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CBR taxes to hit data service providers

KARACHI (June 05 2005): The Central Board of Revenue (CBR) plan to bring telecom and data service providers into tax net would deal a severe blow to all stakeholders, and the consumer would be the ultimate losers due to closure of many ISPs. The services include voice mail services, voice paging services and services pertaining to data transmission by Data Network Service Providers (DNSP) and the Internet service providers (ISP).

Sources in industrial sector told Business Recorder on Saturday that CBR move was likely to put an immediate halt to the hard-to-survive data network and Internet service providers in the country.

“An already overburdened industry, which pays central excise duty on all services, would be unable to take the additional financial stress and might collapse,” sources said.

“There are also those who believe that they have had the worst in this area of business, and time has come to quit it and explore new economically profitable avenues,” they added.

They said, “If CED is levied, many ISPs will be forced to shut down their operations, bringing serious disruption to the financial businesses, including stock exchanges.

They said: “It is hard to imagine what will happen to 2.94 million credit, debit, ATM cards and about 7,019 networked bank branches would be disturbed due to Internet and the data networks.”

The Pakistan Telecommunication Authority (PTA) is seriously investigating the causes of failure of Internet companies to rectify the situation in the present scenario.

Sources said that the proposal to impose value-added tax (VAT) on data network and Internet service providers has caused serious concerns in the sector.

From the beginning, the ISPs suffered financial losses due to extraordinary cost of Pakistan Telecommunication Company Limited (PTCL) services and excessive licences issued by the PTA to increase revenue at a time when no other source was available.

The industry went through intense price competition that eroded the foundations of Internet and data network companies. Most of the companies failed, and huge capital in the shape of foreign exchange was drained.

The surviving companies were able to provide services at comparatively low cost when compared with the regional prices, while they continued to receive one of the highest tariffs in the region, sources added.

Internet is a service, which provides support to almost all industrial sectors that also helps exports, and offered services round-the-clock enabling global traders to continue business without time constrains.

Garments export increased by 37 percent because the industry fully utilised Internet in acquiring speedily export orders.

While quoting the survey, on the average, 0.7 million non-cash transactions worth Rs 217 billion took place every day, of which 20 percent of transactions were made electronically during the third quarter of 2005.

During the same period e-banking grew by 64 percent while the growth of paper banking registered only 7 percent.

The survey also mentioned that larger e-transactions are now picking up and many Internet and data network companies are already in the process of establishing most modern networks taking advantage of new emerging technologies to boost the progress in the financial sectors.

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