How can I cancel the purchase of My Iphone keeps saying 'theres a billing problem from a previous purchase'?

If you owe iTunes money from a previous purchase then that will need to paid off before you can download any item from the store, including app updates.

Do you have a credit card that you could put on your account or are iTunes gift cards available in your country so that you can redeem it onto your account and you can pay off what you owe ?

If it's been 5 months since you 'bought' the item then you are very unlikely to be able to get the purchase cancelled but you can try contacting iTunes Support and see what they say : http://www.apple.com/support/itunes/contact/ - click on Contact iTunes Store Support on the right-hand side of the page, then Purchases, Billing & Redemption