Two leading telecom companies have decided to establish a joint venture ("TowerCo") in Pakistan for which amendments have been proposed to all fiscal laws, ie, Sales Tax Act, 1990, Customs Act, 1969 and Federal Excise Act, 2005 in budget (2015-16) to facilitate smooth establishment of a professional services company.
Sources told Business Recorder here on Wednesday that the presidents of two top cellular companies have made a presentation to FBR Chairman Tariq Bajwa on the proposed joint venture ("TowerCo"). The joint venture of both the telecom operates would be engaged in building new towers and manage existing sites more efficiently to provide best infrastructure services.
According to the telecom giants, mobile operators are very keen to expand coverage and increase penetration in voice and data both, which would require them to drive network rollout in rural and remote geographies and enhance their network in urban centres. With the recent investment in additional spectrum, network roll out and enhancement require operators to optimise their Opex spend and in parallel rationalise Opex related to existing networks through operational efficiencies and energy management. Operators are seeking to achieve this by sharing the savings through co-deployment, co-location and shared Opex. This will result in operators being able to increase investments in active equipment to accelerate roll out of network to newer geographies; Focus on core business of providing wireless communication and deliver superior mobile services to the people of Pakistan.
This requires setting up of a professional passive infrastructure services company such as TowerCo, in line with global and regional trends, to build new towers and manage existing sites more efficiently to provide passive infrastructure services for all the sector players. The above initiative will drive growth in subscriber base and usage of mobile services (voice and data). Coupled with operational efficiencies and new investments optimisation, mobile telephony services will potentially increase operator revenue; improve margins and profitability for operators; drive economic activity and growth (direct and indirect) and attract foreign direct investments for network roll out and enhancement and future spectrum auction and capital investments in new technologies. This will directly benefit the government of Pakistan through increased tax revenues from mobile services; TowerCo operations and the economy as a whole.
However, current sales tax legislation in Pakistan does not classify provision of passive infrastructure services that would be provided by TowerCo as a 'taxable activity' which has limited the potential of establishing a company such as TowerCo to provide passive infrastructure services due to imposition of sales tax at the rate of 17% on the value of the existing towers being contributed towards setting up TowerCo and inability of TowerCo to claim input tax adjustment against consumables such as power, fuel and maintenance, raising costs by approximately 17% as no sales tax is levied on passive infrastructure services.
The joint presentation of the companies revealed that the current tax laws would therefore have to be amended to make it possible to set up a TowerCo. These amendments are required to ensure that passive infrastructure services provided by TowerCo would be subject to excise duty and/sales tax. The relevant laws are Sales Tax Act, 1990; Federal Excise Act, 2005; Customs Act, 1969; Sindh Sales Tax Act 2011; Khyber Pakhtunkhawa Finance Act, 2013 and Punjab Sales Tax Act 2012.
Both the companies believe that it will be very important to gain the support of the FBR for the required amendment at federal level. It is therefore imperative that both the Ministry of Finance and FBR are appraised of the benefits of the proposed changes accordingly. In this respect, proposed amendments should be made part of the Finance Bill 2015 and timelines for such incorporation are met.
Without the support of the FBR it would be impossible to move forward on this initiative and the required support here will set the industry on the path to providing greater impetus to the economy of Pakistan and progress to its people, they said.
Text of the proposed amendments in fiscal laws revealed: Under Sales Tax Act 1990, a new sub-clause (e) will be inserted in Section 2(3 5), which will then state as follows:(e) Any activity attracting sales tax or excise duty levied under or pursuant to any federal or provincial statute,
In Federal Excise Act, 2005, First Schedule, Table II (Excisable Services), Item No 6 will be amended to state as follows: "Telecommunication services including renting or providing physical infrastructure (including but not limited to structure(s) on which transmitting and/or receiving antenna(e) are located) under license from Pakistan Telecommunication Authority, and ancillary services, which would be utilised by other persons licensed by Pakistan Telecommunication Authority for providing various services but excluding such services in the area of a Province where such Province has imposed Provincial sales tax and has started collecting the same through its own Board or Authority, as the case may be".
In Customs Act, 1969, First Schedule (Pakistan Customs Tariff), Chapter 98 (Services), there is a need for allotment of HS Code to services by Infrastructure license holders. Proposed HS Code 9812.1980: Renting or providing physical infrastructure (including but not limited to structure(s) on which transmitting and/or receiving antenna(e) are located) under license from Pakistan Telecommunication Authority, and ancillary services, which would be utilised by other persons licensed by Pakistan Telecommunication Authority for providing various services, it added.