Finance Ministry Justifies Withholding Tax on Mobile Recharge

The Ministry of Finance has justified the collection of withholding tax on mobile users saying that an undocumented economy, low tax base and low revenue collection necessitates the withholding tax on mobile recharge. However, the ministry has stated that anyone including a person with below taxable income can claim the refund of the deducted tax by filing a return. Official documents revealed that withholding tax is imposed on mobile users including students, daily wagers, and beneficiaries of the Ehsas Programme whose income does not exceed the minimum threshold for filing a tax return to claim such a tax adjustment or refund. On every recharge, 15 percent withholding tax is collected from the subscriber by telecommunication companies. On a recharge of Rs. 100, a tax of Rs. 13.04 is collected as withholding tax. On subsequent use, FED @19.5 percent (Rs. 16.52 on the value of Rs. 86.96) of the usage, the charge is leviable in the Islamabad Capital Territory (ICT) on telecommunication services. The general sales tax (GST) on telecommunication services is charged under provincial legislation in areas other than ICT. The Finance Ministry has pointed out that as per clause (29) of section 2 of Income Tax Ordinance, 2001 income includes any amount chargeable to tax under the Ordinance. Under the said provision, the amount subject to withholding is deemed income. It is also pointed out that an undocumented economy low tax base and low revenue collection necessitate withholding taxes like that on mobile recharge. These are the main sources to broaden the tax base and generate revenue. The idea is taxes on transactions where persons operating in the informal sector interact with the formal and regulated sector to acquire information about potential taxpayers to bring them into the tax net. The collection of tax at source is also enforced on certain expenses or transactions that have high informational/ mapping value. Furthermore, the withholding tax on mobile recharge is adjustable. Anyone including a person with below taxable income can claim the refund of the tax deducted by filing a return. The Ministry has further pointed out that taxation on mobile phone charges has gone through judicial scrutiny and has been held valid by the Supreme Court of Pakistan. Withholding taxes are a necessity in an underdeveloped country like Pakistan given its revenue requirements. The tax deducted is refundable and claimed through a simple return. It may also be pointed out that Supreme Court also adjudicated the validity of the withholding tax on mobile recharge and upheld the charge. There is no provision in the Income Tax Ordinance, 2001 which entitles a person to obtain a certificate if his income does not exceed the minimum threshold for filing the tax return. Only those persons are entitled to an exemption certificate whose income is exempt under any provisions of the Income Tax Ordinance, 2001. The Ministry further noted that as per the policy this tax is neither minimum nor final tax. The tax deducted is refundable and can be claimed by filing a simple return. Anyone including a person with below taxable income can claim the refund of tax deducted by filing a return.