The telecom sector of Pakistan has been under a lot of scrutiny recently by the government of the country. Most recently, the Supreme Court of Pakistan inquired from the Federal and Provincial governments, why and under what law telecom services are charged so heavily.

A four-member bench which included Chief Justice Mian Saqib Nisar heard this case recently.

The apex court has issued a notice to the mobile service companies, the provincial governments and the federal government and, has demanded a reply within a week.

The Supreme Court of Pakistan has demanded explanation from the federal government about charging 12.5 percent withholding tax from 140 million telecom customers, particularly when only less than one percent of these subscribers can refund this tax.

During the hearing, Chief Justice Saqib Nisar said that the law governing withholding tax seems imperfect and these taxes are exploiting customers.

One of the members of the bench, Justice Ejaz ul Ahsan, noted that 42% of the amount recharged in a mobile account is deducted as a tax before making a call. The Finance Minister was also summoned and was asked why roughly 140 million Pakistanis were paying so much in taxes for recharging their mobile phone accounts.

Justice Ejaz also mentioned that it was an illegal way to collect money and demanded that taxes on mobile phone pre-paid cards should be compared with mobile phone rates in other countries. The lawyer further said that 17% sales tax is collected from federal regions and 19% is collected from the provinces.

Furthermore, the apex court asked provinces to submit their response on the 19.5 percent tax being imposed currently. It also inquired the cellular companies to provide explanation about the 10% service charges deducted on mobile cards.

Attorney General of Pakistan was assisting the court and he clarified that the initial deduction on the card is 12.5% under the head of Withholding Tax.

Then there is a 10% service charge imposed by telecom operators, the Attorney General told the court.

When the court asked why this deduction was being made, the Attorney General said that the Telcos themselves can submit the best response on it.

The next hearing is scheduled for next week.

Background

On May 3^rd, the Chief Justice took notice of the high amount of taxes charged on pre-paid phone cards in Pakistan. Summon orders were issued to Telcos and the Attorney General of Pakistan. The CJ asked why the companies were charging so much and under which tax categories.

According to reports, upon recharging a Rs. 100 pre-paid card, the consumer is charged 19.5% Federal Excise Duty (FED), 12.5% withholding tax (WHT) and 10% service/maintenance charges. All of these charges add up to a total of 42% in taxes. Simply put, a Rs. 100 card only gives you balance of Rs. 58, for mobile service usage.

According to PTA statistics collected in January 2018, there are at present 144 million mobile phone users in Pakistan, who are paying this 42% tax on every recharge.

Telcos’ Aligned with Demand for Rationalized Taxes

On the other hand, Mobile phone companies claim that they have repeatedly requested for the rationalization of taxes on the telecom sector but the government has always turned a deaf ear on their demands.

Pakistan’s mobile phone companies have invested over USD 15 billion since de-regulation in 2003 and are credited for creating 14,000 direct and hundreds of thousands of indirect jobs.

Telecom companies think that in a market with extremely low customer revenues and high investment in infrastructure, there is a need for greater proliferation of services for the country to fully realize the benefits of information communication technology.

It’s not hard to understand the fact that higher penetration of digital technologies is possible only through affordable services, and government has done exactly the opposite by imposing such high rate taxes on telecom services.

On industry’s part, to ensure cheap access and higher penetration of telecom services, the sector is continually bringing more and more value to the consumers, which is evident from 90% reduction in data price, 30% in voice and over 50% reduction in SMS prices in comparison to the rates in 2013.

Mobile Operators said that they share the concerns of the Honourable Supreme Court regarding affordability of telecom services and are directly aligned with The Honourable Court’s observation of irrational taxes which are an impediment towards the development of the digital ecosystem and bridging the digital divide.