The Supreme Court of Pakistan has set aside a tax ruling against the Universal Service Fund (USF), holding that the autonomous body was not required to deduct tax under Section 153(2)(b) of the Income Tax Ordinance, 2001. The case involved a tax demand reported at Rs. 4.79 billion linked to payments made to telecommunications companies for projects serving underserved areas.
The dispute arose from USF’s tax return for tax year 2023.
The revenue authorities sought to amend the assessment, arguing that the fund had failed to deduct tax under Section 153 on payments to certain telecom licensees. The authorities also sought to apply Section 21(c), which can disallow expenses when the required tax deductions have not been made.
Court Rules USF Was Not Required to Deduct Tax
A three member Supreme Court bench headed by Justice Munib Akhtar overturned the decision of the Alternate Dispute Resolution Committee and ruled that Section 21(c) of the Income Tax Ordinance did not apply to the circumstances of the case.
USF challenged the amended assessment before the Commissioner of Appeals on February 29, 2024. After changes to the dispute resolution process under the 2024 legislation, the matter was referred to the Alternate Dispute Resolution Committee, which ruled on March 21, 2025, that USF was required to make the deductions. The fund subsequently challenged that decision.
USF is responsible for preparing and awarding contracts for projects designed to extend telecommunications services to unserved and underserved areas under Chapter V of the USF Rules.
According to USF sources, the fund presented its legal position and supporting evidence before the Supreme Court, which ruled in its favor and set aside the tax order. The fund said it would continue focusing on expanding broadband access and telecommunications infrastructure in remote areas.
USF also thanked the Ministry of Information Technology and Telecommunication and the Pakistan Telecommunication Authority for their support during the legal proceedings. The ruling resolves the tax dispute in the fund’s favor, allowing it to continue its work to expand digital connectivity across Pakistan.
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