Withholding tax on calling cards may be removed

ISLAMABAD (April 28 2003) : Despite opposition from Central Board of Revenue (CBR), the government has decided in principle to withdraw 10 percent withholding tax on pre-paid calling cards.

However, the announcement would be made in the next budget to get credit from the public, sources told Business Recorder .

The decision for removal of withholding tax was taken in the meeting of Economic Co-ordination Committee of the Cabinet (ECC) on Thursday last.

Sources said that the respective IT and Telecom division of Ministry of Science and Technology, which had submitted the proposal to the ECC, asked the meeting to immediately announce the decision, but its request was turned down and it was decided that the decision would be made public by the Finance minister in his budget speech as a step to give relief to the common man in budget.

Giving the details of the proposal, sources said that IT division had approached the ECC for withdrawal of 10 percent withholding tax on pre-paid calling cards.

The Ministry pleaded that levy of withholding tax on pre-paid calling cards seemed unfair, while CBR, which earns billions of rupees from the consumers, argued that it was advance income tax.

Sources said that IT and Telecom division had proposed withdrawal of withholding tax being charged on pre-paid calling cards of PTCL and cellular phone companies, while CBR strongly opposed it.

The division further contended that pre-paid calling card service is available to facilitate PTCL and mobile cellular operators including PTML (U-fone) for individual consumers. This pre-paid card attracts low income and budget-conscious consumers.

Giving the background of the case, IT division stated that CBR has imposed 10 percent withholding tax on all pre-paid cards purchases on the activation of cards.

The consumers are allowed to utilise the 90 percent of amount paid to purchase pre-paid calling cards, which also includes general sales tax.

CBR views the deduction as a form of advance tax, while IT and Telecom division argued that when telecommunication companies are making full income tax annually to CBR, why withholding tax should be deducted from ordinary consumers, which is regarded as improper application of law and unfair.

“It is also highly impractical to expect that ordinary consumers will be able to get his due by seeking tax adjustment for this unfair deduction,” the ministry further argued.

IT and Telecom division said that the income, which accrues to Revenue Division, is because of inability of ordinary consumers to seek refunds and pursue adjustment, which is cumbersome. This money is accrued by default and not by merit.

Sources added that the Cabinet division had also supported the proposal of the IT division for removal of withholding tax.

Sources said that the ECC while taking viewpoint of all concerned, gave weightage to the arguments of IT division and decided to remove withholding tax from pre-paid calling cards.

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