INCREASE IN REVENUE FROM TELECOM SECTOR

TARIQ AHMED SAEEDI (tariqsaeedi@hotmail.com)
Oct 05 - 11, 2009

Telecommunication services are penetrating across Pakistan and fast becoming essential part of households. Its rapid growth is a stimulant to revenue generation for the government in form of taxes. Last few years posed a mixed trend in developments of telecommunication sector in the country. When government gave special treatments to telecom sector, the sector experienced bouts of unprecedented booms. As soon as it lifted back privileges, the sector's progress lost its momentum. This was what happened in imports of mobile phones, which continued to be privileged with zero rated tax for years. That implied remarkable growth of telecom sector and outpouring of cheap mobile phones in the market. The levies that were imposed on imports later however did not give out the desirable outcomes, which could be local manufacturing. Rather, they turned out to be a double whammy: increment of smuggling of mobile phones in the country, and contraction in withholding tax on imports that dropped 71.8 percent. On its part, Pak rupee deprecation against dollar has corded away benefits of decrease in prices of mobile phones in international market. Lapsed in the year were many targets including slippage of economic growth to 2 percent from projected 4.5 percent and collection of Rs1157 billion tax revenue against original target of Rs1250 billion.

Against this backdrop, it might be a quite relief for the government however, that economic slowdown has not spoiled the financials of tax revenue from telecom sector until end of last fiscal year (2008-09). All taxes including custom duty, regulatory duty, sales tax, withholding tax on telecom services underwent a growth during the year.

Telecom is the second top sales tax (domestic) earner after petroleum products. Although sales tax collection depicted an increase during last financial year, it remained below the target. Enveloping sales-tax-exempted sub-sectors of IT and telecom in budget 2008-09 proved ineffective in achieving Rs7 billion additional sales tax from telecom sector. Prior to review of the sales tax policy, uniform 16 percent sales tax rate was applicable on all the telecommunication services. Sales tax was chargeable on all locally produced and imported goods except computer software, internet services, international incoming call, and international leased lines or bandwidth services. Government brought about a policy revision in the last budget, withdrawing exemptions as well as increasing tax rate to 21 percent. As a result, sales tax collection increased manifold.

In financial year 2008-09, petroleum products and telecom services constituted 63 percent of total sales tax domestic of Rs249 billion. Of that, sales tax from telecom services contributed 20.1 percent (Rs50.1 billion) and POL 42.9 percent (Rs106 billion).

Telecom sector has emerged a main revenue spinner for the federal government. Sales tax from telecom services constituted 21.8 percent of gross sales tax collection of Rs209 billion in FY08. The amount stood at Rs45.48 billion second after petroleum products. Overall sales tax collection amounted to Rs377 billion. Despite economic slowdown and disturbed macro economic fundamentals, net sales tax collection during FY09 increased to Rs452 billion. Considerably, the major constituent was sales tax domestic. Contraction in import in FY09 scaled down sales tax on imports. Eleven percent growth in contribution was witnessed when sales tax on telecom slightly upped from previous Rs45 billion. However, this was mainly due to increase in sales tax from 16 to 21 percent on telecom services and withdrawal of exemptions.

Now, it seems an ordinary development that taxes on telecom outpace one that generated by other utilities. In reality, some basic and most popularly consumable utility like electricity does not outturn volume of taxes that are collected through only telephone bills. The last financial year's federal tax collection result bears out this fact. Federal government deducted only Rs12.7 billion withholding taxes on electricity bills during FY09, though that was a massive 115.8 percent up from Rs5.8 billion in FY08, while it generated Rs21.7 billion in lieu of WHT on telephone bills. In previous year, Rs18.14 billion was realized as WHT indicating 19.7 percent change.

Withholding tax was the second source of federal taxes that exhibited remarkable growth during last financial year. Notably, out of ten prime WHT spinners telecom stood at fourth position after contracts, imports, and salary. Government projected one billion rupees additional withholding tax from landline telephone during FY09, but it could not meet the target. However, it realized Rs1.2 billion collection, up Rs376 million compared to preceding year. The projection was based on the revision of tax rate that ranged in between Rs50 to Rs300 variable in accordance with monthly bills during FY08 to uniform slab of 10 percent on landlines.

Until there was only one tax rate applicable on imports of mobile phones, they were in abundance in the market with nominal prices. For years, imports of mobile phones enjoyed zero rated duties and reduced rate at one percent withholding tax. After introduction of Rs500 per set custom duty in the budget FY09 and later Rs250 per set regulatory duty, it was estimated that imports of mobile phones were reduced by 71.8 percent. Notwithstanding, the federal government fetched an additional amount of Rs954 million custom duties in the effect. Originally, government expected to have Rs5 billion because of telecom custom duties. Falling extremely short of target, government brought down custom duty to Rs250 per set recently. Although high custom duties increased revenue, they encouraged smuggling of mobile phones. That was seen in the massive drop of imports following imposition of dual levies. On the other hand, reduction in imports had caused compression of withholding tax collection on imports of mobile phones in last fiscal year. That what impact downward revision of custom duties would have on government revenue would be clear after announcement of first quarter result by the federal board of revenue, however its impact has already reflected in decrease in prices of mobile phones.

PAKISTAN ISSUES COMMEMORATIVE COIN ON THE 60TH ANNIVERSARY OF CHINA

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All the Field Offices of SBP Banking Services Corporation will start issuing Rs 10/? Commemorative Coin through their exchange counters from 1st October, 2009.

It may be pointed out that the Government of Pakistan has decided to issue Rs 10 commemorative coin in the quantity of 100,000 (one hundred thousand) pieces from State Bank of Pakistan through the offices of SBP Banking Services Corporation with effect from 1st October 2009 to express solidarity and unity with the Peoples Republic of China on its 60th Anniversary.

The metal composition, colour, and dimension of the coin are as under:

Metal Composition: Cupro Nickel, Copper 75%, Nickel 25%.
Colour: White
Dimension: 27.5 mm
Weight: 8.25 grams (Remedy allowed not exceeding 1/40th)

DESIGN:

Obverse: The waxing crescent moon and a five pointed star facing north-west in rising position, is in the centre on the obverse side of the coin. Along with periphery on the top of the crescent star is inscribed in wording Islami Jamhoria Pakistan in Urdu script. Below the crescent and at the top of two springs of wheat with arms curved upward, there is the year of issuance 2009. The face value of the coin in numeral '10' in bold letters and Rupee in Urdu Script are written on the right and left sides of crescent star respectively. A circle of small beads is all along the edge of the coin.

Reverse: In the centre of the reverse of the coin bears flags of both the countries (China-Pakistan), showing hand shaking and inscribed wording at the upper and at the lower side in Urdu script along with the periphery. On the left and right sides insignia of the year of independence and year of anniversary respectively in numeral wording are inscribed. A circle of small beads is all along the edge of the coin.

The existing Rs 10/? banknotes will continue to be legal tender and will remain in circulation along with the other Rs 10/? coins.