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As per the FBR notification signed by Member of Inland Revenue Service, telecom operators were given the legal cover with regard to non-recovery of FED on interconnect charges prior July 1, 2012. It was also said in the notification that mobile phone operators would start collecting FED on interconnect charges from July 1, 2012. - File photo

ISLAMABAD: The accountability authorities are calling it Rs47 billion scam and the telecom companies say no wrong has been committed.

It is difficult to figure out who is right but two letters written by Chief Commissioner of Large Taxpayers Unit (LTU), Islamabad, within a span of three days, with the second one reversing the orders contained in the first, makes the whole affair quite intriguing.

Dawn is in possession of some official documents which reveal that some top FBR officials were quite interested in processing the case in a hurry and implementing it in four days.

On June 27, the chief commissioner of LTU sent a letter to the Federal Board of Revenue recommending that no exemption should be given to mobile phone operators from the Federal Excise Duty (FED) on interconnect charges. The chief commissioner endorsed the findings of his sub-ordinate officers — commissioner and deputy commissioner — who stated in their reports that the cost of exemptions ran into billions of rupees.

Only two days later (on June 29), M/s A.F. Ferguson filed an application with the same Chief Commissioner of LTU on behalf of telecom companies, seeking FED exemption. The firm sought the exemption with retrospective effect in the three-page application.After the submission of the application, the chief commissioner took a U-turn and wrote the second letter (faxed to the FBR) on June 30, claiming that on the basis of “incorrect interpretation of the statue, telecom operators inadvertently and as a general practice” did not pay FED on interconnect service and recommended the FBR to grant FED exemption to mobile phone companies on interconnect charges. He also directed in the letter that all mobile operators were registered with the LTU, Islamabad, and there was no need for getting feedback from any other customs collectors or income tax commissioners.

On the basis of the June 30 letter, the FBR finalised a notification giving telecom companies a waiver from FED payment on interconnect charges with retrospective effecting, amounting to billions of rupees prior to July 1, 2012.

Normally, movement of files relating even to the most important and urgent nature takes several days in the FBR, but the case of mobile phone operators was processed on the same day on the directive of the then FBR chairman.

The first violation, according to documents, was the signing of a favourable notification without sending it to the ministry of law for vetting. It is legally binding that every legal draft should first be vetted by the ministry of law before it is formally issued.

Tax officials say the cost of exemption will cause a loss of Rs47 billion to the national exchequer. This position of the tax department was also confirmed by a case mobile operators have filed in Appellate Tribunal on the issue.

Official figures show that over the past four years (from 2007-08 to 2010-11), FED on interconnect charges was calculated at Rs26.034 billion payable by mobile phone operators.

Contrary to this huge amount, tax officials collected only Rs2.199 billion from M/s Pakistan Mobile Communication for the year 2008-09 on account of interconnect charges while Rs2.7 billion was recovered from M/s Pakistan Telecommunication Company.

This shows a contradiction in the position taken by mobile phone operators because while they say the FED was not leviable on interconnect charges, tax officials have already recovered more than Rs4.8 billion under the head. If the exemption notification of the FBR is implemented, the government will have to refund the collected amount. However, the notification is now in abeyance.

Even FBR’s junior tax officials involved in the processing of the case have raised concern over the two letters issued by the Chief Commissioner LTU, Islamabad, contradicting each other. These officers also voiced concern over the signing of the notification before it had been sent to the law division for vetting.

The notification was issued on the basis of the June 30 letter without sending it to the ministry of law.

As per the FBR notification signed by Member of Inland Revenue Service, telecom operators were given the legal cover with regard to non-recovery of FED on interconnect charges prior July 1, 2012. It was also said in the notification that mobile phone operators would start collecting FED on interconnect charges from July 1, 2012.