Pakistan Today

Politicians, civil society criticise 42% tax on cell phone load

Political parties, religious forces and the civil society condemned the recent imposition of a lavish tax-estimated at 42 percent-on mobile card loads, declaring it a great injustice on the nation and in particular the poor and white collared classes.
Talking exclusively to Pakistan Today, former member of National Assembly (MNA) from Pakistan People’s Party (PPP) Yasmin Rehman said the present government had made the taxation system more complex and tedious for the general public.
She noted that the telecommunication industry was the only industry that was booming across the country despite terrorism, with investments continuing to flow inside the country. However, she said the government decision of increasing tax on the sector would have negative impacts on the sole growing sector.
Rehman said those who were already paying taxes had been loaded with the burden of more taxes without focusing on adding new people into the tax net.
A person who is already paying tax on his income, and paying general sales tax also would not want to pay an additional 42 percent on loading mobile cards, she said. “The move is completely illogical,” she stated.
Elaborating further, Rehman said rather than expanding tax net to new sectors like agriculture, industries and other stakeholders, the government had doubled tax burden on people who were already paying their taxes.
All over the world taxes are initiated at a slow pace with nominal rates, said the former MNA. “Imposing a sudden tax of 40 percent is unethical and is an injustice with the nation. This would force investors to revise their decision of investing in Pakistan,” she viewed.
She said when an investor would have to pay 40 percent tax to the government after collecting it from consumers alongside other taxes, he would think a hundred times prior to investing in Pakistan’s telecom sector.
“This happens nowhere,” she said, adding that poor people would now be forced to pay taxes against their will for possessing the gadget they use for staying connected with their family, and meeting their business commitments.
Liaqat Baloch, renowned leader from Jamat-e-Islami (JI), said the federal budget was a mere tax burst, destroying poverty-ridden people.
In the name of revenue generation people are being deprived of a facility they had been availing earlier, he stated.
Mobile phones are not only used for staying in touch with friends and family, Baloch said, but are also an essential part of running any business activity. “Imposition of 42 percent tax on loading mobile cards would destroy business activities,” Baloch opined.
He said the budget had uncovered the reality behind the so-called people-friendly government of Nawaz Sharif.
Syed Zafar Ali Shah from Pakistan Muslim League-Nawaz (PML-N) expressed his lack of knowledge on the issue and said he did not have sufficient details at the moment and will meet Federal Finance Minister Ishaq Dar on Monday to get further details.
Dr Ferzana Bari, a civil and human rights activist and renowned social worker, said the decision would force investors in the telecom sector to windup their businesses and to move to some other country where they could earn and facilitate people, which was a free market concept.
Millions of Pakistanis use cellular phones and a majority of them come from poor or white collared classes who spend Rs 200 on talk time for the entire month, she said.
The government, she said, was victimising them. “It is not an indicator of prosperity to have a mobile phone but it is more of a need that the poor class is being deprived off,” she added.
She was of the view that 60 percent Pakistanis are living below the poverty line and owning a mobile phone did not push them above the poverty line.
According to Finance Minister Ishaq Dar, all telecom users will now have to pay 15 percent withholding tax (WHT), which had previously been settled at 10 percent for the past many years. Dar said the proposal had been incorporated into the Finance Bill after consultations with concerned stakeholders.
After this increase in WHT, taxes on cellular services are as follows:

WHT: 15 percent

FED: 19.5 percent

Total: 34.5 percent

In addition to these government taxes, every cellular operator in the country deducts 7 percent service charges as well.

Therefore, almost 42% of total load will go to taxes and charges

A customer loading Rs 100 mobile card will be taxed as follows:

Initial load: Rs. 100

Remaining amount after WHT (15 percent): Rs. 85

Remaining amount after cellular charges (7 percent): Rs. 78

After loading a Rs. 100 card, a customer will be left with Rs 78 of credit for airtime usage. Out of Rs 78, another 19.5 percent in FED is also deducted.

Remaining amount after FED collection (19.5 Percent): 58.5

Hence, a customer will have to pay Rs 41.5 out of Rs 100 in taxes and service charges.
Analysts believe the move is not well thought out, as taxing the most taxed sector can backfire and may hit annual collections made through taxing the telecom sector.

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