The Supreme Court rules that Universal Service Fund payments to telecom companies for providing services in underserved areas are not subject to tax deduction under Section 153(2)(b) of the Income Tax Ordinance.

ISLAMABAD: The Supreme Court of Pakistan has ruled that payments made by the Universal Service Fund (USF) to telecommunications companies for providing services in underserved areas are not subject to tax deduction under Section 153(2)(b) of the Income Tax Ordinance, 2001.

Allowing the USF’s appeal, a three-member bench comprising Justice Munib Akhtar, Justice Jamal Khan Mandokhail and Justice Irfan Saadat Khan set aside a tax liability of approximately Rs4.79 billion.

In its 38-page detailed judgment, the court also held that Section 21(c) of the Income Tax Ordinance did not apply to the payments in question.

The Supreme Court further annulled the relevant portion of the revised assessment order issued by the tax authorities, along with the decision of the Alternative Dispute Resolution Committee (ADRC).

The dispute involved payments totalling approximately Rs17.76 billion made by the USF to telecommunications companies for projects designed to extend telecommunications facilities to areas where services were unavailable or inadequate.

The tax authorities had raised the issue of tax deductions on these payments under the relevant provisions of the Income Tax Ordinance.

During the proceedings, the ADRC reduced the disputed tax liability to approximately Rs1.53 billion. However, the Supreme Court ultimately allowed the USF’s appeal and set aside the relevant decisions imposing the tax liability.

The ruling provides legal clarity on the tax treatment of USF payments made to telecom operators for expanding connectivity in underserved areas of Pakistan.