The proposed increase of five percent (5%) in the withholding tax (WHT) on telecommunication services and the standard rate of 17% percent sales tax on import of computers and accessories is expected in the forthcoming mini-budget.
It will severely impact the growth of the IT sector, besides compromising the envisaged ICT exports target of $5 billion.
Expected rise in withholding tax in mini budget on telecom sector
The federal government will present the amended Finance Bill 2021 and the State Bank of Pakistan (SBP) (Amendment) Bill 2021 in the Parliament after getting approval from the cabinet. The increase in taxes on the telecom sector would negatively impact the sector’s growth as well as the investment prospects.
According to official sources, the government is likely to raise withholding tax by 50 percent, taking it from 10 to 15 percent on telecom customers in the upcoming mini-budget 2021-22.
Withholding Tax decrease in Last budget
The government had brought down the WHT rate from 12.5 percent to 10 percent in the budget for 2021-22 and made a commitment that it would be further brought down to eight percent in the 2022-23 budget. However now, the government considers backing out from its decision to raise revenue, with a five percent hike in advance tax on the telecom sector.
GST on the import of computers and accessories
The IT Ministry has opposed any move to impose 17 percent GST on the import of computers and accessories arguing that the move would severely impact the growth of the IT sector.
This policy move would increase the input cost of necessary tools making it difficult for freelancers and individuals to purchase laptops, computers, and accessories.
The government has envisaged increasing ICT exports to $5 billion by June 2023. However, the estimated target may be hit negatively if the government imposes 17 percent GST on computers, laptops, and other accessories said the official.
The Cellular Mobile Operators also oppose the government’s move of jacking up the WHT by 50 percent. As the government is making a reversal from its commitment of decreasing taxes on the sector, how investment can be lured in such circumstances when there is no certainty in policies, said the officials working in the telecom sector. They added that it would be disastrous if the internet services or SMS would be brought under the tax net.