THE increase in the withholding tax rate on cellular services — calls and internet usage — from 10pc to 15pc indicates that the country’s fiscal policymakers still consider connectivity a luxury rather than an essential service or a good. The tax on cellular services was enhanced through the Finance (Supplementary) Bill passed earlier this month to fulfil a key condition for the resumption of the $6bn IMF funding programme. This jacks up the effective tax burden on the 188m mobile users to 34.5pc, one of the highest in the world, and also includes a 19.5pc sales tax. Such high taxation is normally levied to discourage the use of harmful substances like tobacco. The imposition of withholding tax on mobile users is totally unjustified since 98pc of them — including students, daily wagers, Ehsaas programme beneficiaries etc — purchase credit in advance of using the service and aren’t liable to pay income tax and file returns (to claim its adjustment or refund). The FBR elaboration that the advance tax on mobile use will not be collected from “…a person who produces a certificate from the [income tax] commissioner that his income during the tax year is exempt from tax” is absurd. How many of us can even access the tax authorities, let alone obtain such certification?

The enhanced rate of mobile tax, which was slashed from 12.5pc to 10pc in the budget 2021-22, also goes against the government’s commitment to reduce the levy to 8pc in the next budget and will slow down plans for a ‘digital Pakistan’. The step also betrays the FBR’s inability to broaden the tax base for boosting revenues in spite of its tall claims and the availability of large data on those who live in luxury but do not pay any taxes. The 9.5pc tax-to-GDP ratio, one of the lowest in the world, exposes the tax agency’s unwillingness to tap the huge tax potential of under-taxed and untaxed segments. Taxing mobile users will prove detrimental to economic activity and productivity without adding much to government revenues.

Published in Dawn, January 29th, 2022