The telecom sector has released a joint statement refuting recent reports issued in the media that have supported the NAB’s allegations of non-deposit of Sales Tax on interconnection charges over the last five years. The statement was issued following incorrect media reports claiming that the telecom sector had agreed to make payments against alleged tax evasion as claimed by the NAB.
Telecom sector has also refuted the claim that they have at this stage threatened the stoppage of their services in response to the enquiry currently being conducted by NAB on the issue of alleged evasion of FED. However, the telecom sector strongly reserve their right to take all necessary measures at the appropriate time to protect the mobile telecom industry and to record their legitimate protest against the unjustifiable persecution and media trial to which the industry is being subjected.
A representative of the telecom sector has revealed that no agreement has been reached with the NAB on the payment of this alleged tax evasion, and the sector has requested a period of one week to prepare a legal response to the allegations leveled against it by NAB. The source also clarified that this alleged tax evasion is based on a misinterpreted understanding of the facts and procedure of law related to the case (Background included in Annexure). The telecom sector has highlighted that the sector first learned about the alleged tax evasion and its extent through reports circulating in the media in the past few weeks. NAB and FBR have never issued any show cause or demand or shared how these figures were calculated against the revenues of each telecom organization against their operations over the last five years.
The telecom sector has also highlighted that in addition to the stay order from Islamabad High Court, it has also approached the office of the respectable Prime Minister, as well as the National Assembly and PTA to notify them of the media and public trial that the sector is being subjected to. It should be noted here that a highly publicized hearing of the NA’s Standing Committee on ICT reached a unanimous conclusion that the telecom sector has not been involved in the alleged tax evasion and the subcommittee was constituted to fix the responsibility on the FBR official who was responsible for this alleged claim of tax evasion. This conclusion was reached following supporting statements by independent tax and legal experts, the FBR, and the PTA.
In the light of the above, the telecom sector humbly requests the support of the media in creating clarity in the public domain to put an end to this damaging public trial for the telecom sector to save these foreign investments within the already fragile economy of the country.
ANNEXURE – BACKGROUND TO INTERCONNECT TAXATION
The facts of the issue under consideration start from the year 2000 when the Pakistan Telecommunication Authority (PTA) implemented Calling Party Pays (CPP) regime in line with the pattern followed in developed counties. The CPP regime translated simply into the calling party’s network taking the responsibility of collecting and depositing the total tax on all applicable charges during the call.
However, in 2010 the Department (which had not objected to this practice earlier) developed a new interpretation of law that tax should be charged separately on charges being collected by both operators. This means that the tax amount still remains the same, and the only difference is that two parties, rather than one would be collecting and depositing the tax. The only difference this change makes is making the process more complicated and cumbersome without any change in terms of revenue for the Government.
Accordingly, the Telecom Operators of Pakistan strongly BELIEVE that:
- The Department cannot collect tax beyond what is due on telephone calls;
- Total tax on the telephone call has already been deposited in retail mode;
- No tax is due on interconnect as it is mere after tax sharing of revenue on which tax has been collected/deposited on gross amount by each of the concerned telecom operator from whose network the call was initiated;
- Departmental contention that tax should be paid in two parts by the calling party network and receiving party network is a mere procedural matter with no additional tax revenue for the Government;
- Arbitrary proceedings contrary to sales tax mode cannot survive the test of appeals.
As a means of resolving this debate, the telecom operators negotiated with the Department and offered to adopt the procedure proposed by the Department who in turn provided waiver of past practice of industry under section 65 of the Sales Tax Act, 1990 through notification issued by the Additional Secretary of Revenue Division on June 30, 2012. The notification was proposed to be published in official Gazette effective 30th June 2012. Please again note that there was no loss to the Government Exchequer as alleged in the news media. In the past Revenue Division has issued numerous procedural waivers through notifications issued under section 65.
Therefore, it is clear from the above that current public opinion is based on the misunderstanding that FED on interconnection charges, which have already been paid, have not been deposited. Such opinion does not take into account the fact that the entire FED has already been charged by the Telecom Operator where the call has originated. The fact is that under the current practice the calling party is required to pay F.E.D for the entire charges of telephone call (calling party network + receiving party network) which is subjected to tax in sales tax mode @ 19.5%; and therefore there is no loss of revenue to the Government.