ISLAMABAD: The Federal Board of Revenue (FBR) is currently reviewing the budget proposals submitted by the Cellular Mobile Operators (CMOs) for the fiscal year 2025-26. The proposals, submitted by the Telecom Operators Association, aim to address a variety of fiscal and policy challenges within the telecom sector, with the goal of fostering sustainable growth and streamlining the tax system.
One of the primary recommendations put forth by the CMOs is the extension of a tax exemption to the telecom sector, which would eliminate all withholding tax provisions under the Income Tax Ordinance (ITO) of 2001. The proposal seeks to provide a much-needed relief to the sector, which is burdened by complex and costly withholding tax compliance procedures. The tax is currently applied to a wide range of transactions, including utility bills, sales to corporate customers, and imports. This withholding tax framework has resulted in significant administrative challenges for both the telecom operators and the FBR, creating inefficiencies that negatively impact the business environment.
According to FBR officials, the ongoing budget review process has given careful attention to these proposals, particularly in terms of their potential to simplify the tax payment process for CMOs. If accepted, the exemption would allow the telecom sector to make quarterly advance tax payments under Section 147 of the ITO 2001, similar to the facilities already granted to the banking and oil sectors. This approach would eliminate the need for the telecom companies to manage and verify millions of transactions related to withholding tax, thus simplifying the overall tax collection mechanism.
Furthermore, the proposal highlights that, under the current system, telecom companies face a significant burden in documenting and verifying withholding tax on millions of transactions. These include taxes on utility bills and imports, both of which create a cumbersome process. By exempting telecom operators from withholding tax, the industry would be able to pay taxes in a more transparent, real-time manner on a quarterly basis. This would reduce the administrative burden on both companies and the FBR, leading to fewer errors and faster tax collection, without any loss of revenue.
Another critical aspect of the proposal is the current practice of imposing withholding tax on gross receipts. CMOs argue that this provision does not account for the profitability of a business, meaning that companies are required to pay taxes on their total revenue even if they are not making a profit. This can strain the liquidity of companies, making it harder for them to invest in growth and meet financial obligations. The CMOs suggest that businesses should not be taxed on gross receipts, especially when they are experiencing losses, as this would allow them to focus on recovery and sustainability.
The proposals also emphasize the need for more balanced recovery measures, particularly in cases where businesses are facing tax-related difficulties. The CMOs have requested that administrative actions, such as freezing bank accounts, be subject to approval by the Chairman of the FBR to ensure that they are fair and legally sound. They also recommend that recovery proceedings not be initiated until an independent appellate forum, such as the Appellate Tribunal, has reviewed the case and made a decision.
Furthermore, the CMOs have raised concerns regarding recent amendments to Section 147 of the ITO 2001, introduced through the Finance Act 2024. These amendments grant the Commissioner of Inland Revenue the power to reject the advance tax estimate filed by a taxpayer, leading to increased litigation and operational difficulties. The CMOs argue that this provision introduces unnecessary uncertainty and disrupts business continuity, and they have called for its revocation to promote a more predictable and transparent tax environment.
The budget proposals also touch upon issues related to the Alternate Dispute Resolution Committee (ADRC), suggesting that the process has become less effective due to recent amendments. The CMOs assert that the outcomes of ADRC proceedings have become binding on taxpayers, eliminating the concept of an “alternative” dispute resolution mechanism.
These proposals, if accepted, could significantly ease the tax compliance burden on telecom companies, foster a more business-friendly environment, and enhance the sector’s ability to continue contributing to Pakistan’s digital infrastructure and economy. The FBR’s review of these recommendations is expected to play a crucial role in shaping the telecom sector’s future in the coming fiscal year.