was held at the FBR, which was attended by the attorney general of Pakistan, four advocate generals of the provinces and representatives of Pakistan Telecommunication Authority (PTA) and mobile companies. The meeting decided that mobile phone users will enjoy tax-free mobile loads and calls for all cellular networks till the next orders of the Supreme Court.
Sources said the meeting was informed that around 99.3 percent people do not fall in the tax net, but the government collects around Rs47 billion under the head of withholding tax. The cellular companies informed the participants that currently no technical solution is available with them to differentiate between return filers and non-filers, but it is possible if the FBR provides data of return filers. However, fearing a huge revenue shortfall, the meeting remained inconclusive and decided to meet again on Monday (July 2).
The apex court has stated that withholding tax should not be applied on everyone as not every mobile phone user comes under tax net and hence it cannot be applied on every subscriber.
This tax suspension was supposed to remain in place for 15 days but now the period is extended till next hearing, which is yet to be scheduled, or the Supreme Court's order in this regard.
Mobile customers used to pay at least 25 percent of their money in taxes/charges at the time of card load. Then there was another 18.5 percent general sales tax on each call taking the total toll of deductions to around Rs40 on Rs100 card.
These taxes/charges included 12.5 percent withholding tax, 8-10 percent service charges from telecom companies, taxes on each call and 17 percent GST in the federal capital while 19.5 percent GST in provinces.
The Supreme Court, in a suo motu case, decided to suspend all taxes and service charges starting from June 13, 2018. The top court said withholding tax should not be applied on everyone as not every mobile phone user comes under the tax net and hence it can't be applied on every subscriber.
The Supreme Court in its last hearing had asked the FBR to submit proposals on how it plans to tax mobile phone users in a manner that non-taxable individuals would not have to pay the withholding taxes.
Sources said mobile phone companies and government had to bear loss amounting to billions of rupees after the decision. Telecom companies generated around Rs370 billion per year or around Rs1 billion per day during 2016-17.
Based on these figures, suspension of around 10 percent service charge would mean that telecoms have lost around Rs100 million per day or Rs2 billion since June 13, 2018. If suspended forever, the telecom companies will lose around Rs37 billion per year.
Furthermore, the federal government collected around Rs57 billion under the head of withholding tax from cellular customers during 2016-17. Based on last year's data, the federal government has incurred a loss of Rs2.7 billion during this period.
The GST was third element that was suspended on June 13, 2018, which is likely to restore after the next hearing. The provincial governments have lost revenue of around Rs3 billion during this period.