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3G, 4G services: PRA asks cellular cos to pay 17pc ST on franchises

3G, 4G services: PRA asks cellular cos to pay 17pc ST on franchises

ISLAMABAD: The Punjab government has directed the cellular service operators to deposit 17 percent sales tax on franchises being established in the aftermath of 3G and 4G spectrum auctions.

After the federal government has imposed taxes on telecom sector by asking them to pay 10 percent Withholding Tax with immediate effect, now the provincial government has come forward by milking the same cow.

According to official communication sent by the Punjab Revenue Authority (PRA) titled Punjab Sales Tax on Franchise Services to cellular operators, the Pakistan Telecommunication Authority (PTA) has auctioned 3G licenses on 23-04-2014 to introduce modern and updated telecom services in the country.

The PTA had auctioned 3G and 4G spectrum at the price of $1.1 billion. All four operators including Zong, Mobilink, Telenor and Ufone had got licenses of 3G and Zong also won 4G.A handsome amount, according to the official letter of PRA, has been paid to acquire the license to use the right to provide these services.

Since franchise services come under the ambit of taxable services of Punjab Sales Tax on Services Act 2012, and franchise relationship in the wake of license granted by PTA is manifested in relationship between PTA as a franchise and you as a franchisee, this activity therefore attracts the provisions of Punjab Sales Tax on Services Act 2012 and rules made there under.

As is evident, the letter states that after getting license by paying the fees, PTA has contractually granted the companies to deal in specific business activities regardless whether or not use of any trademark, service mark, trade name, logo, brand name or any such symbol is involved. This situation stipulates that you have to pay this due tax payment of fee to PTA for enjoining a right to use for providing 3G services to your customers. The expression franchise has been defined in rule 47 of the Punjab Sales Tax on Services (definition) rules 2012.

Even otherwise such telecom related licensing is covered under telecommunication services classifiable under heading 98.12. Thus from this prospective as well, liability of Punjab Sales Tax to the extent of Punjab’s usual share in your turnover accrues. PRA, however, understands that such licensing services are more appropriately attracted to Punjab sales tax under franchise service category.