ISLAMABAD: Frontier Economics, a UK-based consulting firm, has disclosed that there is a combined 37 percent tax on mobile services in Pakistan, one of the most onerous mobile sector taxation, hampering growth, mobile penetration, and government revenues.
The firm recommends that the tax rate be brought down to almost a half from 37 to 17 percent to boost GDP growth and concedes that the government revenues will remain neutral on short term basis from 2027 to 2030. However, from 2031 to 2035, the revenues will go up from $900 million to $1.6 billion.
The report titled “Unlocking Digital Growth by Reducing Sector Taxation in Pakistan” was launched by Jazz Pakistan here on Monday. The report says the mobile services in Pakistan face a 37% combined sales/turnover tax rate, comprising 19.5% sales tax, 15% advance income tax from customers, and a 2.5% annual regulatory duty.
The operator profits are subject to a 29% corporate tax, plus a 10% super tax. While taxation is not the only challenge facing the mobile sector in Pakistan, it is clear from GSMA data that the level and complexity of sector-specific taxes are a defining feature of the policy environment in Pakistan.
Despite being mobile-first, there remains a significant proportion of the population that does not have mobile connectivity access (68% of 15+ year olds do not own a smartphone in Pakistan.
When assessed against international benchmarks, taxation of telecommunications services in Pakistan is exceptionally high. Pakistan applies a complex set of sector-specific taxes and fees on mobile services which, when taken together, place it among the highest-taxed mobile markets globally. For example, in addition to economy-wide consumption taxes, the government applies taxes and levies exclusively to mobile services and mobile equipment. However, the overall tax burden on the sector does not arise from a single tax instrument, but from the cumulative effect of multiple layers of taxation.
Given the role of connectivity in enabling digitalisation and formalisation of economies, the report says high taxes limit demand for connectivity, or discourage investment in networks, imposing costs that extend far beyond the sector itself.
Pakistan is facing a “tax trap”, whereby the government heavily relies on the mobile sector taxation, as it is a visible sector in the formal economy, but in so doing undermines wider policies around digitalisation and the ability to expand the country’s tax base.
The reforming mobile sector taxation can instead, in the relatively short-term, generate broader economic benefits that more than offset the direct fiscal cost of the reform. In light of this, Frontier Economics recommend that the government re-balance tax policy away from sector-specific consumption taxes and surcharges that directly raise consumer prices. These taxes have high pass-through and the strongest effects on affordability and adoption. A clear priority should be reducing taxes applied to usage and revenues.
