According to the Finance Ministry, Telecom services have a bigger profit margin than other services and hence are subject to higher taxes.
This was said by the Ministry of Finance and Revenue in response to a question raised in the National Assembly about the withholding tax on telecom services being much higher than in other industries of Pakistan.
In its response, the ministry stated that income tax is collected by telecom firms on mobile phone services under section 236 of the Income Tax Ordinance, 2001, at a rate of 10% of the gross amount of bill beginning on July 1, 2021.
During the fiscal year 2020, the FBR collected approximately Rs. 54 billion under Section 236 of the Ordinance. This advance tax is paid by consumers, not cellular operators.
Furthermore, the Honorable Supreme Court of Pakistan has upheld the collection of taxes. Because telecom services have a bigger profit margin than other services, they are subject to higher taxes.
According to the Finance Ministry, customers of cellular phone companies (CMOs) are only subject to Federal Excise Duty in sales tax mode under the Islamabad Capital Territory (Tax on Services) Ordinance, 2021.
While provincial revenue authorities collect sales tax on the telecommunications sector at the rates specified in their respective sales tax on services statutes. FED in federal capital is collected in accordance with S. No. 6 of Table-II of the First Schedule to the Federal Excise Act, 2005, which has been cut from 17 percent to 16 percent by the Finance Act of 2021.
According to the Finance Act of 2021, FED on mobile calls lasting more than five minutes is charged at paisa 75 per call.
Another concern was raised: “Is it also true that the income of the majority of the country’s population is below the minimum taxable threshold, and thus the deducted amount of WHT is never claimed nor adjusted against a consumer’s tax burden for a year, as they do not submit tax returns?”
In response, the Finance Ministry indicated that under the Income Tax Ordinance, 2001, tax received on Telecom Service can be adjusted when the person files his or her return.
According to the government, even if the income is below the taxable limit (BTL), the amount might be reimbursed to taxpayers upon filing the return. The majority of the time, the sum is insignificant. As a result, the taxpayers fail to file the return. When the sum is significant, returns are submitted and a refund is collected.
The tax rate under section 236 of the Income Tax Ordinance has been cut to 10% for the tax year 2022, and further reduced to 8% for the tax year 2023 and beyond, thanks to the Finance Act of 2021.
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