Telecom Operators Association (ToA) has put forward a comprehensive set of proposals for the upcoming fiscal year 2025-26, calling on the government to make critical changes in tax policies and regulatory frameworks that govern the telecommunications sector. The recommendations primarily focus on providing tax relief, policy amendments, and exemptions from withholding taxes, with the aim of reducing the financial burdens faced by telecom companies, which have been struggling under high taxes, restrictive regulations, and financial constraints.
The telecom sector, which plays a vital role in driving Pakistan’s digital infrastructure and economic growth, has been advocating for reforms that would facilitate expansion and innovation. According to the ToA, the sector’s ability to grow and contribute to the country’s development is being hindered by the current tax framework, which is overly burdensome and complex.
One of the key proposals put forward by ToA is the reversal of the power granted to tax authorities under Section 147 of the Income Tax Ordinance, 2001, which allows them to reject advance tax estimates submitted by telecom companies. The association has argued that this provision has introduced uncertainty into business operations, leading to increased litigation and disrupting the smooth functioning of telecom companies. The ToA has urged the government to revoke this amendment, which it believes has created unnecessary hurdles for companies trying to forecast their tax obligations and plan accordingly.
Another crucial recommendation is the restoration of the Alternate Dispute Resolution Mechanism (ADRC). The ToA has raised concerns over recent amendments to the ADRC framework, which have made ADRC decisions binding on both taxpayers and authorities. This, according to the association, eliminates the option for taxpayers to appeal ADRC decisions, leading to an unfair system for resolving disputes. The ToA has called for the previous system to be reinstated, where taxpayers had the ability to challenge ADRC decisions in a court of law.
In addition to these regulatory reforms, the ToA has called for the exemption of telecom operators from all withholding tax provisions under the Income Tax Ordinance. The association has pointed out that sectors such as banking and oil are already receiving similar exemptions, and telecom operators should not be subjected to withholding tax deductions on imports, services, utility bills, and corporate sales. The association claims that such exemptions would not have a negative impact on government revenue, as telecom companies already contribute to the national coffers by paying quarterly advance taxes.
Furthermore, the ToA has raised the issue of the 4% withholding tax on telecom services, which is treated as a minimum tax regardless of a company’s profitability. The association has argued that this tax structure unfairly penalizes companies that are experiencing financial losses, thereby discouraging investments in network expansion and innovation. The ToA has called for this tax to be made adjustable so that companies can pay based on their actual profits, thus promoting further investment in the sector.
Another significant issue raised by the ToA concerns the aggressive tax recovery measures that have been employed by the government. The association has criticized actions such as freezing bank accounts and sealing business premises as being excessive, particularly when taken against compliant taxpayers. The ToA has recommended that such actions should only be implemented after an independent appellate review, ensuring that businesses are not unfairly penalized.
In terms of workforce development, the ToA has proposed tax relief measures specifically targeting telecom sector employees. With rising inflation and increased income taxes, the association has suggested the introduction of inflation-adjusted tax brackets and lower withholding tax rates. These changes, it believes, will help telecom companies attract and retain the skilled professionals required to develop and maintain digital infrastructure in Pakistan.
To further alleviate the financial strain on telecom companies, the ToA has proposed a reduction in the advance income tax rate and Federal Excise Duty (FED) on telecom services. The current rates of 15% advance income tax and 19.5% FED significantly raise the cost of services, which ultimately impacts consumers and slows down market growth. The ToA has recommended lowering these taxes to promote the adoption of digital services and facilitate market expansion.
The association has also highlighted the need for more lenient tax provisions concerning the telecom sector’s operational costs, especially the minimum tax carry-forward period under Section 113 of the Income Tax Ordinance. Currently, companies are allowed to carry forward their minimum tax liabilities for just three years, but the ToA has argued for an extension to five years, given the challenging economic environment that telecom companies are operating in.
Further, the ToA has called for the removal of the 5% regulatory duty on telecom power equipment and rechargeable batteries, which are crucial for network operations, particularly in the rollout of 5G services. The association has stressed that these items are essential for providing uninterrupted service but are not locally manufactured, thus requiring imports. The duty on these items, the ToA argues, raises operational costs and hinders the rollout of advanced telecom networks.
The regulatory duty on SIM card imports has also been a point of contention. Since SIM cards are fully dependent on imports, the ToA has requested an exemption from the 15% regulatory duty and the additional 3.5% sales tax imposed on their import. According to the association, these duties unnecessarily inflate the cost of SIM cards, which ultimately affects consumers and slows down market growth.
Finally, the ToA has proposed a reduction in the 9% regulatory duty on telecom equipment, such as Radio Access Network (RAN) devices, core infrastructure, and transmission equipment. These components are critical for expanding telecom networks and enabling the deployment of 5G services in Pakistan. The ToA believes that reducing the import duties on such equipment would accelerate the network expansion process, improve service quality, and reduce costs for consumers.
In conclusion, the Telecom Operators Association’s budget proposals for the fiscal year 2025-26 underscore the need for a more business-friendly regulatory environment that supports the growth of the telecom sector in Pakistan. The association’s recommendations, if implemented, could potentially ease the financial burdens on telecom companies, encourage further investment in digital infrastructure, and improve the overall quality of services for consumers. However, it remains to be seen which of these proposals will be accepted by the government, and how quickly the sector will see the desired regulatory changes.
