ISLAMABAD: The Federal Board of Revenue is likely to make 6 percent withholding tax on mobile phone companies adjustable instead of minimum tax under section 153 of the Income Tax Ordinance 2001. Sources told Business Recorder here on Saturday that the FBR is working on a proposal to change the withholding tax regime for the cellular companies under section 153 of the Income Tax Ordinance 2001.
It is being examined whether the mobile phone companies should not be subjected to 6 percent minimum tax under section 153 of the Ordinance 2001. In this regard, the FBR can make this tax adjustable for the cellular companies instead of minimum tax to be paid by such companies. In case such a proposal is being finalised, the FBR will move a summary to the Ministry of Finance for approval. The amendment to the section 153 of the Income Tax Ordinance would be required for making tax payment of cellular companies as adjustable instead of minimum tax.
As a result of this proposed amendment, the tax withheld under section 153 of the Ordinance 2001 on services rendered by cellular companies shall become adjustable and also refundable as compared to current position of minimum tax. During ongoing exercise in the FBR, apparently the Board is not ready to exclude the mobile phone companies form the purview of the section 153 of the Income Tax Ordinance 2001.
The proposal under consideration is to make the 6 percent minimum tax as adjustable for the mobile phone companies. The FBR will forward the proposal to the Ministry of Finance after examining all legal aspects in the light of the provisions of the Income Tax Ordinance 2001.
The mobile phone companies had requested the FBR to exclude telecom operators from the ambit of section 153 of the Income Tax Ordinance 2001. The revised section 153 of the Ordinance 2001 would be applicable on cellular companies from the period starting from July 1, 2011. In this regard, the telecom companies have made a presentation to the FBR for exclusion of such companies from the revamped section 153 of the Ordinance 2001.
According to sources, mobile phone companies have further informed the FBR that tax withholding sections are effective only against sectors/taxpayers which are undocumented or have opportunity of dealing outside their books of account. However, telecom sector which is already a significant contributor to the government through collection of taxes and broadening of tax base cannot be subjected to similar treatment. Moreover, telecom sector is similar to manufacturers, whose business has been excluded from the minimum tax/final tax regime of section 153 read with section 169 of the Ordinance.
Sources said that the telecom operators are working in a very competitive environment, which is capital intensive and thereby their margins are much less than the minimum tax. Sources said that under the caller party payer scheme, enforced by PTA, the calling party is required to pay for the call till termination at the customer receiving the phone call.
Accordingly, the telecom operator from which the call is originates is required to pay for the duration of the call a certain amount to the other telecom operator on whose network the said call terminates, unlike in the past where the caller and recipient both used to make payments to their respective telecom operators for calling/receiving telephone call respectively. Further, these payments are also covered under the provisions section 153 of the Ordinance as they stand today which will in turn tantamount to twice taxation ie Firstly in the hands of the telecom operator (First operator) whose subscriber originates the telephone call; and Secondly under section. 153 of the Ordinance on the CPP interconnect charges paid by the First operator on payments to operator on whose network the call is terminated.
The telecom operators are utility providers, similar to electricity and gas providers, with extensive clientele across Pakistan. According to Pakistan Telecommunication Authority, the number of telecom users in Pakistan as per its website are: cellular mobile phone users 107,886,440; fixed line phone users 3,417,802 and Wireless Local Loop user 2,742,738. Accordingly, if tax is deducted/collected by say one percent of the telecom sectors customers, approximately 1.4 million customers would deduct tax and 16.8 million transactions of tax deduction (12 months x 1.4 million deductions per month) would have to recorded and related tax withholding proof collected by the said telecom operators in order to claim deduction of said tax and file related proof with the tax authorities.
Keeping in view the legal status, the telecom operators, being corporate taxpayers having proper books of account may be excluded from the ambit of section 153(3)(b) of the Ordinance through insertion of a clause in the Part IV of Second Schedule to the Ordinance in-line with existing clauses of Part IV of Second Schedule to the Ordinance. The withholding of tax is not applicable on (16A) - advertising; (46) - supply of petroleum products; (46A) - iron and steel works; (57) - trading houses and (57A) - import houses under section 153 of the Ordinance 2001.
Sources added that the hotels are also exempted from tax deduction under SRO 586(1)/1991 dated June 30, 1991 and thereby fall outside the ambit of section 153 of the Ordinance as their cash sales are also not subject to tax withholding. The telecom operators should also be included in the SRO 586(1)/1991 in-line with petroleum products, electricity and gas etc all of which are utility providers with extensive clientele and collectors of taxes for the government exchequer.