KARACHI/LAHORE: Excessively high taxation of Pakistan’s mobile telecommunications sector is undermining digital inclusion, slowing connectivity adoption and constraining broader economic growth, according to a new report by global consultancy Frontier Economics.
The report, titled ‘Unlocking Digital Growth by Reducing Sector Taxation in Bangladesh and Pakistan’, argues that lowering sector-specific taxes on mobile services could accelerate digitalisation, boost productivity and strengthen Pakistan’s long-term fiscal position by expanding and formalising the tax base.
The telecom sector already makes a substantial contribution to public finances. Over the past decade, the industry has paid more than Rs2.5 trillion in taxes, levies and regulatory charges.According to Pakistan Telecommunication Authority (PTA) data, telecom operators currently pay more than 35 per cent to 40 per cent of their annual revenues in taxes, levies and regulatory fees. When wider value-chain effects are included, analysis of a major operator between 2019 and 2025 indicates that nearly half of total revenues ultimately flow to the state.
Despite this contribution, Pakistan’s tax-to-GDP ratio stands at just 8.9 per cent, well below the Asia-Pacific average of around 20 per cent. The report says the government has increasingly relied on mobile services as a source of consumption-based taxation, placing additional affordability pressures on consumers in an increasingly mobile-first economy.
According to the study, the combined sales, usage and turnover tax burden on mobile services stands at 37 per cent, comprising a 19.5 per cent General Sales Tax (GST), a 15 per cent Advance Income Tax (AIT) and a 2.5 per cent annual regulatory duty. Frontier Economics argues that this tax structure significantly raises the cost of connectivity in a price-sensitive market, discouraging usage and limiting digital engagement.
The report also notes that telecom operators are subject to a 29 per cent corporate income tax and an additional 10 per cent super tax, adding further pressure to an investment-intensive sector.
The impact is evident in market outcomes. While mobile broadband coverage reaches around 81 per cent of the adult population, nearly 40 per cent of mobile subscribers do not actively use mobile internet services.
PTA data show smartphone penetration remains at about 50 per cent, leaving a large share of the population unable to access digital services such as mobile banking, e-commerce, online education and e-government platforms. According to the report, affordability, rather than network coverage, has become the main barrier to digital adoption.
At the same time, operators face significant investment demands. More than $500 million in commitments were made during the latest spectrum auction, while the rollout of 5G technology will require further spending on network densification, site upgrades and advanced equipment.
The report estimates that operators reinvest 15 per cent to 20 per cent of annual revenues in infrastructure development, highlighting the sector’s capital-intensive nature. However, it argues that excessive taxation is eroding investment capacity, while average revenue per user of about $1 per month continues to weigh on financial sustainability.
TELECOM INDUSTRY SEEKS TAX RELIEF TO BOOST DIGITAL INVESTMENT
Pakistan’s telecom industry is seeking targeted tax relief in the upcoming budget, arguing that lower taxes would support investment, expand digital connectivity and accelerate the country’s digital transformation.
Industry officials say telecommunications underpin a wide range of digital services, including e-commerce, digital payments, online education, telehealth, cloud computing and artificial intelligence. Despite this, the sector remains one of the country’s most heavily taxed industries.
Ahead of the budget, the Telecom Operators Association (TOA) has proposed reducing withholding tax under Section 153 of the Income Tax Ordinance from 6.0 per cent to 4.0 per cent, cutting advance income tax on mobile services from 15 per cent to 8.0 per cent, extending the carry-forward period for turnover tax credits from two years to five years, eliminating customs duties on imported 5G equipment and reducing duties on optical fibre cable imports to 5.0 per cent from around 67 per cent.
The association says the measures would help expand broadband access, accelerate fibre deployment and support next-generation technologies. Industry data show that about 30 per cent of Pakistan’s population remains outside mobile broadband coverage, while fixed broadband penetration is below 2.0 per cent.
The GSMA has also urged the government to pursue telecom tax reforms, saying a competitive and predictable fiscal environment is essential to maximise the benefits of recent spectrum investments and support further network expansion.
Industry officials argue that tax rationalisation should be viewed as a long-term investment rather than a revenue loss, contending that greater affordability and wider connectivity would ultimately boost economic activity, financial inclusion and government revenues.
