The government of Pakistan has unveiled the Budget 2017-18. The budget has brought a sigh of relief for Information Technology sector. Those who are affiliated with this industry or keeps a keen eye on the development of this sector must know that telecom companies and cell phone sellers have always complained about burgeoning taxes and duties that have always negatively impacted the growth of the sectors, but this year there seems a little relief for everyone but not according to expectations. Before proceeding, I just want to give a little background and the recent happenings in this field.

Before this budget, the Telenor’s Chief Corporate Affairs and Strategy Officer Muhammad Aslam Hayat and Ufone’s Chief Officer Corporate and Regulatory Affairs Naveed Khalid Butt submitted detailed proposals to the Federal Board of Revenue for reduction in the tax rates on withholding tax and sales tax. It is to be remembered that in Pakistan the sales tax rate on telecom sector is 19pc which is one of the highest in Pakistan. While our neighboring countries India and Iran have a sales tax on telecom of 14pc and 8pc, respectively.

This government in her first budget presented in 2013, increased the withholding tax rate 10pc to 15pc. Then in the coming year it was reduced to 14pc but it still emerged as one of the leading sources of revenue. According to official figures only last year, the government of Pakistan had accumulated Rs48 billion with the help of 14pc WHT on mobile phone calls from 140 million mobile phone users. Out of this big amount only Rs4 billion was claimed by the taxpayers, while rest Rs44 billion remained unclaimed because the most of subscribers were either below the tax threshold or did not submit a return for claiming it. Similarly, the government has received almost Rs158 billion in forms of other taxes from mobile phone industry in FY-16 which was Rs126 billion in FY15.

This year, Finance Minister Ishaq Dar announced the reduction of withholding tax on a mobile phone call that every one of us pays in advance to the government. The withholding has been reduced from 14pc to 12.5pc. Now all the 140 million mobile subscribers will pay 1.5pc lesser WHT on each phone call in the next fiscal year. The Federal Excise Duty on telecom services has also been decreased to 18.5pc to 17pc. The decrease is indeed a positive development and it will benefit the industry. But the telecom industry was hoping more from the government. It was expected that the WHT should be reduced to 10pc which was the percentage before PML-N government came into power.

With this little decrease, the industry is hoping to create 1.8 million additional connections that will ultimately increase GDP by $1.2b. Further it will generate 4,200 jobs by 2021. Had the government announced a big decrease the industry would have boomed further to return maximum to the government and the people.

The reduction is also announced for the branchless banking sector. Withholding tax has also been abolished on the transactions of branchless banking. That means there will be no tax on any transaction of Easypaisa, Jazzcash or similar financial services. There is also good news smart phones sellers is that Finance Minister Ishaq Dar also decreased customs duty on low priced Android phones. It has been reduced from Rs1,000 to Rs650.

The other highlight of the budget is that the new tech companies will be exempted from Income Tax for the next three years in Pakistan. It is a big win for technology companies. This is a major development that will provide landmark results for the IT sector. With the inclusion of 3G and 4G technology in Pakistan a few years ago, this sector has seen a surprising boom in the shape of various new tech companies and startups. Now, these companies can work towards improving their products and operations.

The telecom sector in Pakistan is moving in fast track and enjoying high demand. The year-on-year increase is small but the sector has big potential to return. It has introduced 3G and 4G technologies which have fully become operational. Expansion is ongoing in several sectors in which IT and mobile companies are providing new services and the most modern technology. This growth is all good for the government because the industry provides the tax officials an easy way to pocket more from end users irrespective of their incomes. This industry has helped all entrepreneurs, big and small, to expand their economic activity. The PML-N government should realise it as a useful tool for economic revival. It shouldn’t consider it only an easy way to extort more money in forms of taxes from the millions of cell phone users. The people attached to this industry hope the government would further facilitate IT and telecom sector.