Tax dispute threatens telecom services in Pakistan, SIFC called in

The ongoing and escalating tax dispute between the provincial governments and Long Distance and International (LDI) telecom operators has been forwarded to the Special Investment Facilitation Council (SIFC) for resolution. According to the Ministry of IT and Telecommunication, the provincial taxation policies have raised concerns among LDI operators, leading them to challenge the taxes imposed, reported The Express Tribune.

The LDI operators argue that the provincial taxes on international incoming voice services exceed the provinces’ constitutional authority. This long-standing issue has been unable to find a resolution, prompting the Ministry of IT to seek the SIFC’s intervention.

Despite the tax dispute, LDI operators continue to provide international incoming and outgoing telecom services. However, most of their licences have expired between July and August 2024, and they also owe outstanding payments to the Universal Service Fund (USF), further complicating the situation.

The Ministry of IT and Telecom, along with provincial governments maintain that the taxes are in line with international practices. During discussions at SIFC, the Ministry of IT suggested that an impartial entity be tasked with conducting due diligence and finding a workable solution in collaboration with the provinces, LDI operators, and the Federal Board of Revenue (FBR).

To provide clarity on the legal and regulatory aspects, the Ministry of IT and Telecom recommended that the Law Division and the Attorney General of Pakistan (AGP) consider both domestic and international regulations while pursuing the pending cases related to the tax dispute.

The matter requires a clear legal interpretation to move forward. The Ministry of IT also updated SIFC on the National Cloud Procurement Framework, which has been adopted by Khyber-Pakhtunkhwa (K-P), Gilgit-Baltistan (G-B), and Azad Jammu and Kashmir (AJK). However, AJK and G-B have yet to adopt the Cloud Policy, and AJK was asked to provide a milestone-based timeline for developing its IT policy, which includes the adoption of the Cloud Policy.

G-B must expedite the approval of its draft policy and update the federal government on its progress. The Cloud Procurement Framework, which was officially notified on May 14, 2024, requires all provinces to take necessary steps toward its adoption, including AJK and G-B.

The telecom industry in Pakistan continues to face various challenges. The previous government’s decision to impose taxes on smartphones has further strained the industry. Additionally, Telenor’s sale to PTCL has highlighted ongoing issues within the sector. Government policies, such as linking license renewal fees to the dollar exchange rate, have not been favourable for the telecom sector.