The Federal Board of Revenue (FBR) has attached the bank accounts of the government-owned Universal Service Fund (USF) after issuing a disputed tax demand of Rs. 23.23 billion. The move has reportedly disrupted ongoing payments for telecom expansion projects in rural and underserved areas of Pakistan.

USF operates under the Ministry of IT and Telecommunication and is responsible for financing telecom infrastructure in areas where commercial deployment by operators is not financially viable. The fund is financed through mandatory contributions of 1.5% of annual gross revenues from all licensed telecom operators.

According to official records, the Deputy Commissioner Inland Revenue (Audit) raised tax assessments for the period from tax years 2015 to 2023. The demand stems from the disallowance of subsidy-related expenditures, which were treated as non-compliant with withholding tax rules.

FBR’s position is that certain subsidy payments made under USF projects do not meet withholding tax requirements. However, USF maintains that these subsidies are exempt and argues that telecom operators receiving funds through competitive bidding have already fulfilled applicable withholding tax obligations when incurring project expenses.

The attachment of accounts has effectively halted USF’s payment flow, raising concerns over delays in rural telecom infrastructure projects across the country.