top of page

SAZH-TAF Report on FDI

Industry - Telecom

< Back

Most of what our experts shared from the Telecom sector were common issues such as inflation, foreign exchange regulation, lack of trust system and inconsistent policies. However, there were certain issues, that were shared, that are specific to their sector, which have been briefly reiterated here.

 

Firstly, lawmakers should simplify legislation on taxation about sales tax, income tax and withholding tax. The income tax has been increased, and Telecom pays the greatest sales tax of 17%. Due to an increased sales tax, less revenue is generated by Telecom. Our expert shared that taxation in telecom should be reconsidered as the brunt of it is borne by the consumer, for whom digital connectivity is becoming an essential need. The burden on the telecom sector is also a burden on the digitization of Pakistan, which has cascading effects. Instead of regressive taxation, alternative sources of tax collection could be considered. To that effect, the government should re-consider the telecom industry’s tax proposals for fiscal year 2022-23 by reducing advance income tax (AIT) from 15% to 8%. Currently, over 193 million telecom users in the country are subjected to exorbitant taxes of 34.5% – including 19.5% goods and services tax (GST) and 15% AIT, making Pakistan one of the highest taxed telecom markets in the world.

 

As telecom is the enabling industry of Pakistan since it has launched startups, supported incubators, and promoted new industries, hence the policies should reflect and promote that. Instead of targeting one industry, enable a million others, so that they can become profitable and contribute to the public exchequer. For some reason, telecom seems to be considered a luxury industry by the government and short-term revenue generating policies are detrimental to the digitalization drive for the economy and undermine the ‘Digital Pakistan’ vision.

 

Second, for Telecom, the cost of Spectrum is paid in USD. Telecom is paying a hefty amount for Spectrum while the amount customers are paying them is not that huge. Adequate spectrum is a key factor in driving cellular growth and improving existing services however it has not been allocated effectively in Pakistan due to the cost associated with it. The price denomination of spectrum purchase is in US dollar terms. This makes the potential investment riskier as annual spectrum license installment payments become unpredictably expensive by each passing year. Owing to rupee devaluation against the dollar over the years, the per MHz spectrum sold for Rs3.11 billion in the 2017 auction, cost Rs5.12 billion (66% higher) during the failed 2021 spectrum auction. According to a 2019 GSMA study,’ The impact of spectrum prices on consumer’, inflated prices result in the spectrum going unsold or adversely affecting customer service quality as operators are left with limited funds for network development and up-gradation. When Jazz is asked to develop 5G, it responds that it cannot because the costs for 4G are already so massive for them to bear. No one would want to re-invest due to these issues. Government converts its own costs from USD to PKR, but for commercial companies from PKR to USD so this is extremely discouraging. The only solution in this matter is to allow spectrum auction to take place in PKR since both parties, the purchaser and seller, are within Pakistan and earning in PKR.  

 

Finally, recognize telecom as an industry across the board and provide adequate incentives for growth, including electricity tariff at industrial rates. Currently, telecom operators are charged at commercial rates and rising energy costs are the single largest contributor to the cost of running tower sites that are the backbone of a Digital Pakistan. By providing this incentive to the industry, operators can pass on savings from energy costs to the consumers.


bottom of page