The cellular operators have urged the Central Board of Revenue (CBR) to withdraw the 'activation tax' currently being levied at the rate of Rs 500 per mobile subscription.
In a letter to the chairman CBR, the cellular mobile industry comprising six operators including Mobilink, Ufone, Paktel, Warid, Telenor and Instaphone, emphasised that this tax was inequitable and hindered the increase in mobile penetration in the country.
"The government of Pakistan deserves great credit in enabling the realisation of the many benefits of mobile communication, "the letter said and added, "It is important however, that the government keeps up its investor-friendly policies in order to sustain this tremendous rate of progress. It is worth mentioning that the rapid increase in penetration and tax revenues have been made possible to a large extent by the subsidisation of activation tax by cellular operators".
The letter added that this subsidy, however, not only prolonged the payback period on each subscriber but also caused service rollout in the rural areas to be economically not viable for the operators.
"The corrective measures necessary to sustain the current rate of growth could prompt operators to stop subsidising activation tax. This will however, have a drastic impact on subscriber growth, as vast majority of population in the not served regions of the country will not be able to afford mobile telephony. Therefore, the only alternative available is the elimination of mobile activation tax by the government. All previous trends favoured reduction in this tax, past experience of lowering this tax not only showed an increase in the cellular penetration level, but also in overall taxation revenues for the government, it added.
"This is primarily due to the fact that the savings caused by lowering activation tax were ploughed back into network expansions and provision of more affordable services to the consumers, resulting in increased coverage, penetration and usage. The combined effect was a consistent increase in tax revenues for the government," the letter maintained.
The signatory to the letter including CEOs of all the six operators asserted that further reduction in activation tax would drive tax revenues higher in part due to greater mobile penetration and usage, but more significantly due to the multiplier effect on the GDP. The communication to the CBR included that the cellular industry has been indisputably at the forefront of telecommunication revolution in Pakistan.
The industry invested close to $2 billion in the fiscal year 2005-06 alone, which according to Pakistan Telecommunication Authority (PTA), was 54 percent of the total foreign direct investment (FDI) in the country. Mobile penetration in the country currently stands at 32.7 percent, which makes Pakistan leading its South Asian neighbours by a significant margin. Furthermore, according to a recent study carried out by Deloitte & Touche, the mobile sector contributed over five percent to the GDP of Pakistan in the same year.
"The analysis based on our projections suggests that elimination of activation tax will keep tax revenues on a growing path. Therefore, it is requested that 'mobile activation tax' may kindly be abolished in the budget 2007-08," the letter concluded.