Pakistan’s Tehreek-e-Insaf (PTI) government proposed a 10-15% advance tax on telecommunications services in the mini-budget it presented to the National Assembly on Thursday.
The mini-budget removes tax exemptions of Rs343 billion. As a result, around 150 items will be taxed.
Cell phone consumers already pay heavy taxes on telecommunications services. For prepaid users, most taxes are deducted when reloading prepaid cards.
After the mini-budget is approved, they will pay Rs 3.9 more on each Rs 100 top-up.
Right now, consumers are getting an available balance of Rs76.10 on a top-up of Rs100 after tax deductions. The available balance will be reduced to Rs72.20 after the increase in the withholding tax rate.
The government, at present, charges 10% or Rs9.10 in advance on each Rs100 prepaid card. Of the remaining Rs 87, Rs 14.80 or 19.5% is deducted as part of the general sales tax (GST).
An increase in the withholding tax rate will result in a deduction of Rs13 instead of Rs 9.10. However, the GST will remain at Rs14.80.
Hence, they will pay Rs27.8 on each Rs100 recharge.
But these are not the only taxes on mobile phone services.
The mini-budget further proposes to increase the sales tax rate on calls from 10% to 15%.
The increase in the advance tax in the mini-budget will make telecommunications and internet services more expensive in Pakistan.
Although the advance tax can be adjusted, 98% of the 187 million users of telecommunications services in Pakistan are prepaid subscribers who belong to the low income segment and this segment does not file returns. Therefore, they cannot request a tax adjustment.
The federal government reduced the withholding or withholding tax from 12% to 10% in the 2020-20 budget.
The government had promised to reduce the withholding tax to 8% in the 2021-20 budget, but instead of reducing the tax burden on cellphone users, the government increased it to meet revenue targets.