Cell cos optimistic about tax relief in upcoming budget

KARACHI: Investing nearly $1billion receiving licences of 3G/4G technology, cellular phone companies are now optimistic to get rationalised taxation policy that eroded the profitability along with continual increasing operating cost rendering services to their respective customers.
The overall taxation rate in Pakistan is second highest in the world after Turkey, which equally squeezed the revenues of the cellular operators and affordability of the customers for using telephony services for domestic and commercial purposes.
Officials of the telecom sector said Ishaq Dar Minister of Finance who met several times with heads of the cellular phone companies and different officials during the auction process of the 3G/4G licence assured companies for reducing taxes on telecom sector in the upcoming budget financial year 2014-15.
They have shown their optimism the contribution of cellular phone companies through the purchase of spectrums would influence policymakers to give relief to cellular phone companies and their customers in the coming years.
Because the technology could not be deployed and promoted at faster pace if the heavy taxes would remain on cellular phone companies and their subscribers. 
The taxes will determine how fast the rollout of 3G technology will possible to them because every company desires for better Return on Investment (ROI) in order to keep expanding in a market.
The high taxation is proving to be a hindrance in providing affordable mobile services to the population and is affecting not only operators’ revenues but is also limiting government income in the long term, said Muhammad Aslam Hayat Chief Corporate Affairs Officer Telenor Pakistan.
Over the years the General Sales Tax and Federal Excise Duty (GST/FED) alone has witnessed an increase of 30 percent and current taxation of 19.5 percent on telecoms services is higher by 2.5 percent than sales tax on other industries, he said. 
Bringing GST/FED at par with rest of the sectors i.e 17 percent has manifold benefits for government, businesses and consumer, as it will increase mobile users’ spending, operators’ revenues, government revenue and Gross National Products growth.
There are substantial costs involved in the form of equipment installation, equipment optimisation and maintenance. While we aim to offer 3G services to the masses at affordable prices, this can only be achieved if the cost of doing business remained reasonable.
Not only mobile phone companies revenues were squeezed but higher taxation with additional charges of cellular phone companies have discouraged customers to use telephony and its value-added service in the last year when rate of withholding tax were increased by 50 percent whereas companies also imposed additional charges on the account of operating/ administrating expense.
Sikandar Naqi adviser to CEO Zong said, “The pocket of consumer shrinks and effective balance of the consumer for personal use left only about 60 percent due to heavy taxation”.
Besides, it hit the revenue of the Company badly as the overall sector witnessed declined in revenue after increase of withholding tax from 10 to 15 percent in the last budget of financial year 2013-14, he added.
The activation tax of Rs 250 on every SIM should be abolished because it hampers the growth of new connections by 50 percent, Naqi said who is the spokesman of fastest growing network in terms of subscribers.
The activation tax is an illegal levy on telecommunication service provider and has been challenged in the court of law, he added.  
Officials of the companies pinned hope their suggestions would be considered in the next budget.
Despite optimism and assurance of tax rationalisation, Minister of Finance recently denied to give any relief to telecom operators and asked them to deposit Rs 20 billion withholding tax to Federal Board of Revenue on the account of 3G/4G licence.
The sector could be a major contributor in the economic growth and GDP of Pakistan as 10 percent increase in broadband usage will increase GDP growth by 1.38 percent while 10 percent increase in usage from 2G to 3G services will increase GDP by 0.15, a study by GSMA stated.

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