FBR Has a Mind Of Its Own: Additional Withholding Tax for Telecom Sector

The Federal Board of Revenue (FBR) is planning additional Withholding Tax on the Telecom sector. FBR is considering an increase on mobile banking transaction in the budget 2017-18. The circulating news about additional will not go well with the telco operators who had asked for subsidies from FBR, only a day before.

As of now, the current rate of withholding tax is 0.4% on all mobile banking services (for non-filers of tax returns).

Also Read: Industry Status And Tax Relief: Telcos Come Forward With Charter of Demands Before Budget 17-18

FBR, however, plans to remove tax charged on cash withdrawals from branchless banking agents. As of now, agents are supposed to pay 12% tax on commission earned along with 0.3% tax on direct cash withdrawals.

State Bank of Pakistan’s (SBP) Financial Roadmap

SBP had earlier advised FBR for removing tax on cash withdrawals from mobile banking agents. The ‘National Financial Inclusion Strategy‘ developed by SBP aims at expanding mobile baking and reaching general public. The action plan aims to reach 50% of Pakistani population by the year 2020.

Banking agents pay more than Rs. 110 million in terms of withholding taxes every year.

FBR’s increase in withholding tax and expanding the tax net, however, is a move in the opposite direction to SBP roadmap.

Telecom Sector and Taxation Revenue

The telecom sector almost paid for almost 35% of the total tax collected in the FY 2015-16. Total tax collected by FBR in FY 2015-16 was Rs455 billion out of which Rs158 billion were collected from the teclos. The proposed withholding tax cut from currently 14% to 10% may mean a loss of Rs.50 billion for FBR.

Also Read: Pakistan Banking Association Suggests a 30% Slash In Tax Rate

The Board charges 14% blanket withholding tax from all customers of Telecom companies — including both prepaid & postpaid customers. A majority of customers end up paying withholding tax despite being below the taxable income threshold of Rs400,000/annum. FBR has claimed that it is developing legal procedure that will ensure that only people falling in correct bracket get taxed.

The telco sector consumers are often hit the worst in terms of taxes as a majority doesn’t file for tax returns.

Quick Read: SBP Tables New Draft Framework To Revamp IT Governance And Risk Management

Telcom Sector demands

  • The telcos have demanded reduction of federal excise duty (FED) and general sales tax (GST) from 19% to standard 17%.
  • The telcos have also demanded removal of FED and GST on SIM cards, IMEI number activation, and data usage.

You can read about Telco demands related to Withholding tax and others here.

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