ISLAMABAD: The Telecom Operators Association has urged the government to introduce tax exemptions and policy reforms in the forthcoming budget for the fiscal year 2025-26 to support seamless operations within the telecom industry.
In a formal communication to the finance minister, the association highlighted the telecom sector’s critical role in economic growth, revenue generation, digital connectivity, and employment creation. However, it emphasized that several financial and regulatory challenges must be addressed to ensure the sector’s sustainable expansion.
Appeal for Withholding Tax Exemption
The industry is pushing for the removal of withholding tax obligations, arguing that cellular mobile operators (CMOs) face substantial financial and administrative burdens due to frequent tax deductions under the Income Tax Ordinance (ITO) 2001. These deductions apply to a broad spectrum of transactions, including utility bills, corporate sales, and imports, leading to excessive compliance costs.
To create a more business-friendly tax environment, the telecom sector has proposed a complete exemption from all withholding tax provisions under the ITO 2001. If granted, CMOs would be able to make quarterly tax payments under Section 147, streamlining the tax process without any revenue loss to the Federal Board of Revenue (FBR).
Revisiting the Withholding Tax Structure
Amendments made under the Finance Act 2015 converted adjustable withholding tax into a minimum tax on telecom services and other service providers under Section 153(1)(b) of the ITO 2001. This transition effectively changed the nature of income tax from a direct to an indirect levy, as the tax obligation is no longer linked to actual earnings but is instead a fixed charge.
The current 4% minimum tax on telecom services is seen as excessive, particularly given the sector’s existing financial constraints and discriminatory tax policies. This high tax rate erodes the profitability of telecom firms, many of which are already struggling.
Additionally, the administrative complexity of collecting tax deduction certificates from a vast corporate customer base has increased compliance difficulties. The industry has recommended reverting to the previous system, where withholding tax was adjustable, to ease financial pressure and enhance tax efficiency.
Safeguarding Legitimate Taxpayers
The telecom industry has also voiced concerns about coercive tax collection measures such as freezing bank accounts or sealing business premises. The association argues that such enforcement actions should only be applied in cases of genuine tax evasion rather than being indiscriminately imposed on compliant businesses.
It has urged the authorities to differentiate between habitual tax defaulters and genuine taxpayers. Moreover, it has suggested that tax recovery proceedings should only commence after at least one independent appellate forum, such as the Appellate Tribunal, has reviewed a tax dispute. Premature enforcement, it cautioned, undermines investor confidence and discourages foreign direct investment (FDI).
Addressing Income Tax Burden on Employees
Another key demand from the telecom sector is tax relief for industry employees. The association highlighted that rising income tax rates on salaries, coupled with inflation, have made it increasingly difficult to attract and retain skilled professionals.
To ensure that the telecom sector remains competitive in securing top talent, it has called for targeted tax reforms, such as inflation-adjusted tax brackets, expanded exemptions for essential expenses, reduced withholding tax rates, and special incentives for telecom professionals.
Reduction in Income Tax and FED
Currently, the income tax applicable under Section 236 of the ITO 2001 stands at 15%, up from 12.5% following amendments in the Finance (Supplementary) Act 2022. Originally, this tax rate was set to decline to 8% from 2022 onward.
Similarly, under the Federal Excise Duty (FED) Act 2005, the applicable tax rate has climbed from 16% to 19.5%. Since telecom services are already subject to inclusive pricing models that incorporate taxes, the association believes that reducing these rates would promote sector growth rather than hinder revenue collection.
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FAQs
What tax exemptions is the telecom industry requesting?
The telecom sector is seeking exemption from withholding taxes to simplify compliance and reduce financial burdens on cellular mobile operators.How does the current tax structure impact telecom companies?
The existing tax framework increases operational costs, complicates tax compliance, and reduces profitability due to high minimum tax rates.Why does the industry oppose the 4% minimum tax on telecom services?
The sector argues that this tax is excessive and functions as an indirect tax, making it harder for telecom firms to remain financially viable.What concerns does the telecom industry have regarding tax recovery methods?
The industry believes tax enforcement actions, such as freezing accounts and shutting down businesses, should only be applied in extreme cases to avoid economic disruptions.How would reducing income tax and FED benefit the telecom sector?
Lowering these taxes would improve affordability, encourage industry growth, and create a more investment-friendly environment.
