The telecom services are a high-profit margin service compared to other services, therefore subjected to higher taxes, says the Finance Ministry.
The Ministry for Finance and Revenue said this while responding to a question asked in the National Assembly regarding the withholding tax on telecom services being significantly higher compared to some of Pakistan’s other sectors.
In its answer, the ministry submitted that Income Tax is collected under section 236 of the Income Tax Ordinance, 2001, by telecom companies on mobile phone services at the rate of 10 percent with effect from 01-07-2021 of the gross amount of bill.
FBR collected about Rs. 54 Billion under section 236 of the Ordinance during the tax year 2020. This advance tax is borne by consumers and not by the telecom operators.
Moreover, the Honorable Supreme Court of Pakistan has also upheld this tax collection. The telecom services are high-profit margin compared to other services, therefore subjected to higher taxes.
Finance Ministry further stated that subscribers of cellular phones companies (CMOs) are charged to Federal Excise Duty in sales tax mode in the Islamabad Capital Territory (Tax on Services) Ordinance, 2021, only.
While sales tax on the telecom sector in provinces is collected by Provincial Revenue Authorities as per the rates prescribed below their respective sales tax on services laws. FED in Federal capital is collected as per S. No. 6 of Table-II of the First Schedule to the Federal Excise Act, 2005 which has now been reduced to 16 percent from 17 percent vide Finance Act, 2021.
Under the Finance Act, 2021, FED on mobile calls beyond five minutes has been charged at paisa 75 per call.
Another question was posed that “whether it is also a fact that income of majority of the population of the country is below to minimum taxable threshold, consequently, the deducted amount of WHT is neither claimed nor adjusted against a consumer’s tax liability for a year, as they do not file tax returns”.
In answer to this, the Finance Ministry stated that under the Income Tax Ordinance, 2001, tax collected on Telecom Service can be adjusted on the filing of return by the taxpayer.
The ministry said that even if the income is Below Taxable Limit (BTL), this amount can be refunded to the taxpayers on the filing of the return. Mostly, the amount is not substantial. Therefore, the taxpayers do not file the return. In case of a substantial amount, returns are filed, and a refund is obtained.
Through Finance Act, 2021, the tax rate under section 236 of the Income Tax Ordinance has been reduced to 10 percent for the tax year, 2022, and further reduced to 8 percent for the tax year 2023 onwards.