LAHOER - The Punjab government, which is presenting its tax-free budget on June 12 (next Friday), has imposed tax on usage of internet data services of mobile phone users to generate additional revenues for meeting the annual revenue target - a mini budget few days ahead of provincial budget 2015-16.
Punjab Finance Department, through a notification No. SO (Tax) 1-1/2015 (vol-I), has announced to declare 19.5 per cent tax on internet services over 2Mbps and for bills exceeding Rs. 1,500 per month.
With this, over 56 percent population of Pakistan will be liable to pay service taxes on internet usage for 3G, 4G, broadband, EVO or anything internet communication with speeds exceeding 2Mbps or/and if the monthly bill for their service exceeds Rs1,500 per month. The PRA officials stated that it has imposed tax on internet broadband services which are above 2Mbps or having bill of Rs1500, but it will continue exemption to educational institutes and on students’ packages. Policymakers believe that collection of taxes through mobile and IT sectors is easier, as this sector is highly documented. After the imposition of taxes on internet services and phone data in Punjab, Sindh and KPK, the federal government will also levy taxes on data services in the upcoming budget of the province.
Federal government deducts taxes of telecom services in Islamabad, Baluchistan, Gilgit-Baltistan, and Azad Kashmir at the rate of 18.5 per cent as FED. Whereas, Punjab, Sindh and Khyber Pakhtoonkhawa collect taxes at the rate of 19.5 per cent GST from their respective regions. The mobile operators claimed that Pakistan is considered as the country with fourth highest taxes on telecom sector, including Sales Tax on Mobile Phone (Rs150-500), IMEI Tax (Rs150-500), SIM Activation Tax (Rs250 usually paid by telcos), FED/Sales Tax on calls, SMS (18.5% and 19.5%), Advance Tax/WHT (14%), FED on banking services/ branch-less banking transfer charges (16%), Taxes on operators (33% of Taxable Profit or 17% of Accounting Profit or 1% Annual Turnover) and Advance Tax at Import Stage (5.5% of value of goods which is considered as final tax). The cellular phone companies are shocked with the move as they were expecting tax relief in upcoming budget after heavy investment of billions of rupees to launch 3G and 4G technologies in Pakistan. The new tax will mar telecom companies to execute their business plans because taxes on data will discourage user to utilize high speed internet services on mobile phone.
Telecom industry experts said that out of 134 million overall users’ base, there are mere 13 million mobile phone users who started using 3G/4G and LTE technologies since last year. The new tax will cease the growth of the users of mobile phone companies which will result in the decline of the revenues of telecom operators, hence the government will unable to collect its relatively higher potential revenues. The decision will also affect adversely on the future investment plans of the cellular phone companies because of the betrayal of their confidence by the government which every year assures them to reduce tax burden on this sector and on their customers, but it takes outright opposite measure to enhance tax burden on the overburdened sector.
As a result of taxes on internet services, cellular phone companies may stop rolling out of infrastructure into untapped areas of different cities in future which will limit the 3G/4G service into specific pockets of few cities. The slowdown of the pace of 3G/4G service will hurt economic activities which is given impetus by the broadband internet to the GDP Growth. A study by GSMA stated 10 percent increase in broadband usage will increase GDP growth by 1.38 percent while 10 percent increase in usage from 2G to 3G services will increase GDP by 0.15 percent.