LAHORE, Nov 20: The Lahore High Court has annulled a tax imposed by the Punjab government on mobile phone companies and recovered by them for two years from their customers at the rate of 5 per cent of their bills.

The levy, called ‘a tax on mobile phone services’, was imposed by the Punjab Finance Act of 1998 vide its Section 8, which was deleted by the Punjab Finance Ordinance of 2000. Three leading mobile phone companies challenged the imposition in the high court, which allowed their petitions on Tuesday. The amounts realized by the petitioner companies from their customers were kept in separate accounts pending the disposal of petitions.

Appearing for the petitioners, advocates Khwaja Ahmad Tariq Rahim, Hasan Tariq and Salman Cheema submitted before Justice Jawad S. Khwaja that the provinces were competent to levy the impugned tax in view of Entry 7 of the federal legislative list (part I) contained in the Constitution, according to which the federal legislature has exclusive power to pass laws in respect of ‘posts and telegraphs, including telephones, wireless, broadcasting and other like forms of communication.’

The provincial tax was in pith and substance a duty of excise, which was already being recovered by the federal government. It was not a direct tax on the customer. A direct tax is one which is demanded from the very person who is to pay it whereas indirect taxes are those which are demanded from one person in the expectation and with the intention that he shall indemnify himself at the expense of another. Customs and excise duties and sales tax, which are ultimately paid by the consumer, fall in this category.

The petitioners also drew the court’s attention to the withdrawal of the levy in the year 2000. The petitions were allowed by a short verbal order for reasons to be recorded later.