National Telecommunication Corporation (NTC) is vigorously seeking the reversal of an increase in turnover tax, well-informed sources told Business Recorder. NTC was established under section 41 of the Pakistan Telecommunication Re- organization Act 1996, in order to provide telecommunication services only to armed forces, defence projects, federal government, provincial governments or any other governmental agencies or governmental institutions as the federal government may determine.

Initially, in accordance with section 41(18) of the Act, tax exemption was granted for a period of three years. Thereafter, NTC being a company in terms of section 80(2)(b) of the Income Tax Ordinance 2001 has been paying income tax applicable as per rules at the following rates: (i) taxable profit, for which normal tax rate is defined in division II, part 1 of the first schedule of Income Tax Ordinance 2001 (currently@ 29 per cent); and (ii) minimum tax@ 1.25 per cent of turnover (revenue) as per section 113 of the Income Tax Ordinance 2001.

The sources further revealed that in the Finance Act 2015, clause 79 of (part iv exemption from specific provisions) of the Ordinance, was omitted. The omission of clause 79 rendered the provisions of section 153(b) of the Income Tax Ordinance 2001 to become applicable to NTC. Consequently, tax liability of NTC increased drastically from 1.25 per cent to 8 per cent of its turnover.

In light of this development, NTC management board in its 93rd meeting on July 19, 2019 resolved "NTC to forward the case for grant of exemption from 8 per cent as minimum tax rate as a final tax and request for applicability of tax as before the amendments i.e. 1.25 per cent of turnover as minimum adjustable tax to Ministry of Finance through MoI&T".

Ministry of Information Technology and Telecommunication forwarded the request of NTC to Finance Division which stated that it is not a general commercial telecom licencee and not a competitor of any other telecom service provider but an essential entity of the state machinery.

Finance Division was requested to take necessary action as per rules. Finance Division forwarded the case to the Revenue Division, which in its response stated that NTC is a taxable entity and falls within the ambit of a 'company' in terms of section 80(2)(b)(ii) of the Income Tax Ordinance 2001. Thus, the tax withheld @ 8 per cent under section 153(1)(b) of ITO 2001 constitutes minimum tax in terms of section 153(30(b) of ITO 2001. Revenue Division contended that the proposal cannot be acceded to.

In its response, NTC again contended that it cannot be treated at par with other telecom companies as their mandate is restricted to government organizations to provide safe, secure and independent telecom service free from private control. It also contended that its clients are government departments which place it at a disadvantage as compared to private telecom companies, whose sales are a mix of private and corporate sales with different taxation for both sets of clients.

Ministry of Information Technology and Telecom requested Ministry of Finance to take up the matter with Revenue Division for exemption of income tax @ 8 per cent in favour of NTC on the basis of the arguments offered in this case by the latter.

Revenue Division stated that exemption can only be granted through amendment in the statute which is the prerogative of the legislature and a summary may be moved to the federal government to request for grant of exemption.

Accordingly, a draft Bill to further amend second schedule of the Income Tax Ordinance 2001, was sent to the Law Division for vetting in terms of Rules 14(1) of the Rules of Business 1973. Law Division has vetted the draft Bill.

Ministry of Information Technology and Telecommunication proposed that the Bill to further amend the Income Tax Ordinance 2001 may be approved in terms of Rule 16(10(a) and Rule 16(1)(d) of the Rules of Business 1973.

However, when the proposal was brought before the ECC on November 27, 2019, the Bill could not sail through. The ECC constituted a committee under the chairmanship of Minister for Economic Affairs, comprising Minister for Information Technology and Telecommunication, Minister for Power, Minister for National Food Security and Research, Chairman Board of Investment, Chairman FBR and Secretary Ministry of Information Technology and Telecommunication to deliberate on the issue in a holistic manner and submit a report to the ECC for its consideration with viable recommendations.