Tax on SMS Good or Bad:

Although cell phone operators and subscribers may not be happy over the announcement of introducing 20 paisa tax per on SMS in budget 2009-10.
In the past, this sector flourished due to some good measures like reduction of GST from 21% to 19%, the reduction of Rs.250 on the import of mobile handsets as well as the reduction of activation tax by Rs.250. The companies have appreciated the government’s announcement to reduce SIM activation tax to Rs.250 from Rs.500, but are not quite satisfied with the cut in GST which was not reduced according to their demand to 16 per cent. The industry sees no benefit from present reduction in activation tax since the industry has already reached its maturity and hence the addition of new subscribers has greatly reduced.

Telecom industry is one of the major source of revenues for the government with annual contribution by the industry in the form of taxes is around Rs.65 billion.
Generally, official believes that industries providing basic services to the people are taxed lower then the general public but things are totally opposite here.

The total subscriber stands at 92 million i.e around 60% penetration ratio. It is not expected to go much higher than this and hence the reduction in activation tax will not be a major benefit to the industry. The reduction in taxes on the import of handsets will also not make any big difference since 90% of the cell phones are imported in the country through illegal channels. The illegal import witnessed a major increase last year when the government introduced a straight tax of Rs750 on all the handsets imported in the country. Therefore, the reduction in the handset tax will only result in decreasing the illegal import of handsets and will not contribute much to the exchequer.

Now lets move to the new taxes imposed on cellular industry in the budget 2009-2010 where the government introduced a very innovative tax of Rs.0.2 per Short
Messaging Service (SMS). Generally around 40 billion SMS are sent in Pakistan every year by the subscriber of cellular phones. With a tax of Rs.0.2 per SMS, the government expects to earn Rs.8 billion per annum.

The imposition of this new tax will discourage the users from using such an important mode of communication.
Since bulk SMS deals will become very difficult to operate, the telecom industry is expected to curtail them from the current levels. This will further result in decrease in the SMS usage and hence reduce the revenue generation for the government. Subscribers are wondering why the companies in Pakistan have offered free SMS packages by paying few rupees whether the sector was being facilitated through imposition of tax on each SMS. Similarly, imposition of a further turnover tax of 0.5% is another move beyond the understanding of common sense. If that was not enough, even a new tax has been imposed on the advertising sector which will pass it on to the customers. Since telecom industry is one major customer of all big advertising companies of Pakistan, it will also have a serious negative impact on the advertisement spend of the cellular industry which directly and indirectly employs hundreds of thousand of people.

Now it is not sure that heavy usage of SMS by the subscribers and with this tax in place, there would be decrease in number of SMS sent in billions per year. Some serious users are happy over this tax, as in their view this is a relief those inboxes filled with unknown and bogus sms (NB: FP.PR.)