Telecom sector calls for tax cuts, GST harmonisation to boost affordability and investment

The telecom sector has submitted budget proposals requesting reductions in tax rates, including a decrease in the Withholding Tax (WHT) on subscribers and harmonisation of the General Sales Tax (GST) on services across the country. 

Additionally, the sector is pushing for the harmonisation of the GST rate for telecom services across Islamabad Capital Territory (ICT) and all four provinces. 

The sector’s proposals also call for the reinstatement of advance tax as per the Finance Act 2021, aiming to enhance the purchasing power of customers, as a significant portion of telecom consumers fall below the taxable income threshold.

The telecom industry has highlighted the administrative challenges posed by the current tax system, particularly the complexity of withholding taxes on numerous transactions, such as electricity bills for cell sites. This process increases costs, complicates compliance, and places an operational burden on telecom operators. The sector suggests that this tax collection should be verified to reduce the burden on tax authorities.

Furthermore, the sector proposes making the withholding tax on telecom services adjustable rather than a minimum tax, as the current system forces companies to pay taxes even in loss-making years. The shift from an adjustable income tax to a minimum tax has turned it into an indirect tax, disconnected from a company’s actual earnings.

Currently, the telecom sector faces a total tax rate of 34.5%, with 15% charged from subscribers and 19.5% as GST on services. The sector has proposed reducing the WHT from 15% to 10% in the upcoming budget, with a gradual abolition of this tax.

The sector also recommends increasing the carry-forward period for minimum tax credit under Section 113 from three years to five years, arguing that the slow payback period in the telecom industry—ranging from eight to ten years—makes a three-year limit unsustainable for loss-making companies. 

Other suggestions include removing regulatory duties on telecom power equipment that is not locally manufactured and excluding telecom services from the retail price list, as they do not import goods for direct sale.