The proposed increase in the withholding tax (WHT) on telecommunication services of 5% and the standard rate of 17 percent sales tax on imports of computers and accessories in the upcoming mini-budget will have a significant impact on the IT sector’s growth, as well as jeopardies the $5 billion target for ICT exports.
This was the topic of an anonymous source’s Monday meeting with high government officials and telecom sector experts.
After receiving cabinet clearance, the federal government would propose the modified Finance Bill 2021 and the State Bank of Pakistan (Amendment) Bill 2021 before Parliament.
According to officials from the Ministry of Information Technology and Telecommunication, raising taxes on the telecom sector will hurt the sector’s growth and investment potential.
In the upcoming mini-budget 2021-22, the government is expected to hike WHT by 50%, increasing it from 10% to 15% on telecom subscribers, according to official sources.
In the budget for 2021-22, the government reduced the WHT rate from 12.5 percent to 10 percent, with the promise that it will be further reduced to 8% in the budget for 2022-23.
However, the government is reconsidering its intention to collect income by raising the advance tax on the telecom sector by 5%.
The cellular advance tax will be raised to a historic high of 15% if the draught proposal is passed.
WHT is now levied at a rate of 10% on all telecommunications customers, regardless of their taxable obligations. Because the bulk of the country’s population has non-taxable income, they must pay WHT, which they will never be able to recoup.
The IT Ministry has argued that imposing a 17 percent GST on the import of computers and accessories will have a significant negative impact on the IT sector’s growth.
“If the government moves ahead with the imposition of GST at the standard rate of 17 percent on import of computers, laptops, and its other accessories it would negatively impact freelancing, IT exports and Prime Minister’s vision to make Digital Pakistan,” official sources from the Ministry said.
They went on to say that the regulation change will raise the cost of critical instruments, making it more difficult for freelancers and individuals to buy laptops, PCs, and accessories.
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