10/22/2021

Government Proposes Increase in Tax for Phone Calls Exceeding Five Minutes

Federal Finance Minister Shaukat Tarin on June 25 announced an increase in taxes for calls that exceed five minutes while introducing his proposals to the Finance Bill 2021-22 during a National Assembly session. 

Previously, in the finance bill, the government proposed a tax of Rs.1 for each call exceeding three minutes, Rs.5 for every 1 gigabyte of internet usage, as well as 10 paisas per SMS. However, the government later withdrew these taxes and introduced a tax of 75 paisa for every call over five minutes.

After this move, a five-minute phone call will charge users about Rs. 2.72 instead of the previous Rs. 1.97. The 75 paisa tax is in addition to the 19.5% federal excise duty (FED) for a voice call. Now, a user will be charged additional taxes of 40% if the voice call goes over five minutes.

Tarin clarified that there would be no tax on internet usage and SMS, and also that visually-impaired mobile phone users would be exempted from taxes on handsets.

Despite these exemptions, the telecom industry has said that these proposed taxes on calls over five minutes will wreak havoc for people who use prepaid bundles, which account for 98% of overall cellular subscribers in Pakistan. 

Currently, Pakistan has 183 million cellular subscribers, of which 98 million use mobile broadband and 85 million only basic voice calls. The lower income segment of society like watchmen and labourers are expected to be the hardest hit by this change, as they make long calls to their villages to stay connected with their families.

“This regressive move will play havoc with the prepaid bundles as the operators will be constrained to remove such offerings, making voice calling significantly more expensive,” an industry official told Express Tribune.

The officials also said that this will impact the industry’s ability to provide mobile broadband, as being part of one industry ecosystem, voice and broadband internet cannot be viewed in isolation. 

The taxation in Pakistan’s telecom industry is already considered very high. According to research published by Sustainable Development Policy Institute (SDPI), Pakistan is considered to be among the highest taxed telecom markets in the world. The cost of ownership of a basic handset and connection in Pakistan is above 30%. 

The industry officials told Express Tribune that the government needs to consider smartphones and mobile broadband as a much-needed tool for productivity rather than a luxury. In addition to the economic benefits that higher broadband proliferation can deliver, increased usage has the potential to boost government tax revenues in the long-term as a result of rationalised taxes.

“This new tax will be of no use to the government. People can just cut their calls before the five-minute mark and redial. On the other hand, it is a complication for mobile companies. They have to monitor each call now. Consumer complication is in terms of cutting calls before five minutes or they can request the Pakistan Telecommunication Authority (PTA) to provide a beeper facility that goes off once the five-minute duration is about to be crossed. Overall, this is nothing but a nuisance and no real value can be driven from this tax,” ICT Consultant Pervaiz Iftikhar said.

According to another economic expert, ”The government decided that the earlier announced taxes on wheat flour and its by-products, milk and medical bills of government employees, will not be included in the final bill. But to fill this void, it is apparent that Finance Minister Shaukat Tarin and his team decided to impose a new tax on mobile calls, which will fetch the government an additional Rs.15 billion in revenue.”

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