The fiscal regime of the country continues to be distorted by several inequities. Addressing the media on "Telecom Taxation Impacting the Consumers" in Islamabad on 4th May, 2017, Aslam Hayat, Chief, Corporate Affairs, Telenor, regretted that Pakistan telecom was one of the highly unpredictable sectors in terms of tax regime. Every year, the government stipulates major changes in tax laws that affect business plans for investment both in infrastructure and spectrum. Telenor had invested dollar 3.5 billion during the last 11-12 years and was spending around Rs 40 billion every year on the upgradation of its network but could only remit dividends of dollar 400 million. Mobilink had invested dollar 8 billion since 1993 but could send dividends of only dollar 110 million back. Telecom's contribution to national exchequer was Rs 158 billion last year as against its revenues of Rs 455 billion. Moreover, taxes have to be paid by customers before they actually avail any telecom service and, on average, a user spends Rs 2520 on telecom service to get an actual service of Rs 1598 while Rs 922 go as taxes. For the poorest 20 percent population, the total cost of mobile ownership accounts for as much as one-fifth of average annual income. Telecom consumers in Pakistan have been paying 37 percent tax for using mobile or internet facility which is the highest and there is no sign of any reduction in this tax. According to the law in Pakistan, a person earning less than Rs 0.4 million in a year could not be taxed but every mobile consumer in the country is paying a heavy tax irrespective of his income.

Although every sector of the economy presents his demands to convince the tax authorities to give some kinds of concessions at the time of budget formulation on one pretext or the other, the observations of Aslam Hayat at the media conference deserve serious consideration due to their seemingly ample justification. There is no doubt that modern communication facilities play an important role towards economic uplift of the country and their easy access at reasonable rates could facilitate this process to achieve the desired goal. The fact cannot be denied that the way of life now is changing faster than ever before due to rapid advancements in the means of communication and Pakistan has done reasonably well in this area. Innovation and growth opportunities in the telecom sector were particularly opened after the commercial launch of Next Generation Mobile Services, commonly known as 3G and 4G LTE services and the Telecom Policy of 2015 which was aimed at transforming Pakistan into an economically vibrant and knowledge-based economy. However, while the growth in subscribers was quite commendable, the government saw the telecom sector as an efficient source of tax revenues and did not hesitate to put extra burden on consumers year after year. The data on foreign investment, tax levies, etc., as quoted by Aslam Hayat, makes a sad reading. It is quite clear that if important telecom companies such as Mobilink and Telenor are unable to remit 'reasonable' profits from Pakistan, they may either slow down their investment or decide to relocate in some other parts of the world where they could get better returns. One example of the lack of interest in Pakistan was that four mobile operators participated in the spectrum auction held in 2014 as against only one in 2016. The picture may also be not encouraging in the upcoming auction. While higher investment in the telecom sector may not be forthcoming, consumers are the worst hit. More than one-third of their spending to buy a coupon accounts for taxes. Withholding tax on telecom at 14 percent is very high as most sectors are paying in the range of 1-5 percent. The government does not realise that the possession of a mobile phone is no more a luxury but a necessity for the common man, even for the poor lot. The problem for the government is that it attaches more importance to the ease of tax collection rather than its justification. In our view, it would be better for the government to collect direct taxes without any exemption rather than rely on indirect taxes which hit the common man and the poor more severely. Telecom sector, in particular, already seems to be under strain and its case for a fair treatment needs to be considered seriously by the government in the forthcoming budget.

Copyright Business Recorder, 2017