LAHORE: The Federal Board of Revenue (FBR) has frozen the bank accounts of the Universal Service Fund (USF), a government-owned organization responsible for expanding telecom services in underserved areas, over a disputed withholding tax demand of Rs23.23 billion.
The move has disrupted payments for several ongoing telecom infrastructure projects aimed at improving connectivity in rural and remote regions across Pakistan.
According to official documents, the Deputy Commissioner Inland Revenue (Audit) issued assessment orders for tax years 2015 to 2023, raising a cumulative tax demand of Rs23.23 billion. The demand stems from the disallowance of subsidy-related expenses under USF projects, with tax authorities alleging non-compliance with withholding tax regulations.
USF has strongly contested the assessment, maintaining that subsidy payments made under its projects are exempt from withholding tax. The organization argues that telecom operators receiving subsidies through a transparent competitive bidding process had already fulfilled all applicable withholding tax obligations when spending the funds.
The Universal Service Fund plays a critical role in Pakistan’s digital development by financing telecom infrastructure projects in unserved and underserved regions where private-sector investment is commercially unviable.
Industry officials warn that the freezing of USF accounts could delay the rollout of broadband and telecom services in remote areas, potentially affecting thousands of communities awaiting improved digital connectivity.
USF is funded through mandatory contributions from licensed telecom operators, which are required to deposit 1.5 percent of their annual gross revenues into the fund to support nationwide telecom expansion initiatives.
The tax dispute between the FBR and USF is expected to have significant implications for Pakistan’s rural connectivity goals and ongoing efforts to bridge the digital divide.
