Abdul Wajid Khan

The Ministry of Finance said that an undocumented economy, low tax base and low revenue collection necessitates imposition of withholding tax to broaden the tax base and to generate revenue.

According to an official document of the Ministry of Finance, a copy of which is available with WealthPK, it has been planned to impose taxes on transactions where persons operating in the informal sector interact with the formal and regulated sector. The collection of tax at source is also enforced on certain expenses or transactions which have high informational/mapping value.

About taxes on the recharge of cell phones and utilisation of telecommunication services, the ministry said that on every recharge 15% withholding tax is collected from the subscriber by telecommunication companies. On a recharge of Rs100, tax of Rs13.04 is collected as withholding tax, and the remaining balance of Rs86.96 is available to subscriber. On subsequent use, the federal excise duty (FED) is charged at the rate of 19.5% of the usage which is equal to Rs16.52 on the value of Rs86.96.

The ministry pointed out that as per clause 29 of section 2 of the Income Tax Ordinance, 2001, income includes any amount chargeable to tax. By virtue of the said provision, the amount subjected to withholding is deemed income.

Anyone, including a person with below taxable income, can claim the refund of the tax deducted by filing a return.

Taxation on mobile phone recharge has also gone through judicial scrutiny and has been held as valid by the Supreme Court of Pakistan. The ministry said that withholding tax is a necessity in an underdeveloped country like Pakistan in view of its revenue requirements.

The ministry clarified that there is no provision in the Income Tax Ordinance which entitles a person to obtain an exemption certificate if his income does not exceed the minimum threshold for filing of tax return. However, only those persons are entitled for exemption certificate whose income is exempt under any provisions of the Income Tax Ordinance.

About taxation on imported cell phones, it said that presently the mobile phones are exempt from customs duty. However, mobile phones have been subjected to regulatory duty, withholding tax and mobile levy at different fixed/specified rates.

Sales tax is chargeable at a standard rate of 17%. The aforesaid duty and taxes, except sales tax, are being levied on fixed value of the mobile phones rather than a price set by the phone manufacturers, therefore, these are not affected from transaction values/receipt prices of the phones.

The duties and taxes structure of cell phones is in line with the Mobile Device Manufacturing Policy of the Engineering Development Board/Ministry of Industries and Production to incentivize the assembling/manufacturing of cell phones in the country. However, in case of bringing in cell phones by overseas Pakistanis, a discount of about 10% is given in the duties and taxes against commercial import of cell phones. The earlier facility of bringing in one phone free of duties and taxes was changed by the government due to various complications and misuse of the facility.

The country’s leading economists have been urging the government to fast track the process of digital financial inclusion to enhance tax revenue. Pakistan has very low level of financial inclusion due to lack of proper indigenous digital payment systems and low coverage of internet services.

According to the latest figures provided by Pakistan Telecommunication Authority (PTA), although Pakistan has 195 million cellular subscribers with the tele-density reaching 88.61%, it has 119 million 3G/4G subscribers with a penetration rate of 53.80%.

Analysts said there is a dire need to improve internet services in the country, particularly the coverage of 4G internet services, and the availability of cheap smart phones to facilitate financial inclusion.

Credit : Independent News Pakistan-WealthPk