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GOVT SLAPS CELLULAR USERS(Flare (Pakistan) Via Acquire Media NewsEdge) The PPP led coalition government completed their term by making history to complete the 5 year democratic period for the first time in Pakistan’s democratic history by any public elected government. But, the list of bad records made by PPP government along with its allies, is quite long and masssive corruption destroyed public institutions, failures, inefficiencies, bad governance, misused powers, made wrong choices, ignored wrongdoings, and put the last pin in the coffin of the public kitty as the economy is plummeting and the foreign debts reached to Rs 14,000 trillion; dollar crosses the 100 mark against rupee, public treasury has shrink to record lowest point as the foreign reserves melt down. Government policies have had a considerable impact on the telecom sector of Pakistan. It was in 1996 when the sector came into full focus with the promulgation of the Pakistan Telecommunication (Re-organisation) Act. The Act paved the way for establishment of key company like 'Pakistan Telecommunication Authority' (the regulator) and Frequency Allocation Board (which allocates and assigns frequency spectrum to the public and private sectors). When the previous government (2002-08) finished its term, the industry seemed poised for its next phase of growth. But, the new government’s policies were altogether against this lucrative sector; cellular service suspension, ban on SIMs on retailer stores increase in GST; all these bring-down the most promising sector on its toes. After the PPP government completed its turn (2008-2013; the caretaker government has nothing in hand to run the state affairs as every institution has been destroyed by the PPP led coalition government; in a desperate move to meet the revenue collection target for the current fiscal year, the Federal Board of Revenue (FBR) has placed a burden of Rs70 to 80 billion on taxpayers with the issuance of different notifications. The FBR has provisionally collected Rs1.34 trillion between July 2012 and March 2013. It needs to collect Rs782 billion in the remaining three months of the fiscal year to meet an already reduced revenue collection target of Rs2.13 trillion. The revenue collection target has been changed twice this year from an initial figure of Rs2,381 billion. Considering where revenue collection stood at the end of the first quarter, the FBR realised that the pace of revenue collection could not gain momentum. The FBR was facing difficulties in introducing new measures during the last government’s tenure due to upcoming general elections. The revenue shortfall was also imminent as the FBR obtained advance tax from different sectors to meet the revenue collection target in the last fiscal year, which it subsequently returned to companies at the start of the current fiscal year. To hide its shortcomings, the FBR resorted to the old method of issuing Statutory Regulatory Orders (SROs) for revenue generation. Revenue collection up to March 2013 shows a nominal five percent increase from Rs1.28 trillion in the corresponding period of the last fiscal year, when the total stood at Rs1.88 trillion. With a five percent rise in collection, the FBR is unlikely to reach Rs1.98 trillion, signaling a shortfall of Rs146 billion this fiscal year. Since February 2013, the revenue body has issued 17 different SROs. The breakdown revealed that five SROs have been issued regarding income tax, 11 regarding sales tax and one regarding federal excise. Sources said that remaining shortfall would be bridged through already launched amnesty schemes in customs, the legalising of smuggled vehicles, and another in sales tax, relaxing the condition for making payment. Moreover, another amnesty scheme is likely by the end of May or start of June 2013. Sources say that taxpayers will be given the chance to pay their principal amount while additional tax, surcharges, fines and penalties will be waived. Senior tax officials believe that enhanced collection is the need of the hour, considering the fiscal deficit and quest for another IMF loan. An official said that the revenue authorities had failed to comply with the requirement stipulated under the terms of the last IMF loan programme, which called for reforming the taxation system, broadening the tax base and increasing the pace of collection. The business community has reacted strongly to the FBR’s decision to squeeze existing taxpayers, who are already suffering from poor security conditions, an energy crisis and political instability. Ironically, FBR has increased sales tax from Rs 250 per set to Rs 1000 per set on smart cellular phones or satellite phones and Rs 250 per set to Rs 500 per set on other mobile phones. In this regard, the FBR has issued SRO.280 (I)/2013 in line with the latest IT technology of cellular/mobile phones industry, in order to boost the revenue collection in the remaining three months