Three months ago, Punjab government levied 19.5 percent tax on internet services, excluding internet packages under Rs.1500 for students.
Now that the taxes have been officially levied, many consumers have witnessed a significant increase in their internet bills.
To date, almost 71 percent (137.1 million) of Pakistan’s population is cellular subscribers. This also hints at the strong growth of the telecom industry in the country. At present, around 38 million people have 3G/4G subscriptions.
Starting from metropolitan cities, access to internet has now made its way to remote areas too, bringing people and employment opportunities closer. Many small business owners have brought their businesses to various online platforms and have experienced a strong growth in their sales.
Amidst all this development, a significant surge in the tax levied on internet services is a hard blow. With an existing withholding tax of 14 percent and now a sales tax of 19.5 percent, Pakistan’s telecom sector stands second in the list of highest taxed sector in the world, second to Uzbekistan.
Earlier this year, when the Khyber Pakhtunkhwa government declared a 19.5 percent internet tax, Pakistan Telecommunication Company Limited moved Peshawar High Court to declare the said tax illegal. The company proposed that the amount of tax is too high.
However, the court held that there wasn’t anything unconstitutional about the said tax and that it could not declare something illegal on the grounds that the final amount of the tax would be too high.
Last year, Sindh government moved the cabinet to reduce the rate of tax from 19.5 percent to 18 percent, but the proposal wasn’t accepted. With the recent move of Punjab government to levy the tax, this means that the tax is here to say.
Taxing internet services is likely to create a lot of trouble for a large number of people. As discussed above, many people use the internet to streamline their businesses. This involved being online 24/7. The maintenance of website, uploading/downloading photos, etc., consumes a large amount of internet data.
Many mobile phone applications, including ride-hailing apps, use the internet for their daily operations. In fact, these applications owned by multinational companies will not function if the internet is down. A high tax on the internet will be compensated in the price of products or services that they offer, hitting consumers directly with higher prices.
Many experts are against taxing the country’s IT sector that has had record growth in a short period. In the past three years, internet users have grown by 40 million in Pakistan. In fact from August 2016 to January 2017, a period of seven months, cellular subscribers grew by 3.2 million or 2.4 percent. It is being said that many cellular companies will also increase the price of their data packages soon.
Taxing a sector that is booming at an unprecedented rate seems like an unwise step. Policymakers have to be careful and closely monitor the repercussions of the high rate of tax. A significant decrease in the turnover should immediately call for appropriate steps.