Only in Pakistan: Telcos Deduct 8% or Equal to Half the Amount of Taxes As Service Charges

Telcos Deduct 8% or Half the Amount of Taxes As Service ChargesComplaintive, dissatisfied and apparently hardly burdened telecom companies deduct 8 percent of customers’ money as service charge.

This flat charge of 8 percent against any money that mobile customers load into their mobile accounts go straight to the cellular companies’ pockets.

Interestingly, these service charges are not charged against any service, airtime or value addition, instead these charges are deducted as a royalty, line rent, tax, extortion or call it whatever you like.

History of service charges in Pakistan dates back to 2008 when Telenor became the first operator to impost 5 percent service charges on all reloads. All other operators followed Telenor, however, they named these charges differently. Here are some of the names that operators used to deduct service charges or company tax:

  • Operational Fee
  • Service Charges
  • Maintenance Fee
  • Admin fee
  • Service fee
  • Operational Charges
  • Maintenance Charges
  • and whatever

Cellular companies kept increasing these charges, at a different rate, and are now finally charging 8 percent of all amounts.

Taxes on Telecom Services

  • 19.5 Percent FED
  • 15 Percent WHT

Now if you are a taxpayer (which most of us aren’t) then you can claim a refund – if applicable – against the WHT that you pay for telecom services. For example, if your monthly usage for mobile service is Rs. 1,000 or Rs. 12,000 per year then you can get a refund of Rs. 1,800 or 15 percent of the total spending.

However, most of Pakistani don’t pay tax or they aren’t registered as tax payers and hence WHT is deducted forever without any chances for a refund.

Technically speaking, 19.5 percent FED is the only true tax that goes to government and is non-refundable. And so are the service charges, which are 8 percent of total reloads.

Taxes + Service Charges on Telecom Services

  • 19.5 Percent FED
  • 15 Percent WHT
  • 8 Percent Service Charges
  • Total: 42.5 percent

In order words, almost Rs. 42.5 are deducted against a card load of Rs. 100. But technically, Rs. 15 can be refunded, while Rs. 8 go to telecom operators against no services.

Why Service Charges?

Telecom operators argue that increased inflation, devaluating Pakistani currency, energy crisis, low ARPUs and low tariffs are the reasons behind these service charges. However, they fail to explain that why such service charges are unique to Pakistani market only when all these factors are being faced by several other regional markets (including Africa).

Telecom companies also fail to explain that why did they give up to competition and price war this much that their ARPUs have gone rock bottom.

Just if you don’t remember, very same telecom companies — that deduct 8 percent service charges — complain about high taxes and argue that higher tax deductions are hampering their growth, burdening the customers, lowering the revenues and so on.

While we don’t deny the fact that taxes on telecom services in Pakistan are second highest in the world, but it is interesting to note that service charges are technically equivalent to half of the taxes on telecom services, making the situation worse for consumers.

Telecom companies should not pretend and must not shout against tax hike, as this is the result of compromise they have made with the government against a free-hand from regulator and government to impose service charges as they like.

Its not the telecom companies that are going to suffer, instead its the customer who will have to bear the brunt. And this is why telecom companies won’t take a stand against increasing taxes.

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