Inside Financial Markets
New tax on cell phone calls to raise Rs20 to 30 bn revenue - Inside Financial Markets

New tax on cell phone calls to raise Rs20 to 30 bn revenue

– The News

The government’s decision to impose an additional 75 paisa tax after 5 minutes on mobile call will now roughly cost Rs 2.72 instead of previous Rs 1.97 thus the FBR has estimated to collect Rs 20 to 30 billion through this new mobile tax.

The FBR has withdrawn taxes on food commodities and some other taxes with estimated revenue loss to the tune of Rs 80 to 90 billion. Now the government imposed 75 paisa tax on mobile calls after 5 minutes and with this one move, the FBR is expecting to generate tax revenues of Rs 20 to 30 billion. The FBR high-ups conceded that the tax would be imposed with effect from July 1, 2021, after approval of Parliament and enactment of Finance Act 2021-22 after the assent of the President. The telecom sector is estimating that the FBR can generate additional tax revenues of Rs 15 billion with help of this new tax on mobile calls. This is almost an additional 40 percent of tax on the mobile sector. However, the government will have to give some timeframe to bring changes into the billing software of mobile companies because it will not be possible to charge a new tax deduction mechanism with effect from July 1, 2021. Without bringing changes, the new tax cannot be charged under the existing billing mechanism.

Top official sources confirmed to The News that a mobile call will now roughly cost Rs @ 2.72 instead of the previous Rs @ 1.97. The addition of 75 paisa every 5 minutes which is around 40% of additional tax. The insiders claim this tax would offset the loss the government will incur by withdrawing taxes on milk and wheat products. All in total, the government expects to raise Rs 15 billion through this new mobile tax. There are overall 183 million cellular subscribers out of whom 98 million use mobile broadband/Internet and 85 million only basic voice calls. As affordability of smartphones is the biggest barrier for the lowest segments of society to use mobile broadband.

According to telecom industry insiders, the proposed taxes cannot be enforced as the charging structure is not linear and is based on bundle offers to facilitate prepaid users who account for 98% of overall cellular subscribers in Pakistan. This move will play havoc with the prepaid bundles being enjoyed by the lowest segment of society as the operators will be constrained to remove such offerings, making voice calling significantly more expensive. In addition, users will quickly learn to redial before 5 minutes to defeat this proposed levy hence it may bring nothing to the government but add to the complexity for the telecom sector and operators while causing massive inconvenience to the customers.

Syed Zaki Hussain

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