The Federal Board of Revenue (FBR) on Saturday submitted in the Supreme Court of Pakistan its detailed response to the composition of taxes deducted from pre-paid top-up cards, DawnNewsTV reported.

On May 8, the Supreme Court had ordered the FBR as well as federal and provincial governments to submit comprehensive replies explaining why a number of taxes, which it had noted totalled up to 42 per cent of the card's worth, were being deducted on pre-paid cellular scratch cards.

Upon being told that for every cellular charge, 5.5 per cent was deducted as a withholding tax, 19pc as sales tax and another 10pc as services charges, the court had remarked: "Is this not exploitation. This is an illegal way to get money from people."

The FBR in its response today justified the levying of withholding taxes on mobile calling cards, saying that due to a lack of documentation of economic transactions in developing countries, the tax base and revenue collection is low, which is why "withholding taxes are the main source to broaden the tax base and generate revenue."

"A person has the right to claim refund if his annual tax liability is less than the tax withheld," it added

The FBR said that the practice is "prevalent across many countries" and claimed that Pakistan still has lower taxes levied in the telecom sector than countries such as Bangladesh, Malaysia, Thailand, Indonesia and Turkey.

"Mobile phone usage is still cheaper in Pakistan than many countries," the FBR's response stated.

The FBR pointed out that the rate of withholding tax levied on pre-paid cards was in fact reduced from its peaks of 15pc in 2013-14 to 12.5pc for the fiscal year 2017-18.

Breakdown of deductions made to 100-rupee calling card

The revenue collection agency also offered to the SC a complete breakdown of all the deductions made to a 100-rupee mobile calling card.

The FBR, via an illustration, explained that every time a consumer loads a 100-rupee mobile card, 12.5pc of the total amount gets deducted as adjustable withholding tax, while 10pc of the whole goes to the telecom company as service charges.

With the telecom company takings its cut, the 19.5 sales tax also kicks in. However, it is applied only to the telecom company's 10pc rather than the entire 100-rupee card.

At this point, the consumer is left with Rs76.94 — of which the government charges 19.5pc sales tax (Rs 15) to the consumer for making calls and sending SMS.

In the end, per the FBR calculation, the net amount left with the consumer for his actual consumption on a 100-rupee charge is Rs61.93.