ISLAMABAD: The Telecom Operators Association has urged the government to address key fiscal and policy issues in the upcoming budget for the fiscal year 2025-26 to ensure the smooth functioning of telecom firms. In a letter to the finance minister, the association emphasized the sector’s crucial role in economic growth, revenue generation, digital inclusion, and employment.
The telecom industry has requested several key tax exemptions and reforms to sustain growth. Among the primary requests is an exemption from withholding taxes. Cellular mobile operators (CMOs), as major utility providers, face significant challenges due to the complex and costly withholding tax compliance process. This includes various transactions, such as utility bills, sales to corporate customers, and imports, all subject to income tax deductions under the Income Tax Ordinance (ITO) 2001.
The association stated that the current withholding tax framework imposes considerable administrative burdens, affecting the business environment in the telecom sector. To address this, they have proposed extending the exemption from withholding tax provisions under the ITO 2001. This extension would simplify the advance tax payment process, allowing CMOs to make quarterly installments under Section 147 of the ITO. This measure would not result in any revenue loss to the Federal Board of Revenue (FBR), as telecom companies would continue making quarterly advance tax payments.
The Finance Act 2015 introduced a significant change by replacing adjustable withholding tax with a minimum tax for services provided by telecom companies. This shift has effectively transformed income tax from a direct tax to an indirect one, applying uniformly across all telecom service providers, regardless of their profitability. The 4% minimum tax rate has been criticized as disproportionately high, further straining telecom companies’ financial stability, which is already hindered by discriminatory taxation practices.
The telecom industry also raised concerns about the administrative burden of collecting tax deduction certificates from thousands of corporate customers. They recommended that the withholding tax be adjusted to help alleviate these financial difficulties. Additionally, the association urged the government to ensure that taxpayers who comply with their obligations are not subjected to unfair practices or undue pressure. It recommended that actions such as freezing bank accounts or sealing business premises should only be taken when absolutely necessary and justified.
The association called for a more balanced approach to tax recovery, noting that exaggerated tax demands and forced recoveries can harm the business environment, reduce investor confidence, and deter foreign direct investment. Recovery proceedings should only be initiated after a decision from an independent appellate forum, such as the Appellate Tribunal.
Furthermore, the association advocated for tax relief for telecom sector employees, citing the challenges of attracting and retaining skilled talent due to the surge in income tax on employee salaries and the effects of hyperinflation. High income tax rates, combined with inflation, have reduced disposable income and made it difficult to retain the professionals essential for the digital infrastructure and economic growth of the country.
To help balance revenue collection and workforce retention, the telecom association called for sector-specific tax reforms. These reforms should include inflation-indexed tax brackets, increased exemptions for essential expenses, lower withholding tax rates, and special tax incentives for telecom professionals.
Additionally, the association requested reductions in income tax and Federal Excise Duty (FED) rates. The income tax under Section 236 of the ITO 2001 currently stands at 15%, up from 12.5% after the Finance (Supplementary) Act 2022. Previously, this rate was set to decrease to 8% from 2022. The applicable FED rate has also increased from 16% to 19.5%. Reducing these rates would encourage revenue growth without stifling the industry’s potential, as telecom products are already priced to include taxes.
