45 percent corporate tax rate recommended for telecom companies to stop dollar outflow

KARACHI: The Federal Board of Revenue (FBR) has recommended increase in tax rate on phone companies from 35 percent to 45 percent to discourage dollar outflow abroad and appreciate local currency value for the sake of economic growth.
The FBR experts also estimated increase in revenue for the national exchequer after implementation of proposed hike in tax rate.
“The rate of corporate income tax for Telecommunication sector may be increased from
35 percent to 45 percent,” said a report compiled by a group of tax officials. “This can benefit in two-fold; firstly it will generate more revenue for the state and have a direct positive impact on the exchequer, secondly it will discourage the flight of dollars remitted abroad in the form of profits of these companies and come to rescue of the balance of payment deficit of the economy,” the report added.
Presently, Pakistan is facing serious fiscal crisis as huge amount of foreign exchange reserves was being transferred to the international markets through Hawala Hundi and many other sources including transfer of pricing by international firms and multinational companies.
The report highlighted the problems faced by telecom sector of double taxation. The federal and provincial governments are in dispute over collecting the sales tax on services imposed on this sector.
The report however suggested: “The telecom sector should remain the exclusive domain of the Federal government as sharing this regulation with the provincial or local governments would create complications.” The tax experts explained that the jurisdiction of a mobile number registered in Karachi and being used in Lahore cannot be clarified. If it is inevitable that the provinces would charge tax on this sector, then there should be uniformity of tax laws in all provinces and the Federal government should ensure that there is an equal rate of tax being charged by all provinces including Azad Kashmir.

The tax expert recommended that the rate of Federal Excise Duty should be reduced significantly because it is burden on consumers.
It has been recommended that all the exemptions in this sector should be withdrawn specially granted to software houses and call centers and those should be subjected to tax at a lower rate. “The government should take measures to bring into the tax net all such services which are providing services abroad while physically being in Pakistan,” it said. “Pakistan Telecommunication Authority should be empowered to screen calls and online messages coming in and out of the country to identify business transactions taking place,” it added. It further recommended that the government should also request the countries who are acquiring such services to provide information to the Pakistani government that would identify the service providers here.
There should be no restriction on the use of any technology in Pakistan until and unless it is harmful to the interests of the country. The report said that cell phones and wirelesses shouldn’t be banned in any area of Pakistan; further screening of its usage should be introduced instead.
“The government should focus on the providing finance to the non-cellular/mobile component of telecom sector in the form of loans instead of providing exemptions in tax laws,” it added.
The government should realize the enormous growth the telecom sector has shown in the country. This is the time for the decision makers to lead this sector to further expansion and progress. “The government should reduce the taxation on the telecom services and its related equipments that will help in reduction of the cost of the service, which ultimately will encourage more telecom usage,” the report said. This approach on the part of the government will help in more revenue collection in respect of more taxes on these services. The telecom operators should be given tax concessions especially in the rural areas of the country for more investment there which will help link the digital divide as well between urban and rural areas. It further added “the more investments; the more promotion of telecom sector and the more revenue collection will be there, if these concession are given to the telecom operators in the country.”
It has been noticed that that due to law and order situation in the country, there has been extensive damage to the infrastructure of the country, which has also affected the infrastructure of telecom sector. The terrorist activities have brought down the foreign direct investment which has ultimately caused loss in respect of investment in this sector.
Keeping in view the misuse of information through mobile phones, the government banned or jammed the mobile phones in various areas of the country in order to prevent any mishap or which could bring any tragedy in shape of terrorism. No doubt this measure is in the interest of our nation but on the other side of the picture, if we realize, this measure has caused much revenue loss. Our county is now going through a hard time which needs an injection of revenue to run the affairs of nation. The report added that without revenue, it will be very difficult for our beloved nation to survive. That is why, if viable, government should take some other measures, instead of blocking the mobile phones, to curb terrorism which should bring peace in the county as well as more revenue .

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