Budget 2012-2013 and Telecommunication Sector
Karachi (Daily Business Recorder / June 6, 2012) – Telecommunications is amongst the most heavily-taxed sectors in Pakistan. The telecom operators have long been lobbying the government for a reduction in the GST rate of 19.5 percent, which is collected in FED mode. The Federal Budget for next fiscal year did offer tax relief to a number of sectors and industries, but the telecom subscribers seem to be left out again for any respite.
Telecom subscribers lose nearly a third of their pre-paid account balances owing to excessive taxation and all kinds of operator charges. The government levies a GST (FED) of 19.5 percent on service usage and deducts upfront a 10 percent WHT on account reloads. Cellular operators deduct additional service charges (5 percent and more) on reloads, besides charging operational/admin fees (1 percent and more).
When the Finance Minister was announcing a standard GST rate of 16 percent in his budget speech last Friday, the watching telecom professionals and informed subscribers must have jumped off their seats, thinking that the discriminatory taxation regime in the sector had finally been done away with – a boon for both the operators and their customers.
The feelings of joy must have turned drab by now, because the proposed Finance Bill and relevant SROs tell a different story.
The Finance Bill indeed specifies that multiple GST rates of 22 percent and 19.5 percent would make way for a standard GST rate of 16 percent. However, this measure would be limited to only those 79 items that had been placed under multiple GST rates in the SRO 644(I)/2007, dated 27-06-2007, which has now been rescinded through another SRO 594(I)/2012, dated 01.06.2012.
Since the rescinded SRO 644(I)/2007 had nothing related to the telecom sector (and another SRO dealt with the telecom sector’s GST rate), it appears that the proposed GST rate standardisation measure wouldn’t touch the telecom sector. The budget is also silent on the activation tax on new SIMs. However, the loss-making operators will get some relief as the turnover tax has been brought down to 0.5 percent.
It almost sounds like a ritual when every year the government budget for ‘that most anticipated development’: the 3G spectrum auction. In the FY13 budget, Rs.79 billion has been budgeted for the auction. The budget memorandum attributes the failure to materialise Rs.75 billion in FY12 through 3G licences to “recession in the market”. It’s not surprising that the document does not elaborate any further.
Some vague hope is there, with the budget document stating that “it is expected that the auction of 3-G licences will be materialised during FY 2012-13″.
Yet again, the stalled payment of $800 million – due from Etisalat which bought management stake of PTCL in 2006 for $2.6 billion – has been budgeted for, though in no certain terms. Under the head of Privatisation (in section of External Receipts), proceeds of Rs.74.4 billion are being anticipated in FY13. For the credibility of this massive figure, the proceeds have to have this pending payment accounted for.
However, there are serious question marks over Etisalat’s intent and the government’s negotiation skills for the release of payments the former has been withholding for past four years now.
Pakistan is already four years late into introducing the 3G technology, and it increasingly appears that the overtaxed telecom customers may not experience high-speed mobile broadband on 3G networks anytime soon. Due to scheduled political transition within next fiscal year and the authorities’ continuing under-preparedness and faux pas, there is added uncertainty over the delayed auction’s prospects in near future.