ISLAMABAD - The Federal Board of Revenue on Saturday informed the Supreme Court that it collected over Rs51 billion in withholding tax from cellular companies for the fiscal year 2016-17.

It also said that the rate of sales tax on calls and SMS in the Islamabad Capital Territory was 17 percent as compared to 19.5 percent charged by the provinces.

The board further informed the court that almost Rs4 to Rs4.5 billion was being collected from the cellular companies per month.

The Rs51 billion collected from the cellular companies was 5.5 percent of the overall collection from withholding taxes of Rs944 billion in the FY 2016-17, said a report submitted by FBR in a suo moto case pertaining to unreasonable deduction of money by cellular companies on toping up the calling cards.  

On May 3, Chief Justice Mian Saqib Nisar took the suo moto notice of the unreasonable deduction in the name of different taxes on credited calling cards and issued notices to the Attorney General for Pakistan, the FBR and all the cellular companies including Mobilink, Jazz, Ufone, Zong, Telenor. 

The chief justice had termed the deduction exploitation and had observed that Rs60 is credited on a card of Rs100 and it was a matter of public importance. He had directed the officials to explain as to how much and what amount was being deducted or taxed on a calling card/easy load of Rs100.

The FBR in its reply said that the withholding tax comprises a major chunk of direct taxes (68-70%) adding that the tax collection under the withholding mechanism during the fiscal year 2016-17 was Rs944 billion. 

“From telephone companies, almost Rs4 to Rs4.5 billion is collected per month. Overall withholding taxes collected u/s 236 of the Ordinance, is over Rs51 billion for the fiscal year 2016-17, which is 5.5 percent of the overall collection from withholding taxes of Rs944 billion in the year,” the reply said.

In compliance with the top court’s directions, the FBR also submitted a comparative analysis of money deduction from mobile network consumers and other countries and stated that the quantum of deduction in Pakistan was lesser than the other countries. 

It said that a cross-country comparative study of sector-specific taxes and fee on the telecom sector shows that the quantum of such taxes is lower in Pakistan than in Bangladesh, Malaysia, Thailand, Indonesia and Turkey. 

“Moreover, it is also observed that in a number of countries, various types of fee, contributions, charges and other levies are also collected from the mobile phone users, in addition to the applicable GST/VAT, which also varies from country to country.”

It further stated that the mobile phone usage is still cheaper in Pakistan than many countries in comparison.

Regarding the taxes and duty collected on a Rs100 pre-paid card/voucher/load, the FBR submitted a chart according to which adjustable withholding tax is 12.5 percent or Rs11.11, service charges of the telecom fee is 10 percent or Rs10, sales tax on service charges at stage-I is 19.5 percent of Rs1.95, balance amount is Rs76.94, sales tax on call and SMS at stage-II is 19.5 percent or Rs15 and the net amount utilized by the consumer is Rs61.93. 

For the ICT, the rate of FED is 17 percent instead of 19.5 percent of sales tax on services which is charged by the provinces, the reply said adding that the 19.5 percent sales tax on services is collected by the Telcos on behalf of the provinces as per their respective laws.

“Telecom companies (Telcos) deduct service charges at the rate of 10 percent on pre-paid cards which is not a government tax.” 

“Income tax is collected only once from the customers at the time of sale of the pre-paid card or easy load at the rate of 12.5 percent, lowered from 14 percent vide Finance Act 2017 as per Section 236 of the Income Tax Ordinance 2001. This tax is Advance Income Tax and credit of the tax collected can be claimed by the consumers at the time of filing of Income Tax Returns.” 

“Being conscious of the problems of the mobile phone consumers, over the years, there has been reduction in taxes applicable from a peak of 15 percent (2013-14) to 12.5 percent (2017-18). Similarly, the applicable FED rate has also been consistently reduced. It is now applicable at 17 percent (for ICT) in the current fiscal year 2017-2018,” it said.

It further stated that “adjustable advance withholding taxes are treated as a payment on account of recipient’s annual tax liability at the end of the year on filing annual returns and declaring annual income. A person has a right to claim refund if his annual tax liability is less than the tax withheld.” 

“Lack of documentation of economic transactions in developing economies is the main contributing factor of low tax base and low revenue collection,” the reply stated adding that in such jurisdictions withholding taxes are the main sources to broaden the tax base to generate revenue. The main idea is to impose withholding taxes on transactions where persons operating in the informal sector interact with the formal and regulated sector as to acquire information about potential taxpayers to bring them in the tax club.” 

“The collection of tax at source is also enforced on certain expenses or transactions which have high informational/ mapping value. In such situation withholding tax data can be the source of broadening of the tax base as well as the generation of revenue.”