Karachi, May 18, 2024 – The Overseas Investors Chamber of Commerce and Industry (OICCI) has proposed the abolition of advance tax on telecom subscribers in the upcoming budget for 2024-25.
This suggestion aims to rationalize the tax burden on telecom services and enhance affordability, particularly for low-income populations.
In its detailed proposals for the new fiscal year, the OICCI highlighted that the advance tax on telecom services was reduced from 12.5% to 10% for FY 2021 and was set to drop to 8% for subsequent years through the Finance Act, 2021. However, this reduction was reversed by the Finance (Supplementary) Act, 2021, which increased the withholding tax rate to 15%. This hike has made mobile services less affordable, impacting a critical service for the population, with over 70% of Pakistanis living below the poverty line.
The OICCI emphasized the vital role of telecom services in economic growth, noting that the increased tax disproportionately affects the poorest consumers, particularly women. Pakistan has the widest gender gap in mobile ownership (34%) and mobile internet use (43%) compared to its regional peers. High sector-specific taxes elevate the cost of mobile services, reducing the ability of the poorest consumers to become mobile broadband subscribers. Given that a large segment of the population is non-taxable and the percentage of tax return filers is minimal, applying withholding tax across the entire subscriber base is deemed illogical. Lowering this tax would improve internet and data service affordability for low-income groups.
The OICCI recommended that the advance tax on telecom subscribers be abolished entirely, as most subscribers fall below the taxable income threshold. Alternatively, the withholding tax rate should be reinstated to the 8% level as per the Finance Act, 2021, effective for Fiscal Year 2024.
In addition to the advance tax adjustments, the OICCI proposed a revamp of the Withholding Tax (WHT) Regime, ensuring no loss of revenue to the exchequer by simplifying the tax collection mechanism through real-time payment of advance tax under Section 147 on a quarterly basis. This approach would enhance transparency in tax claims and verification, reducing operational complexities associated with maintaining extensive records for advance tax on utility bills and imports.
OICCI’s Key Recommendations:
1. Revamp WHT Regime:
o Transform the WHT regime for the telecom sector, collecting tax in advance under Section 147 on a quarterly basis.
2. Exemption Certificates:
o Companies listed in the Active Taxpayers List (ATL) and those with exemption certificates for full-year tax liability in advance should be exempted from obtaining separate WHT exemption certificates under Sections 151, 234, 235, 236, 236G, and 236H.
3. Streamlined Non-Resident Payments:
o Facilitate timely payments to non-residents by reducing the confirmation period for exemption certificates under Section 152(5A) from 30 days to 15 days. In the absence of confirmation within 15 days, the request should be automatically approved.
The OICCI believes that implementing these measures will make telecom services more accessible and affordable, especially for Pakistan’s low-income population, and foster greater economic growth. The proposed changes aim to simplify tax processes, enhance transparency, and ensure that the telecom sector continues to thrive without imposing undue financial burdens on the poorest consumers.
