TELECOM UNDER HIGH TAX RATES
Mar 19 - 25, 2012
The telecom industry in Pakistan faces an alarmingly high tax rate of 33.2 percent-particularly in the context of regional competitors-, which strongly crimps the growth of telecom industry. Statistics show that the government levies an aggregate tax of 33.2 percent, inclusive of 19.5 percent of federal excise duty (FED) and 11.5 percent withholding tax (WHT) on one of the few star performers of the stagnating economy.
Myanmar has the lowest taxes in comparison to Pakistan. Nepal, Thailand, Bangladesh, Sri Lanka, Samoa, Cambodia, India, Philippines, Indonesia, Lao RDP, Vietnam, Papua New Guinea, Malaysia, China, and Bhutan all tax their telecom sectors less heavily than Pakistan.
Despite heavy burden of taxes in Pakistan, the government has planned to levy radio tax on cell users that may hit hard to the growth of this sector.
Experts in telecom sector told PAGE that the present tax regime has badly hampered the development of telecom companies. They said that out of five cellular operators, four have posted losses in their books owing to heavy taxation and sagging growth. They said that telecom sector, which was once considered a role model for regional competitors after deregulation in 2004, is also experiencing a downturn due to saturation in the market.
The government and Pakistan Telecommunication Authority (PTA) were keen to launch 3G technology in Pakistan, but there was a lack of will in tackling the mounting problems faced by the industry.
They pointed out that in the region, telecom operators were enjoying average taxes ranging between 10 and 12 percent, but in Pakistan the telecom sector suffers the blight of heavy taxation and dangerously low tariffs due to cutthroat competition.
As per statistics, telecom sector has posted a cumulative loss of Rs135 billion in 2010. Telecom sector, which once was a major lure for foreign direct investment (FDI), has lost its attraction.
A study of PTA shows that total investments in the country's telecom sector will be $2.4 billion by 2020.
The study says that the number of mobile subscribers is expected to be around 161 million, approximately 89 per cent of the total population, by 2020.
The study says that the number of fixed-line subscribers will be five million in 2020 while the number of broadband subscribers is expected to be around 19.5 million.
A spokesman of a cellular company said that he believed if the trend in the telecom sector continued, an increase of two per cent in Pakistan's GDP was possible because of mobile financial services.
During the next few years, improved quality of telecom systems and services will become a critical determinant of competitiveness in ICT, the study said. The growth and development of ICTs today has led to their wide diffusion and application, thus escalating their economic and social impact across the countries.
A report of PTA says the 19.5 per cent value added tax (VAT) on Pakistan's telecom sector was impeding its growth. The report Vision 2020 said the VAT for the telecom sector was 52 per cent higher than in India.
Pakistan's telecom sector contributed steady flow of heavy tax collections under major heads such as activation tax, general sales tax (GST), federal excise duty (FED), and other PTA fees and charges.
In 2009-10, telecom sector paid 19.5 per cent in taxes, higher than 10.3 per cent in India and 15 per cent in Bangladesh.
Experts said Pakistan has failed to maintain its status of a country with highest tele-density among SAARC nations as India has superseded a top position in the region with overwhelming adoption of technology and telephony services by it masses.
India attained a crown status in the region with its faster growth in number of telephony services subscriptions but also in technology and investment inflow. Though the country has been witnessing constant growth in number of subscribers particularly in cellular sector, it could not retain its top position in South Asia as a country with the highest tele-density.
Pakistan total tele-density has been reached 66.8 percent by February 2011 with overall 110.3 million users including mobile phone, landline, and wireless whereas Indian tele-density reached 68.4 percent with number total users stood at 826.25 million in February 2011.
India is ahead of Pakistan in launching an advanced cellular phone service that is 3G with nearly one million of customers in nine cities having high per capita income. On the other hand, Pakistan has yet to introduce this technology in the country because of telecom operators' unwillingness and reluctance on the grounds of low purchasing power of users and lack of earning opportunities against heavy investments.
Experts said the telecom sector could achieve more growth with benefits to people if taxes go down.