The Federal Board of Revenue has attached the bank accounts of the Universal Service Fund, a state-owned entity tasked with financing telecom infrastructure in unserved and underserved areas of Pakistan, after raising a disputed demand of Rs. 23.23 billion in withholding tax, effectively halting all payments for ongoing rural connectivity projects across the country.
The demand was raised by the Deputy Commissioner Inland Revenue through assessment orders covering tax years 2015 to 2023, with the aggregate liability stemming from the disallowance of Universal Service Fund project subsidy expenses on the grounds of alleged non-compliance with withholding tax provisions. The attachment of the fund’s bank accounts means that disbursements to telecom operators currently implementing infrastructure projects in unserved and underserved regions have been frozen, putting live connectivity expansion initiatives at risk of suspension until the dispute is resolved.
The Universal Service Fund has contested the demand, maintaining that subsidy payments made to telecom operators are exempt from withholding tax under applicable law. The fund further argues that telecom operators who received these subsidies through competitive bidding processes have already met their own withholding tax obligations at the time the funds were disbursed, making the additional demand duplicative and legally unsupported. The Universal Service Fund is financed through mandatory contributions of 1.5 percent of annual gross revenues collected from all licensed telecom operators in Pakistan, and exists specifically to channel private sector telecom revenues back into connectivity projects in areas where commercial deployment is not financially viable without public subsidy.
The dispute arrives at a particularly sensitive time given the federal government’s stated connectivity objectives, including ongoing rural broadband rollout programmes, the expansion of cellular coverage in Azad Jammu and Kashmir and Gilgit-Baltistan under the Special Communications Organisation, and broader digital inclusion commitments tied to the National Digital Masterplan. A prolonged account attachment that prevents the Universal Service Fund from releasing project funds would directly undermine all of these initiatives simultaneously, with the communities in underserved regions bearing the most immediate impact of any halt in infrastructure work.
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