of current fiscal year. The FBR issued SRO 280(I)/2013 recently and announced that cellular mobile phones and satellite phones (hand-held sets) falling under PCT Heading 8517.1210 or any other Heading, the sales tax rate will be collected at Rs1000 per set in case of smart phones or satellite phones, where the term ‘smart phone’ means a cellular mobile phone having any of the following characteristics: • 4GB or higher basic memory; • Operating system of the type iOS, Android v2.3, Android Gingerbread or higher, Blackberry RIM or Windows 8 or higher; • Touch screen; • 5 Mega pixel or higher mega pixel camera; or • Dual Core or higher processor. The FBR imposed Rs500 sales tax on import of cell phones other then smart or satellite phones. Tax officials said that Pakistan is a big market for all types of smart phones, and the country spends millions of dollars per annum on import of cellular phones, particularly smart phones. The officials added that similar measures are also expected in the coming months, aimed at boosting revenue collection. On the other hand, FBR has clarified that no new tax has been imposed on cell phones as is wrongly being portrayed by some quarters. The fixed amount of sales tax on activation stage was first introduced through SRO 390(I)/2001 dated 18th June, 2001, with a rate of Rs. 2000 per cell phone. However, on the request of cellular company operators to encourage the sector, the rate was reduced from time to time. Under SRO 542(I)/2008 dated 11th June, 2008 the fixed rate was Rs. 500 per mobile phone, which was subsequently reduced Rs. 250 per mobile phone. The collection mechanism in all these notifications was based on the old CDMA technology, which required activation/energization of mobile phones by the cellular company operators before they could be operated. However, CDMA technology is no longer prevalent on any mobile network in Pakistan as all mobile networks in the country are presently operating on GSM technology. Under GSM technology only a SIM Card is inserted in mobile phones which are ready for usage. These GSM technology-based mobile phones do not require activation/energization by the cellular mobile network. Due to this technology change from CDMA to GSM, SRO 542(I)/2008 dated 11th June, 2008 had become redundant and the Government exchequer was not getting the proper revenue from this sector as pre-activated cell phones were being imported resulting in a steep fall in revenue despite tremendous increase in volume of import. SRO 280(I)/2013 dated 04-04-2013 recently issued by the Government does not impose any new tax. It only aligns the law with the latest technology. This notification was necessitated to remove the anomalies occurring due to change in technology. It has shifted the time and mode of payment of tax from activation stage to import stage. The standard rate of sales tax under the Sales Tax Act, 1990 is 16 percent and prices of new mobile phones go as high as around Rs. 80,000/- or more. At the standard rate of sales tax, the amount of sales tax payable on a mobile phone costing Rs. 50,000/- would be Rs. 80,000/-, but under SRO 280(I)/2013 the fixed sales tax is only Rs. 1000/-. which comes to around 2 percent. Thus the fixed rate of sales tax under SRO 280(I)/2013 dated 04-042013 is still much lower than the standard rate of 16 percent chargeable on all other goods. This reduced fixed rate of Sales Tax has been retained on the request of cell phone operating companies to help and encourage the sector. The impression being created by certain vested interests that the Government has levied a new tax on cell phone is baseless and devoid of fact. The views being presented that imposition of sales tax under SRO 280(I)/2013 will ruin the businesses or lead to smuggling of mobile phones is also not correct as the present notification only brings the tax structure in line with the current cellular technology and it is aimed at safeguarding the interests of the exchequer which were being hurt due to the existence of a notification based on an obsolete technology. Even under the new notification fixed tax rate at a minimal level has been retained on mobile phones to save the industry from any possibility of smuggling. The rate of Rs. 1000/- is only for smart phones and satellite phones (which are admittedly costly phones). The fixed rate of sales tax on ordinary cellular mobile phones (other than Smart Phones and Satellite Phones) is only Rs. 500/- per mobile phone. This minimal rate of fixed tax shows the pro-industry policy of the Federal Government. It also shows that all tax policy changes are well-thought out by the Federal Government and no such policy is implemented which would create problems for the industry, the statement concluded. Sources told that the FBR has collected a very negligible amount of sales tax at the time of activation of new mobile phones. Now, the charge of levy at the import stage would ensure sales tax collection on each set. Under the