Telecom Sector Seeks Tax Relief in Budget 2025–26

ISLAMABAD: The telecom sector has submitted a set of proposals to the government ahead of the federal budget 2025–26, urging tax relief and regulatory reforms to support growth and expand services nationwide.

Among the key demands, telecom operators have called for a reduction in the sales tax on telecom services from the current 19.5%—the highest among all sectors—to 16%. The sector also proposed tax harmonization across all provinces and the federal capital, so a uniform rate is applied countrywide.

The IT and Telecom sector recommended reinstating the advance tax structure from Finance Act 2021, noting that a majority of mobile users fall below the taxable income threshold. The sector believes this move would improve consumers’ purchasing power.

Additionally, the sector proposed abolishing the 10% advance income tax under Section 236A of the Income Tax Ordinance 2001, which is currently applied on the auction or renewal of telecom licenses. According to the proposal, this tax significantly inflates the cost of doing business, especially in relation to 4G/5G rollout and rural expansion, as it raises the cost of capital for telecom operators.

Addressing Withholding Tax Complexities

Telecom operators also raised concerns over the withholding tax burden on numerous transactions, such as electricity bills of thousands of cell sites. These deductions, the sector argued, lead to compliance complexity, increased operational cost, and administrative inefficiency. They noted that tax authorities are unable to verify these transactions easily, adding to the operational burden on both businesses and the government.

The sector proposed adding a clause in the Second Schedule of ITO 2001 to exempt telecom operators from deduction/collection of withholding taxes. If approved, some of the additional measures in their proposal may become redundant.

Moreover, the telecom industry requested that the 4% withholding tax under Section 153 be made adjustable rather than minimum tax. This shift, they explained, would restore the nature of income tax as a direct tax, aligning it with the actual income earned, rather than enforcing a flat charge irrespective of profitability.

Supporting Long-Term Investment and Equipment Imports

To accommodate the long investment cycles in telecom, which can range from 8 to 10 years, the sector urged the government to increase the carry-forward period for minimum tax credit under Section 113 from three years to five years, restoring it to its pre-Finance Act 2024 status. Operators argue that the current three-year limit is unsustainable, particularly for companies facing consecutive losses.

The proposals also called for the removal of regulatory duties on telecom power equipment not manufactured locally. Additionally, the sector recommended excluding telecom service providers from the retail price list, as they do not import goods for direct sale.

If implemented, these reforms are expected to reduce the cost of doing business, facilitate digital expansion in rural areas, and restore investor confidence in Pakistan’s telecom sector.