KPK and Sindh Should Follow Punjab in Removing Internet Taxes

taxFinance Bill 2015 has been passed by the National Assembly of Pakistan on 22nd Jun 2015, whereby, the companies providing services are liable to pay 8% minimum tax under Section 153 (1) (b) of ITO 2001 irrespective of their quantum of profit or loss declared in their income tax returns. Further, a new Section 236Q has been inserted in Finance Act 2015 whereby the site sharing rentals will now be subject to 10% withholding tax which shall be treated as full & final discharge of related tax liability.

Going into background; Clause (b) was inserted in Section 153(3) through Finance Act, 2009 where the tax deducted Under Section 153(1)(b) for services sector was made as minimum tax liability, however, subsequently through issuance of FBR Circular No.6 of 18th August 2009, companies were declared out of minimum tax ambit and this tax was made adjustable for them as it was before. To strengthen the treatment given in the circular, Clause 79 was inserted in Part IV of the 2nd Schedule through SRO 1003 dated 31st October, 2011, whereby, it was clarified that the provisions of Section 153 (3)(b) shall not applicable to the tax withheld on payments received by a company for providing or rendering of services.

The aforementioned exemption was very rightly given to the companies because the amendment was made with an aim to bring such services sectors into tax net which were undocumented or have opportunity of dealing outside their books of accounts. Since telecom sector is already significantly contributing towards the Govt. Exchequer by means of huge tax collections from its subscribers and also paying due taxes on their revenues, so withdrawal of this exemption in Finance Act 2015 will not only defeat the purpose but also put extra burden on telecom sector.

To our understanding so far, the aforementioned changes in tax regime shall have dreadful implications on interconnect, site sharing and postpaid revenue streams and the future business prospects