As Pakistan gears up to present its federal budget for fiscal year 2025-26, the country’s telecom industry is making a strong case for substantial tax reforms, arguing that the current tax regime is hindering its growth, stifling innovation, and impacting the affordability of services for consumers.
Industry stakeholders have submitted a comprehensive set of proposals to the government, calling for the abolition and rationalization of several tax measures that they contend are creating an excessive burden on the sector.
Calls to Slash Withholding Tax on Services
A key demand from the telecom sector is the abolition of the 15% withholding tax on telecom services. The industry advocates for a return to the 8% rate that was in place under the Finance Act 2021. They argue that the current high rate disproportionately affects lower-income subscribers, making connectivity more expensive and impeding digital inclusion efforts.
Going further, the telecom industry has proposed a complete exemption from all withholding taxes, bringing them in line with the treatment afforded to sectors like banking and oil. The industry highlights that their existing system of real-time advance tax payments under Section 147 of the Income Tax Ordinance, 2001, ensures consistent revenue collection for the government without the need for multiple withholding taxes.
Adjusting the 4% Withholding Tax
The proposals also address the 4% withholding tax on telecom services under Section 153(1)(b), with the industry requesting it be made adjustable rather than a final tax. Given the capital-intensive nature of the telecom business and typically low margins, this tax often operates as a fixed cost irrespective of profitability, creating an added financial strain.
Another significant challenge highlighted is the lack of a harmonized federal and provincial sales tax structure for the telecom industry. Stakeholders are pushing for a unified service tax law with a single, consistent rate across all jurisdictions to simplify compliance, reduce administrative complexities, and eliminate instances of double taxation.
The industry is also seeking the removal of advance tax levied on spectrum auctions and license renewals. They argue that spectrum is an intangible right of use, not a physical asset, and taxing it in advance is an irrational practice that deviates from international norms and places an unnecessary financial burden on operators, potentially impacting investment in network upgrades.
Relief on Equipment Import Duties
To facilitate network expansion and modernization, the telecom sector has requested the abolition of the 5% regulatory duty on essential equipment such as power systems and batteries. They also propose excluding these items from retail valuation to lower costs and encourage the adoption of renewable energy solutions in network infrastructure.
To accelerate readiness for next-generation technologies like 5G and improve overall network coverage, the industry has called for the exemption of duties and taxes on the import and deployment of optic fiber cables and related equipment.
Reconsidering Income Tax Withholding on Imports
Finally, telecom representatives have urged the Federal Board of Revenue (FBR) to reconsider income tax withholding requirements under Section 152 for imports of telecom equipment, emphasizing the need to ease financial and procedural barriers to support the sector’s growth trajectory.
The proposals are currently under consideration by the government as it finalizes the budget for the upcoming fiscal year. The outcome of these deliberations will significantly impact the operational landscape and future investments within Pakistan’s vital telecommunications sector.
