The budget and its implications on the IT and Telecom sectors
The 2008-2009 budget for pakistan was unveiled recently in parliament. Whether it is people-friendly, or rich friendly or even ultra-rich friendly remains to be seen. From an IT and Telecom point of view however, some of the propositions are a huge cause for alarm.
Lets take IT first. I’ve combed the entire speech of our dear Finance Minister for a single mention of IT, and here’s what i get… nothing! Nada! Absolutely zero. As with everything else, there are good and bad points to this story.
The first point, infact the only point, even being talked about by our local community is the increase of 1% in GST. While the GST issue has been on the cards for quite sometime and seen as the major hinderance to the mass adoption of IT in the country, i’m not really sure it has that much of an impact. IT is here to stay, and people will find ways and means to acquire technology if there is sufficient reason to do so. So while another one % increase may take the price of a desktop computer up rs. 200 to 400, that one reason alone will not be sufficient to discourage adoption of IT. There are much larger underlying reasons for this which need to be addressed first.
So far, the good thing for IT services is that the Services Tax has remained constant at 6%. This comes as good tidings to companies involved in ITeS such as BPOs and Call Centers, so atleast we have one more year before our profits start biting the dust. The same holds true for training companies, so atleast you wont be seeing an immediate increase in training fees.
Apart from this, no extra tax has been levied on the imports of computing or communication equipment which is again a positive sign.
One interesting thing however, is the inclusion in the financial bill for information technology and its related ammendments in various other bills. Essentially, i think we’ll be seeing a lot more private and governmental business for the local IT industry if these ammendments are approved. That in itself could allow companies to expand their product lines and consumer base within the country as well. For more information, go through the proposed ammendments to the finance bill.
Coming to the telecom market, things are not quite as rosy. Infact, its quite dreadful. The first levy which comes to mind is the standard Rs. 500 levied on each imported handset. While it may be argued that leving a standard amount on sets which vary in price from under Rs. 2000 to Rs. 30000+ is unfair, given how our country operates in terms of corruption, a single rate atleast has a much lessor chance of being misused.
The next item on the agenda, woud be the increase of 15% withholding tax on calls to 21%, whic basically means that for each Rs. 100 card you now put into your credit line, you’ll be paying Rs. 30 as taxes instead of Rs. 24 as we did previously. The one thing it will not hurt is cell phone companies, since they already advertise their charges as rate+tax.
And lastly, an additional tax of Rs. 100 on all phone bills exceeding Rs. 1500 is a major blow. I’m pretty sure this is applicable only on landlines but please correct me if im wrong. Essentially, this means that if you have a landline and manage to accumulate a bill of > Rs. 1500 e.g. by having PTCL DSL on the line, then you pay an additional Rs. 100 each month to the government.
So that’s pretty much it. A mixed budget of sorts. While the IT and ITeS sectors escaped relatively unscatched in this budget and business will continue as normal, the telecom, mobile handset importers and consumers of the telecom industry will be the ones suffering the most.
Please let me know if i’ve missed out on anything, or misquoted anything, and i’ll be happy to correct it.
6:28 pm
Finally, someone reads the budget thoroughly to present a good analysis. I was looking for this on other IT news sources.
Thanks!
10:23 pm
I came to know of this new tax named as “Spectrum access fee” of Rs. 5 per cellular subscriber….which will value Rs. 4 Billion per annum for almost 85 million subscribers…
Anyone heard of it??
10:32 pm
Nice analysis!
11:09 pm
osama: you are welcome.
aamir: nope, haven’t heard of that yet.. but i’ll ask around.
qasim: thanks!
9:56 am
The withholding tax on fixed line is 10% if the bill is more then Rs. 1000 (not a fixed Rs.100 and pre req amount is not 1500).
In addition the increase from 15% to 21% is a sales tax. In addition to which one will need to pay 10 % withholding tax compounding it too 30% approximately
10:07 pm
Good work Mansoor, hope you are ok with me re-publishing it.
10:17 pm
Ofcourse we’re fine Babar – you’re also a GnW writer so dont worry. Links are nice though.
11:12 pm
sure babar, go ahead
9:24 am
People are urban area are being taxed very regressively. Sales tax, increase in taxes on communications, taxes on bills, if you have generator you are taxed too, Sui gas will penalize you for using gas, then there is inflation.
10:24 pm
Good one Mansoor..