Telcos Urge Govt to Slash Taxes and Excise Duty in FY26 Budget to Fast-Track 5G Rollout

The Telecom Operators Association (ToA) has recommended a comprehensive set of budget proposals for the fiscal year 2025-26, calling for tax relief, policy amendments, and exemption from withholding taxes. The association has emphasized that high taxation, cumbersome regulations, and financial constraints are impeding the telecom sector’s ability to expand digital infrastructure and contribute to economic development. ToA has urged the government to revoke the amendment in Section 147 of the Income Tax Ordinance, 2001, which empowers tax authorities to reject advance tax estimates filed by telecom companies. The association argues that this provision has created uncertainty, increased litigation, and disrupted business operations. The association has criticized amendments to the Alternate Dispute Resolution Committee (ADRC) framework, which make ADRC decisions binding on both taxpayers and authorities. ToA recommends restoring the previous system, where taxpayers could appeal ADRC decisions, ensuring a fair dispute resolution process. ToA has requested an exemption from all withholding tax provisions under the Income Tax Ordinance, similar to the relief provided to the banking and oil sectors. The industry currently faces withholding tax deductions on imports, services, utility bills, and corporate sales, creating a complex compliance burden. The association argues that this exemption will not impact government revenue, as telecom companies already pay quarterly advance taxes. The current withholding tax on telecom services is treated as a minimum tax, meaning companies must pay it regardless of their profitability. ToA has demanded that this tax be made adjustable, as it unfairly impacts companies experiencing financial losses and discourages investment in network expansion. The telecom industry has raised concerns over aggressive tax recovery measures, such as freezing bank accounts and sealing business premises. ToA has recommended that such actions only be taken after an independent appellate review, ensuring that compliant taxpayers are not unfairly penalized. Given the impact of inflation and rising income taxes, ToA has proposed sector-specific tax reforms, including inflation-adjusted tax brackets and lower withholding tax rates, to attract and retain skilled professionals essential for digital infrastructure development. ToA has demanded a reduction in the 15% advance income tax and 19.5% FED on telecom services, arguing that these high taxes increase service costs for consumers and slow down market growth. The association suggests lowering these taxes to encourage digital adoption. Currently, the minimum tax under Section 113 of the Income Tax Ordinance can only be carried forward for three years. ToA has requested an extension to five years, citing financial difficulties faced by telecom companies due to economic conditions. Telecom operators rely on lithium-ion and rechargeable batteries for network operations, especially in the rollout of 5G. ToA has proposed removing the 5% regulatory duty on these imports, as they are essential for uninterrupted service provision and not locally manufactured. Since SIM cards are 100% import-dependent, ToA has requested an exemption from the 15% regulatory duty and 3.5% additional sales tax currently imposed on their import, arguing that these duties unnecessarily inflate consumer costs. ToA has proposed lowering the 9 percent regulatory duty on telecom infrastructure equipment, including RAN, Core, and transmission devices, which are essential for the upcoming 5G rollout. The association argues that reducing import costs will accelerate network expansion and improve service quality. The proposals highlight the need for a more business-friendly regulatory framework to foster digital transformation in Pakistan. The government is expected to review these recommendations, but there isn’t clarity on which ones will be accepted.