old policy, the incidence of sales tax was same on all kinds of mobile phones. There was uniform rate of Rs 250 per set sales tax on smart cellular phones, satellite phones or all other kinds of mobile phones. Through a revised policy, the FBR has increased the incidence of sales tax on the import of expensive phones like smart cellular phones, satellite phones etc. However, the incidence of sales tax is very low on the less expensive mobile phones. But, across the country, mobile phone dealers and traders staged protest against the sales tax rise; the Hall Road Lahore traders kept their shops closed and demonstrated against the FBR for a new tax on the import of smartphones and satellite phones in Pakistan. The traders have blocked the Mall Road and burnt tyres on the road. They chanted slogans against the caretaker government and demanded to withdraw the tax. The mobile phone dealers said the new taxation system will invigorate the illegal channels to import the cell phones and it might affect the mainstream mobile phone manufacturers like Samsung, Nokia and Sony Ericson. The Lahore Chamber of Commerce and Industry (LCCI) demanded of the government to immediately withdraw SRO 280(I) 2013 as it would not only destroy the mobile phone businesses but would also promote smuggling and encourage undocumented sector. LCCI Vice President Mian Abuzar Shad was talking to a 50member Hall Road delegation called on him under the leadership of Babar Mehmood to protest the imposition of up to Rs 1,000 in sales tax on smart phones at import stage. The LCCI Vice President said the caretaker prime minister should take a serious notice of issuance of anti-business SROs at a time when the economy was already facing multiple internal and external challenges. He said that instead of focusing on expansion of tax net by bringing the untaxed sectors into the tax net, the FBR was squeezing the existing tax payers but all such moves aimed at tarnishing the image of the government would be resisted tooth and nail. He said it would have been wiser on the part of the FBR if it had given at least one month time to the mobile dealers for clearance of their shipments instead of slapping that harsh measure with one stroke of pen. He said authorities concerned should have taken the stakeholders to that SRO on board instead of taking unilateral decision just to meet revenue target. Mian Abuzar Shad said LCCI strongly rejected the SRO 280(I) 2013 and called for its immediate withdrawal in the larger interests of the country. He also assured the visiting delegation of fullest LCCI support for the acceptance of their just demands. Speaking on the occasion, Chairman Hall Road Association Babar Mehmood said the business community reserved the right to go on strike against such harsh measure that was bound to cause closure of businesses. He said the government move would also jack up the graph of unemployment as thousands of people are attached with mobile phones businesses directly or indirectly. He said that on the one hand the FBR claimed to take measures for promotion of documentation of the economy while on the other it took steps to encourage smuggling. Similar protests observed in Karachi, Peshawar, Rawalpindi and other major cities across the country, demanded to withdraw the notification with immediate effect. Industry stakeholders asked, if such move was due, the FBR should have to consult with all the players and develop consensus. During the past five years of the PPP government, the affairs at the Ministry of IT and Telecom remained mired in neglect and uncertainty. There were five ministers who graced this portfolio in five year, two of them happened to be sitting Prime Ministers, who could hardly spare time to attend various important matters pending at the Ministry. Frequent reshufflings in top bureaucracy also affected the MoIT administration, where none of the appointed secretaries was able to last longer to give direction to the Ministry. It was no surprise then that policy formulation took a back seat, and even the previouslyformulated telecom policies couldn't be updated in the face of a changing technological scenario. Much has happened in the telecom industry between March 2008 and March 2013, but there is no one word or phrase that can define the industry's performance in this period. Therefore, what follows from here is a selected characterisation of statistics, events and outcomes that unfolded in the telecom arena during last regime. It’s now the outcome of the previous government that tarnishing the sector, but this blow will encourage gray trafficking (smuggling) and ultimately would increase corrupt practices, which already hollow the roots of our institutions but the most corrupt institution is the custom department and by this new SRO the custom personnel will loot with their both hands. The caretaker PM should have to take notice and direct the FBR to bring the untaxed into tax net rather to squeeze the already tax payers. |