Proposed taxation will severely impact the growth of IT sector

Lahore (NUT-DESK)

The proposed increase of five percent in the withholding tax (WHT) on telecom services and the standard rate of 17 percent sales tax on import of computers and accessories in the forthcoming mini-budget will severely impact the growth of IT sector, besides compromising the envisaged ICT exports target of $5 billion.

This was stated by Federal Minister for Information Technology and Telecommunication Syed Aminul Haque, senior government official, and telecom sector expert. 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.

Haque said that the increase in taxes on telecom sector would negatively impact the sector growth, as well as, investment prospects. Experts have urged the government to support the prime minister’s vision of Digital Pakistan by lowering taxes.

They opined that high taxes may jeopardise the Digital Pakistan agenda as millions of Pakistanis are already unable to afford most mobile phone services.Telecom expert Pervez Iftikhar has said that it would have disastrous effects on the overall growth and the ICT exports.

He lamented that the government was moving towards imposing GST on the import of smartphones causing losses to start-ups and overall growth of the ICT sector.

Official sources revealed that the government is likely to raise WHT by 50 percent, increasing it from 10 to 15 percent on telecom customers in the upcoming mini-budget 2021-22. 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 next budget for 2022-23.

However, the government is now mulling to reverse its decision to raise revenue, with a five-percentage-point hike in advance tax on telecom sector. If the draft proposition is implemented, the cellular advance tax will be raised to a historic high of 15 percent.

The WHT is currently collected at a rate of 10 percent from all telecom users, regardless of their taxable obligations. Majority of the country’s population has non-taxable incomes; these individuals are required to pay the WHT, which they will never be able to recover.

The Ministry of Information Technology and Telecommunication has opposed any move to impose 17 percent GST on import of computers and accessories arguing that the move would severely impact the growth of the IT sector.

“If the government moves ahead with the imposition of GST at the standard rate of 17 percent on import of computers, laptops, and its others accessories it would negatively impact freelancing, IT exports, and PM’s Vision to make Digital Pakistan,” official sources of the Ministry of Information Technology and Telecommunication (MoITT) said.

The official sources said the policy move would increase input cost of necessary tools making it difficult for freelancers and individuals to purchase laptops, computers, and accessories. The IT and IT-enabled Services (ITeS) export remittances comprising computer services and call centre services surged to $2.123 billion at a growth rate of 47.43 percent in fiscal year 2020-21, compared to $1.44 billion during 2019-2020.

The ICT export remittances for the period July-November fiscal year 2021-22 surged to $1.051 billion at a growth rate of 37.57 percent compared to $764 million during July-November fiscal year 2020-21. In November 2021, the ICT export remittances are $221 million at a growth rate of 31.55 percent when compared to $168 million reported for the month of November 2020, $26 million higher than export remittances during the previous month October 2021. The net exports for the period July-November fiscal year 2021-22 are $797 million, which is 75.83 percent of $1.051 billion in exports. Last year, for the same period, the net exports were $554 million, which was 72.51 percent of $764 million in exports.

The government has envisaged increasing ICT exports to $5 billion by June 2023. However, the estimated target may be hit negatively, if the government impose 17 percent GST on computers, laptops, and its other accessories, said the official.

The Cellular Mobile Operators have also opposed the government’s move for jacking up the WHT by 50 percent. The government is making reversal from its commitment of decreasing taxes on the sector, then how investment can be lured in such circumstances when there is no certainty in policies, said the sources working in the telecom sector, and added that it would be disastrous, if the internet services or SMS would be brought under the tax net.