The Auditor General of Pakistan has flagged non-deduction of provincial sales tax worth Rs. 2.36 billion by the Universal Service Fund (USF) Company.
The company operates under the Ministry of Information Technology and Telecommunication (MoITT).
According to the audit report, the observation was made under Section 10 of the Punjab Sales Tax on Services Ordinance 2012 and Section 9 of the Khyber Pakhtunkhwa Sales Tax Act 2022, which mandate that tax on taxable services be charged, levied and collected at the prescribed rates.
The report noted that the USF Company had awarded multiple contracts to telecom operators for expanding broadband and telecom coverage in unserved and underserved areas.
Payments totaling Rs. 15.68 billion were made under the head of capital expenditure (CAPEX), including Rs. 5.97 billion for completed projects and Rs. 9.71 billion for ongoing ones.
However, the audit observed that the USF Company did not deduct sales tax on services amounting to Rs. 2.36 billion from telecom operators.
The operators also failed to provide any proof of having paid the tax during fiscal year 2023–24.
The auditors stated that the failure to withhold or verify the tax reflected weak financial oversight and caused potential loss of revenue to provincial revenue authorities.
The matter was reported to the USF management and the Principal Accounting Officer (PAO) in October 2024.
In response, the management argued that the payments were subsidy grants for infrastructure development, not taxable services, and that the telecom companies were registered taxpayers who had not issued any sales tax invoices.
The auditors rejected this explanation, saying the USF Company was responsible for ensuring compliance with tax laws and verifying whether the operators had paid the required taxes.
They warned that the absence of documentation and verification posed serious risks of non-compliance and revenue leakage.
The issue was later discussed in the Departmental Accounts Committee (DAC) meeting held on December 12, 2024, which accepted the USF’s explanation and marked the matter as settled.
However, the audit authorities disagreed, recommending that the case be referred to the Federal Board of Revenue (FBR) and provincial revenue authorities for final determination of the tax liability.