Cellular Mobile Operators (CMOs) have informed the National Assembly Standing Committee on Information Technology here on Tuesday that the CMOs have collectively deposited Rs 6.7 billion as advance income tax in government treasury on June 30, 2012 in view of the request of the Federal Board of Revenue to meet the revenue collection target for 2011-12.
On the behalf of the CMOs, Rashid Ibrahim Partner A F Ferguson & Co Chartered Accountant managed to convince the committee members that no revenue loss has taken place due to approval of the notification and only a procedural waiver has been approved by the Federal Board of Revenue (FBR) under section 65 of the Sales Tax Act. Over 25 statutory regulatory orders (SROs) have been issued under section 65 of the Sales Tax Act in the past. The decision of the approval of the SRO has not been unilaterally done by a single tax official, but the due process has been adopted starting from lower tax official to higher tax authorities and ultimately approval of FBR Chairman was acquired. Thus, all the relevant tax officials have examined, analysed and given approvals involving 6-7 tax officials through proper reporting mechanism of the FBR. In the case of CMOs total amount of tax has been paid by each and every mobile operator in Pakistan. He elaborated the procedure adopted in payment of taxes by the CMOs under the relevant applicable laws including tax provisions.
Mrs Anusha Rehman Khan Advocate opined that if the FBR has granted waiver to CMOs under section 65 of the Sales Tax Act, 1990, there might be some justification or powers for doing the same. However, sales tax experts and FBR Officials can properly explain the issue to the committee in case invited for the next meeting. In case of any default, the companies cannot participate in the bidding process and thus the matter has to be analysed with due diligence.
While explaining the legal and procedural aspects of the issue, leading chartered accountant explained the committee that in view of shortfall in Large Taxpayers Unit's tax collection target, it was negotiated to pay advance tax for waiver of alleged procedural lapse by the Operators. All the requirements of section 65 of Sales Tax Act, 1990 were confirmed to have been complied, except that tax due had already been collected and deposited by Calling Party's Operator. The question has been raised by different quarters that why the SRO has been issued on June 30, 2012. It was done as the FBR has requested the CMOs to deposit the advance income tax to meet the target and subsequently the SRO was issued.
Revenue Division, being the competent authority approved and provided a copy of signed notification to the Operators on June 30, 2012 which was committed to be published at the first available date in the official gazette. The CMOs collectively deposited Rs 6.7 billion in the national kitty on June 30, 2012, he maintained. Rashid Ibrahim categorically informed the committee that no revenue loss has taken place due to issuance of the SRO. In this issue, no revenue loss could take place during fulfilment of the procedural requirement through issuance of the SRO.
In his presentation, he further shared data that the CMOs collected for the government ie Income tax - over Rs 550 million per week (Rs 28.6 billion each year) and Excise duty - over Rs 4.0 billion each month (Rs 48.0 billion each year). The total contribution of the CMOs to the government exchequer for 2011-12 was in excess of Rs 125.0 billion.
He further said that the tax due has been collected and deposited in government treasury. Only a procedural waiver approved by the Revenue Division under section 65 of the Sales Tax Act, 1990 which the CMOs requested the august committee to help obtain the notification.
He said that the interconnect charges are the cost of "Other network" (Operator whose network the call is terminated) which is collected by the Calling Party's Operator (also called Local Loop Dialing). The excise duty @19.5% has been collected and deposited in government exchequer by the Calling Party's Operator on retail price (Sum of its airtime charges and interconnect cost). No operator including fixed line other operators charge Excise duty on interconnection charges being duplication of duty.
Pakistan Telecommunication Authority in 2001 enforced a policy whereby the calling party was made to bear the cost of telephone call [caller party pays (CPPI)], while previously both the caller and receiver of telephone call were liable to pay service charges and related duties/ taxes thereon.
Under the CPP regime the telephone call is charged to the calling party and the related call charges are split between the network operators of the calling party and recipient of telephone call. Further, related sales tax and income tax is also collected from the calling party.
The excise duty on telephone call has been collected and deposited in government exchequer and the excise duty is charged on prescribed services unlike sales tax where every good manufactured is subject to sales tax. Referring to the tax laws, Rashid Ibrahim said that the federal government has to-date neither prescribed an HS Code for interconnect cost despite 65 such sub-codes allotted to various elements of telephone service nor prescribed interconnect cost as taxable service under the Federal Excise Act, 2005. When 65 sub-codes relating to the telecommunication services have been mentioned for taxation purposes, the HS code for interconnection cost has not been mentioned.
Basically, the interconnect is cost recovery through "Calling Party's Operator" and no value addition to call. No purpose for charging Excise duty on interconnect by "Other operator" as Government Exchequer will receive the same amount IT receives under current practice.
Leading chartered accountant said that the excise duty on telephone service is charged under sales tax mode [allowing input (excise/ sales tax paid on purchases) is deducted from output (excise charged on sales). The interconnect if treated as telecommunication service, will be directly relatable to sales as evident from every post paid mobile phone bill. The excise duty in retail mode is easy to verify, manage and collection to Government exchequer is quicker.
The government exchequer will receive the same amount IT receives under current practice but possibly at a later date. The department raised the issue in 2010 and contended that Excise duty should be charged on interconnect cost. However, only two operators were targeted and were not allowed to raise excise invoices to enable the other operators to claim deduction from their output and tantamount to double tax. In this regard, the appeals are pending before Honourable Islamabad High Court and Appellate Tribunal Inland Revenue. The tribunal has itself constituted a 5 Member bench to hear the appeal against the order of the Appellate Tribunal Inland Revenue Islamabad.
Both companies have paid the tax demands under protest and continue to contest in appeals. The representations were made to Large Taxpayers Unit, Islamabad and thereafter to Revenue Division/ Federal Board of Revenue. In view of shortfall in Large Taxpayers Unit's tax collection target, it was negotiated to pay advance tax for waiver of alleged procedural lapse by the Operators. All the requirements of section 65 of Sales Tax Act, 1990 were confirmed to have been complied, except that tax due had already been collected and deposited by Calling Party's Operator and Revenue Division, being the competent authority approved and provided a copy of signed notification to the Operators on June 30, 2012 which was committed to be published at the first available date and operators collectively deposited Rs 6.7 billion into the national exchequer, Rashid Ibrahim added.