The telecom sector in Pakistan is pushing for massive tax relief. Recently, the Telecom Operators’ Association (TOA) presented a bold proposal to the Senate Standing Committee on Finance and Revenue. They claimed that slashing the advance tax on telecom services from 15% down to 8% will actually increase the government’s revenue.
However, the government is not taking this at face value. The committee, chaired by Saleem Mandviwalla and backed by the Finance Minister, refused to blindly accept the proposal. Therefore, they have officially demanded that the operators prove this claim in writing.
Heavy Tax Burden Cripples Cash Flow
During the meeting, the TOA outlined exactly how current tax policies are suffocating the industry. Primarily, they proposed dropping the Withholding Tax (WHT) rate from 6% back to 4%. Previously, the government increased this WHT rate from 4% to 6%. As a result, this specific hike significantly exacerbated cash flow issues and increased overall tax costs for operators.
Furthermore, the association requested an extension for carrying forward the turnover tax. Currently, companies can only carry this forward for two years. The operators want the government to extend this window to five years. They argued this adjustment is absolutely necessary to let the industry flourish.
Low Telecom Sector Revenue & the Push for Digitization
Why are these telecom giants struggling? The TOA pointed directly to a fundamental market weakness. Pakistan currently suffers from a very low average revenue per user (ARPU). Consequently, the payback period for the entire telecom sector is incredibly slow. Because of this sluggish return, limiting the turnover tax credit to just two years severely penalizes loss-making companies.
Finally, the operators proposed a reduction in the advance income tax on mobile usage. They argued that lesser taxes will directly make mobile services more affordable for the average consumer. In turn, this affordability will rapidly improve mobile penetration across the country. Ultimately, the TOA believes this chain reaction will accelerate national digitization and result in a higher overall collection of taxes.
