ISLAMABAD: The telecom sector on Saturday claimed that advance income tax (AIT) was making the affordability of mobile ownership and internet usage, especially for the low-income groups, difficult.

In a letter to the ministry of information technology and telecom, the telecom industry urged the government to rationalise AIT (withholding tax).

The telecom industry has proposed to bring down AIT on telecom services from existing 15pc to 8pc in the upcoming budget.

It said the overall 34.5pc tax on telecom users including 15pc AIT and 19.5pc GST, Pakistan is among the highest-taxed telecom markets in the world, while it ranks second highest in telecom taxation in South Asia.

The exorbitant taxation on telecom services is detrimental to the digitalisation drive for the economy.

Understanding the importance of affordability of mobile ownership and internet in a forward thinking move geared to push for development in digitalisation of all aspects of economy including education, health, commerce, etc.

AIT was reduced from 12.5pc to 10pc for FY 2021 with a commitment to 8pc onwards vide Finance Act 2021. However, the move was taken back merely six months later, without due consideration to its long-term ramifications.

Through Finance (supplementary) Act, 2022, the AIT rate has been increased from 10pc to 15pc taking the overall tax on over 193 million telecom users to almost 35pc.

AIT on telephone and internet services has been a contentious tax revenue measure as it hampers the affordability of mobile ownership and internet services which is critical for entire population, as well as economic growth of Pakistan.

It equally and unjustifiably applies to more than 70pc population of Pakistan living below poverty line, which is essentially exempt from income tax.

This economic segment of population is neither return filers, with option to adjust/recoup the said AIT.

Therefore, implementation of such tax collection measure to entire telecom subscriber base only disproportionately adds to the cost of mobile ownership.

Moreover, Pakistan has the widest gender gap in mobile ownership (34pc) and mobile internet use (43pc) as compared to its regional peers. Sector-specific taxes increase cost of mobile services which lays a strong impact on the poorest consumers especially women, lessening their ability to become mobile broadband subscribers.

Such exorbitant taxation is also cutting into the profitability of the industry, and hampering business case for network expansions, service improvements and eventually further foreign direct investment.

The industry has also proposed to gradually abolish AIT on telecom services as it adversely affects the subscriber base falling below the taxable limit, and efforts should be focused on more direct taxation measures aimed at income, rather than expenditure on an essential service.

Various consumer protection rights activists and associations have also urged the government to abolish AIT on telecom services aimed at making cellular and data services affordable for the low-income groups.

Published in Dawn, May 8th, 2022