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Taxes should be reduced on mobile phone scratch cards: Senate Committee

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Senate Select Committee on Information Technology thinks that percentage of tax collection on mobile phone scratch cards should be reduced. Currently various taxes being collected on scratch cards come to around 37%; this reduces a Rs. 100 mobile card to worth only Rs. 63 for the consumer. Issue was explained in depth to Senate Committee, by Kamal Ahmed, Chief Corporate Officer (CCO) of Telenor Pakistan. 

On the other hand, Director General Withholding Federal Board of Revenue (FBR) Mehmood Aslam, on 7th February, briefed Senate Standing Committee on IT that the government needs to be collecting more taxes from the telecommunication industry – and there are certain loopholes. 

Telecom sector in Pakistan, with Rs. 15.9 billon taxes last year, is the fourth largest corporate tax payer after banks (90 bill) Energy(50 bill) and Agriculture (25 bill) sectors. It also collects indirect taxes (GST, CED, WHT & other levies) for FBR from the consumers and this figure jumped from Rs. 121 billion in 2012-13 to Rs. 161 billion in 2016-17. 

The director general, of FBR, however said that an information technology-based mechanism had been developed by the FBR to improve revenue collection from cellular mobile operators (CMOs). “The new system will enable the government to plug loopholes in the existing tax collection system from the operators,” he added.

Since 2004 till 2017 the industry has invested some $15 billion in the country. In 2016-17 the industry injected $635 million. After banks, energy and agriculture sectors, telecom industry is the fourth biggest tax spinner heavily in the country.

Most committee members are however of the opinion that 37% incidence of taxes on mobile scratch cards are too high – especially when most lower middle class people are not aware of how to seek adjustment of advanced taxes, as pointed out by PTI Senator, Shibli Faraz who actively participated in this discussion. Committee headed by Senator Shahi Syed was briefed about the mechanism devised for tax collection including the general sales tax (GST) and withholding tax (WHT) from cellular operators. The Senate committee has spent the last six years observing the deduction structures of Cellular Mobile Operators, trying to find out how tax burden for common consumers can be reduced. Its a common observation that consumers are paying increasingly more money for less talk time. Sections of media report that telecom companies are depositing less taxes into exchequer than what they are collecting, however FBR has not found any such discrepancies in the audit of Telenor – the first large company it has audited. FBR will now proceed with the audit of Zong. 

According to some media sources, DG FBR has said that the FBR has reason to believe that telecom operators are evading taxes. However, he also adds that the FBR, which lacked a mechanism to conduct audits of millions of subscribers’ transactional data, could not confirm these allegations. Mr. Aslam clarified the position.

Read more: Telenor bags startup awards as sales dip

“There are certain new areas in which the FBR feels telecom companies have not paid additional taxes. It could be that the operators may have exemption certificates. We have asked operators to explain their position,” he added.

Mr. Aslam explained that in order to analyse millions of transactional data of each cellular company on a daily basis, FBR launched a pilot project by devising an IT-based mechanism to ensure effective monitoring of withholding taxes by the operators. The official further explained that all four mobile phone companies are now required to upload their monthly customers’ transactional data on the software utility portal.

“After these deductions [the] subscriber is left with roughly Rs. 63 for making calls and using data services,” he added. He explained that heavy tax burden on cellular service providers is the most pressing challenge of all and requested the house to convince.

Earlier this year, the Federal Board of Revenue (FBR) had found discrepancies in cellular companies’ billing and price for mobile services, suggesting that mobile phone operators deduct more taxes from consumers than they transfer to the government.

Read more: Telenor pushing for 80% 4G coverage by next year

“Data uploaded by Telenor on FBR’s new IT-based portal reflects that the company has not paid the government Rs. 267 million in additional taxes between July and November 2017,” FBR Director General (Withholding) Mehmood Aslam told the Senate Standing Committee on Information Technology in January.

The body, which met for a briefing on the mechanism devised for the collection of taxes, such as general sales tax (GST) and withholding tax from the cellular operators, was also told that proceedings under the Income Tax Ordinance 2001 was underway and Telenor had been asked to explain its position.

“There are certain new areas in which the FBR feels telecom companies have not paid additional taxes. It could be that the operators may have exemption certificates. We have asked operators to explain their position,” he added.

“In the case of Telenor, field officers have started conducting an audit of withholding tax deducted from consumers and deposited at the company’s premises. FBR will conduct similar audits for all cellular operators to ensure better transparency,” Mr Aslam said. “As soon as Telenor responds to our queries, we will have clear answers for the committee,” he said.

Telenor’s Chief Corporate Officer Kamal Ahmad presented himself before the committee to answer queries. In response to a question from PTI Senator Shibli Faraz on overcharging subscribers on pre-paid cards, Telenor’s Chief Corporate Officer Kamal Ahmad explained to the committee that on Rs. 100 card, a subscriber pays 19.5 percent GST, 12.5 percent advance income tax and another 5 percent charged by the telecom companies as service charges – bringing the total to 37% of purchase price. 

Read more: Top 5 Cellular Networks in Pakistan

“After these deductions [the] subscriber is left with roughly Rs. 63 for making calls and using data services,” he added. He explained that heavy tax burden on cellular service providers is the most pressing challenge of all and requested the house to convince the government to ease that. Telenor is one of the three largest mobile telecom service providers in Pakistan – Zong and Jazz are the other two. 

Since 2004 till 2017 the telecom industry has invested some $15 billion in the country. In 2016-17 the industry injected $635 million. After banks, energy and agriculture sectors, telecom industry is the fourth biggest tax spinners in the country.

1 COMMENT

  1. Shit service and shit internet, dogs charge you an arm and a leg for it, and then the whore govt bans internet willy nilly as soon as their is some unknown threat from who knows where.

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