The Global System for Mobile Communication Association (GSMA) has urged the Pakistani government to gradually eliminate the 15% Advance Income Tax (AIT or withholding tax) on essential telecoms services and the 19.5% sales tax on mobile services, which creates additional barriers to digital inclusion for low-income households.
In its latest report titled, “Realising Pakistan’s Aspiration to Become a Digital Nation,” the GSMA said that taxes on service providers, consumer devices and services in Pakistan are among the highest in the world. These taxes, some of which are sector-specific, often impact network investment affordability and have a disproportionate impact on the most vulnerable.
The report said that the recently introduced Pakistan Finance Bill imposes a sales tax on low-cost mobile handsets and a steep advance tax on telecom services for specific taxpayers. Additionally, it mandates mobile network operators to disconnect services for non-compliant users.
To mitigate the potential harm to digital inclusion and broader access, it is suggested that the sales tax on affordable mobile phones be removed, the global mobile operators association said.
Furthermore, reducing the advance tax on telecom services could encourage wider usage. By implementing incentives and educational programs, the government can foster voluntary tax compliance. Finally, exploring alternative revenue sources can support the digital economy’s growth without compromising essential services, it added.
The GSMA also highlighted the need for addressing high spectrum prices and introducing a smartphone financing policy to improve access to affordable devices.
Pakistan is planning a 5G spectrum auction scheduled to be completed by early 2025. Mobile operators in Pakistan currently have around 270 MHz of licensed spectrum and the potential addition of new spectrum bands such as 700 MHz, 2.3 GHz, 2.6 GHz, and 3.5 GHz are necessary to support the expansion of network capacity and the deployment of 5G.
“Yet spectrum cost in Pakistan is already high and ARPU has been declining. Thus, it is imperative that a rational approach to pricing is adopted for the upcoming auction so that the total cost of spectrum is sustainable and operators have the right incentives to invest in network rollout which delivers affordable connectivity to more consumers and lowers the broadband usage gap and the digital divide,” the report said.
The report stressed that Pakistan is well-positioned to unlock its economic potential through accelerated digital transformation, but achieving this requires concrete action and reforms.
The report outlined five key pillars essential for creating a thriving digital nation: infrastructure, innovation, data governance, security, and people. Recommendations included eliminating high taxes on mobile services, addressing spectrum pricing, and introducing a smartphone financing policy. The GSMA also advocated for a rational approach to spectrum pricing ahead of the planned 5G spectrum auction in early 2025.
The GSMA report noted substantial progress in mobile broadband coverage in Pakistan, with 81% of the adult population now covered by 3G or 4G networks, up from just 15% in 2010. Smartphone ownership reached 63% by the end of 2023. However, only 23% of the population subscribes to mobile internet services, highlighting the challenge of connecting the unconnected.
Julian Gorman, GSMA Head of APAC, stated, “Pakistan has the potential to realise its aspiration to become a digital nation. By scaling its connected population and investing in key pillars, Pakistan can unlock its full digital potential, improve the lives of its citizens, and drive sustainable economic growth.”