In a bold move to reshape Pakistan’s digital landscape, the GSMA has called on the nation to eliminate the sales tax on affordable mobile phones. This recommendation is part of a broader strategy outlined in the GSMA’s report, “Realising Pakistan’s Aspiration to become a Digital Nation,” launched at the Digital Nation Summit in Islamabad. The report highlights the critical need for policy adjustments to foster a more conducive environment for digital growth amid forex and inflation challenges.
Policymakers are encouraged to consider measures such as reviewing and freezing the forex rate for license-fee payments to mitigate currency risk, staggering license-fee installments over ten years to ease fiscal pressures, and eliminating sales tax on affordable mobile phones. These steps are seen as essential for driving long-term planning and investment in the telecom sector.
The GSMA report underscores that taxes on service providers, consumer devices, and services in Pakistan rank among the highest globally. It emphasizes that the country’s economic potential can be unlocked through accelerated digital transformation. However, achieving this requires significant reforms, including the gradual elimination of the 15 percent Advance Income Tax (AIT) on essential telecom services and the 19.5 percent sales tax on mobile services. These taxes create barriers to digital inclusion, particularly for low-income households.
Recent policy changes, such as the Pakistan Finance Bill, have introduced sales tax on low-cost mobile handsets and steep advance tax on telecom services for specific taxpayers. Additionally, mobile network operators are mandated to disconnect services for non-compliant users. The GSMA suggests that removing the sales tax on affordable mobile phones and reducing advance tax on telecom services could encourage broader usage and digital inclusion.
To support the digital economy’s growth without compromising essential services, the GSMA advocates for incentives and educational programs to foster voluntary tax compliance. Exploring alternative revenue sources is also recommended.
Pakistan is gearing up for a 5G spectrum auction slated for early 2025. With mobile operators currently holding around 270 MHz of licensed spectrum, the addition of new spectrum bands such as 700 MHz, 2.3 GHz, 2.6 GHz, and 3.5 GHz is crucial for expanding network capacity and deploying 5G. However, spectrum costs in Pakistan are high, and ARPU (Average Revenue Per User) has been declining. The GSMA stresses the importance of a rational pricing approach for the upcoming auction to ensure sustainability and encourage investment in network rollout, thereby enhancing affordable connectivity and reducing the digital divide.
Additionally, denominating spectrum costs in US dollars exposes operators to significant currency devaluation risk. Given the local currency’s depreciation, this adds to higher spectrum fees paid in dollars, affecting business plans and consumer prices. The GSMA recommends denominating spectrum payments in local currency to provide greater certainty for operators, aligning revenue and expenses.
The report also highlights the uneven smartphone uptake across regions and markets, posing a risk of leaving large population groups offline. Smartphones are crucial for internet access but remain unaffordable for many. Factors such as import duties, taxes, transportation charges, and inadequate distribution channels in rural areas influence smartphone affordability.
To address this, Pakistan’s government has introduced a smartphone financing policy (awaiting cabinet approval) to improve access for lower-income groups. This policy supports installment-based financing options from operators and third parties, with protections against defaults. These initiatives aim to increase smartphone penetration and digital inclusion, particularly for lower-income demographics. However, more efforts are needed to further enhance adoption and affordability across all regions.
The GSMA also raises concerns about the negative impact of service restrictions orders (SRO) on citizens and businesses in Pakistan. These restrictions violate rights outlined in international human rights conventions, including freedom of expression and access to information. Prolonged restrictions can harm citizens’ health, education, social and economic welfare, and damage trust. They also disrupt business operations, credit, and investment plans, damaging the country’s economic reputation.
Instead, the GSMA recommends supporting initiatives like “Always-on Network Service” (AONS), which ensures accessibility for business-critical mobile applications in data-restricted areas. This initiative, developed by GSMA and mobile operators in Pakistan, has undergone successful trials. For example, Jazz demonstrated the AONS project during a network shutdown for Moharram, allowing JazzCash to continue operating and enabling over 5,000 transactions despite blocked voice and data services.
Positive Points: Removing sales tax on affordable mobile phones and reducing advance tax on telecom services can significantly boost digital inclusion and smartphone adoption. Rational spectrum pricing and denominating costs in local currency will ensure sustainable investment in network infrastructure.
Negative Point: High taxes and service restrictions continue to pose significant barriers to digital growth and inclusion in Pakistan.
Exciting Point of View: Imagine a future where affordable smartphones and seamless connectivity empower every Pakistani, bridging the digital divide and driving economic growth like never before. This transformative vision is within reach with the right policy reforms!