ISLAMABAD: The telecommunications giants have called on the government to cut pre-tax income from 12.5 percent to 10 percent, streamline and harmonize the GST rate to 16 percent, pass SIM spending tax, and customs and regulatory duties on telecommunications equipment and raw materials for optics to lower fiber optic cables in the household 2021-22.
According to a joint letter from giant telecom companies like PTCL, Jazz, Telenor Pakistan, Ufone and Zong to the federal finance minister, they were hoping that the tax proposals approved by the federal cabinet will be implemented in the upcoming finance law and the drive of Digital Pakistan.
The telecommunications companies called for a reduction in the early income tax from 12.5 percent to 10 percent and 8 percent by fiscal year 2021-22 and 2022-23. The telecommunications companies called for a rationalization and harmonization of the federal excise tax (FED) and sales tax to 16 percent and a harmonization of the tax laws for telecommunications services across the country. The granting of industrial enterprise status according to § 2 (29C) EStV 2001 and simplified input tax mechanism according to § 147 ITO 2001 in line with the banking sector.
The telecommunications sector is calling for a solution to the SIM expense tax under the decision of the Lahore High Court (LHC). The telecommunications sector has also called for a reduction in customs and regulatory duties on imports of telecommunications equipment and raw materials for the fiber optic cable manufacturing industry.
Other stakeholders, including Enfrashare, wrote to the government stating that under the current provisions of Section 153 of the 2001 Income Tax Ordinance, all income generated by ITCs is currently subject to a withholding tax (WHT) of three (3). Percentage calculated on the basis of revenue including sales tax (if applicable) and treated as “Minimum Tax” (MT).
The effective MT rate for ITC’s revenue can only be less than normal tax liability at the current corporate tax rate of 29% if the ratio of net taxable income to sales is greater than 30%. The business of ITCs is capital-intensive, since, in addition to electricity and insurance costs, high investments in the rental costs of the required real estate as well as the acquisition and subsequent tower construction as well as the ongoing operating and maintenance costs for each tower as well as electricity and insurance costs are required in order to maintain the connectivity of the Telecom ensure users. This capital investment is not necessarily made entirely from equity, but is financed through long-term loans, which are currently associated with higher financing costs.
Due to the above factors, ITCs are expected to have no taxable profit position for at least the first five years and even by the fifth to the tenth year the taxable income to sales ratio is unlikely to be more than 30%, leaving around WHT below the Absorb income from ITC. As a result, ITCs are expected to be subject to a 3% MT deduction on all sales (including sales tax) for the first 10 years.
It says: “Taking into account the above, we ask you to recommend the following amendment to the 2001 Income Tax Ordinance by the upcoming Finance Act 2020: Change in tax regulations from minimum tax to normal tax for ITCs.
The provisions of the MT regime through Section 153 of the 2001 Income Tax Ordinance should not be made applicable to ITCs. We understand that this change can be made by including a clause in Part IV of the Second Annex to the 2001 Income Tax Ordinance, which may exclude the provisions of Section 153 (3) (b) in the case of ITCs. As a result of this change, ITCs will be subject to net income taxation, with their annual tax liability for each tax year calculated on the basis of net taxable income for a given tax year, subject to the MT provisions of Sections 113 and 113C. In the event of a withholding tax that goes beyond this, you are entitled to a refund or exemption from the tax, subject to the fulfillment of other tax law requirements.