reducing activation tax of connection for speedy growth of technology all over the country.
In the budget proposals for the upcoming fiscal year 2009-10, the cellular phone companies asked the government to shun its discriminatory policies against the telecommunication sector and ease down tax rates at 16 percent from the current 21 percent on account of General Sales Tax (GST).
The enhanced tax rate on telephony services since July has curtailed the utility of service significantly in the country that has also witnessed negative impact on the revenues of the operators directly. As a result, operators resorted to cut their service tariff to offset the impact of taxes at consumers end and to revive the high consumption pattern of service in the inflation-affected consumers.
The slow consumption of cellular telephony services has not only frozen the revenues of cellular phone companies but revenue contribution of the telecom sector has also seen a decline despite the increasing number of subscribers.
According to the Pakistan Telecommunication Authority report, the revenue of telecom sector has shrunk consecutively in subsequent two quarters of the current fiscal year as compared with the ending quarter of previous fiscal year. In April-June 2008, the Federal Board of Revenue (FBR) received Rs 12.4 billion from the telecom sector at the rate of 15 percent on GST account. Whereas, its receipts in the period of July-Sept and Oct-Dec 2008 were recorded at Rs 11.4 billion and Rs 11.7 billion at 21 percent GST rate, depicting contraction of eight and six percent in indirect taxes, respectively. The cellular phone companies contributed a lion’s share in the overall GST amount of telecom sector.
Moreover, the contribution of telecom sector in the overall revenue kitty has declined 18.7 percent in Jul-Dec 2008 as compared to 24.6 percent share of GST recorded in the same period of 2007, the State Bank of Pakistan (SBP) second quarterly report showed.
The PTA further forecast unhealthy revenues for the coming months despite constant number of increase in subscribers’ on the network of various cellular phone companies. It predicted that GST collection in the other two quarters would not be increasing more than Rs 10.5-Rs 11.5 billion in the current fiscal year.
The forecast is based on the economic slowdown and double-digit inflation that usually sets consumers’ trend of service utility in the normal circumstances.
Chairman PTA Dr Muhammad Yaseen also realises high tax implication on telephony services, which he terms unaffordable for customers. He says companies’ revenues are also drying up as high tax rates have hit their businesses hard and might be affecting inflow of foreign direct investment in the coming months.
The regulator has sent its recommendation to cut tax rate on telephony services particularly GST but policymakers will finally decide, he said. Besides, mobile phone operators also asked the government and authority concerned to reduce or remove the Rs 500 activation tax on purchase of new connection that has frozen their income avenues with falling service tariffs. Usually, companies pay this tax from their own pockets in the highly competitive market of the cellular sector.
PTA chief said the authority also proposed the government to reduce the rate of activation tax so the companies are facilitated to grow their subscribers base in uncovered areas.
More than 2 million new connections have been included in the overall subscribers’ base so far in the financial year on which Rs 500 activation tax have been paid by the operators on their own.
Spokesman of Mobilink Omar Manzur suggested the ease of tax burden on services would enhance the revenue on the account of all taxes, drive growth and aid further penetration.
“A wider subscriber base also means more people added to the tax base as well. Hence, a reconsideration of the tax regime would be beneficial for every stakeholder of the sector particularly for customers,” he added. The cellular phone subscribers’ base has widened to 91.44 million having a tele-density of 56.80 measured in 160 million population. However, this service is beyond the approach of around 43.20 percent of the population particularly in rural areas of the Baluchistan, NWFP and some other cities of Sindh and Punjab.
Industry experts pointed out the cellular phone companies’ subscribers are mostly based in big 25 to 30 densely and industrialist cities of the country and they have an opportunity to explore big market left besides covered areas.
They said companies were investing part of the margins earned from urban in rural areas for future growth. But because of these heavy taxes, profitability has declined pushing them towards cost cutting instead of investment, they further said.
Analysts said the rural areas are less profitable areas as compared to urban areas and return on investment is less for these areas but all five mobile phone operators have focused to add their subscribers in uncovered cities. But high taxes are barrier to the entry of low income class as the 21 percent GST, Rs 750 handset duties, and 10 percent withholding may either delay or cancel their purchase decision.
Director Public Relations Ufone Moazzam Ali Khan says reduction in taxes will make telecom services affordable for more and volumes will flourish reviving the growth in the sector. “With reduction of activation tax mobile phone operators will be keen to introduce their connections in rural areas,” he said.
Amir Pasha of ZONG said the falling average revenues of users in the price sensitive market has become difficult for operators to penetrate in the rural areas with rapid pace, as operators are committed making rural telephony a reality in the remote and disadvantaged areas of Pakistan. He strongly suggested the government to eliminate the prohibitive SIM activation tax in this budget since that it is a deterrent to the provision of telephony to these masses.
Source: http://www.dailytimes.com.pk/default.asp?page=2009\05\06\story_6-5-2009_pg5_6