THE Economic Coordination Committee of the Cabinet (ECC) on Thursday referred various tax measures including the abolition of advance income tax on the telecom sector to a Committee for further deliberation. The Committee has been asked to submit its recommendations in the next meeting after thorough deliberation of the impact of the proposal on the existing tax policies by the Federal Board of Revenue (FBR), Ministry of Commerce and Ministry of Industries.
The telecom sector has expanded rapidly in Pakistan and is contributing significantly to the overall socio-economic development of the country including remote and backward areas. The sector is paying taxes worth billions of rupees and provides jobs to hundreds of thousands of people directly or indirectly. However, for quite sometime, the focus of the Government has shifted away from facilitation of the sector to the imposition of heavy taxes, which are negatively impacting upon its growth. At present, the telecom sector is paying 12.5% advance income tax and 17% federal excise duty on telecom services. The IT Ministry has proposed that the Government should abolish the 12.5% advance income tax and cut the federal excise duty to 16%.
The directions given by the ECC to the Committee clearly show the tilt towards revenue impact of the proposal floated by the IT Ministry. But estimates of global institutions like GSM Association show even a 2% reduction in advance tax will increase market penetration through the addition of around 1.7 million connections over the next five years meaning thereby that the abolition or reduction of tax would be properly compensated by increase in subscribers. It is age of IT and telecom and visionary approach and facilitation not only has the potential for rapid growth of the sector but also a reliable source for earning of foreign exchange through enhanced IT related exports. Pakistan earned over one billion dollars through IT exports last year and is aiming to earn five billions in the next three years. The target can only be realized if hindrances are removed and required incentives are offered to the sector.
