Telecom sector seeks tax break

Express Tribune

26-03-2025

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The Telecom Operators Association has called for addressing several issues including tax exemptions in the upcoming budget for fiscal year 2025-26 for smooth activities of telecom firms.
In a letter sent to the finance minister, the association said that the telecom industry plays a vital role in economic growth, contributing significantly to revenue generation, digital inclusion and employment.
However, several fiscal and policy challenges need to be addressed to ensure sustainable growth and advancement of the sector. In this regard, it has submitted key recommendations for the budget.
The industry has demanded exemption from withholding taxes. Cellular mobile operators (CMOs), as major utility providers, face complex and costly withholding tax compliance due to a large number of transactions subject to income tax deductions under the Income Tax Ordinance (ITO) 2001, including utility bills, sales to corporate customers and imports.
The current withholding tax framework creates significant administrative challenges and negatively impacts business environment in the telecom sector.
To enhance tax compliance efficiency and foster a more business-friendly environment, the telecom industry has proposed extension in exemption from all withholding tax provisions under the ITO 2001.
This will simplify the advance tax payment process, allowing CMOs to make payments of quarterly installments under Section 147 of the ITO. This measure will not result in any revenue loss to the FBR as telecom companies will continue to make quarterly advance tax payments.
Adjustment to withholding tax
The Finance Act 2015 introduced a significant change to Section 153(1)(b) of the ITO 2001, replacing adjustable withholding tax with a minimum tax on services provided by telecom companies and other service providers. This shift has effectively turned income tax from a direct tax into an indirect tax, as the tax payable is no longer tied to actual income but is instead a fixed charge applied uniformly, regardless of profitability.
The 4% minimum tax rate imposed on telecom services is disproportionately high and negatively impacts the profitability of telecom companies, which are already struggling due to discriminatory taxation and financial difficulties.
The administrative burden has also increased, as telecom companies now face the cumbersome task of collecting tax deduction certificates from thousands of corporate customers nationwide. To ease financial difficulties and reduce tax costs, it is recommended that the withholding tax be made adjustable once again.
The companies demanded that taxpayers who comply with their obligations should not be subjected to unfair practices or undue pressure. The telecom association said that actions such as freezing bank accounts or halting business operations by sealing premises should only be undertaken when absolutely necessary and justified. These measures can cause undue disruptions and have adverse effects on the economy. While enforcement powers are necessary to recover due taxes from defaulters, current provisions should address the genuine concerns of compliant taxpayers. It said that recovery powers should distinguish between habitual tax defaulters and genuine taxpayers.
Exaggerated tax demands and forced recoveries undermine the business environment, investor confidence, and foreign direct investment. Recovery proceedings should not be initiated until an appeal has been decided by at least one independent appellate forum, such as the Appellate Tribunal.
The association has urged tax relief for telecom sector employees saying the surge in income tax on employee salaries, coupled with hyperinflation, has made it increasingly difficult for the industry to attract and retain top talent. High income tax burdens, combined with rising inflation, significantly reduce disposable income, making the sector less appealing to skilled workers essential for digital infrastructure and economic growth.
To balance revenue collection with workforce retention, sector-specific tax reforms should be introduced, including inflation-indexed tax brackets, increased exemptions for essential expenses, lower withholding tax rates, and special tax incentives for telecom professionals.
They asked for reduction in income tax and FED rates. The applicable income tax under Section 236 of the ITO 2001 is currently 15%, up from 12.5% via the Finance (Supplementary) Act 2022. Previously, the tax rate was set to decrease to 8% from 2022 onwards.
Additionally, under the Federal Excise Duty (FED) Act 2005, the applicable rate has risen from 16% to 19.5%. Since telecom products are already priced inclusively of taxes, reducing these rates would encourage revenue growth rather than suppress it.