Aurora Magazine

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Taxing growth

Updated Apr 04, 2017 10:01am
An overview of Pakistan’s telecom industry and why it needs tax reforms in order to grow.

With cellular subscribers at just over 137.1 million (over 71% of the population), and a growth of 2.4% (3.2 million subscribers) between August 2016 and January 2017, and over 38 million 3G/4G subscriptions, it would seem that there is no stopping Pakistan’s telecom industry.

For years there was talk of a merger and 2017 saw that prophecy come true as Warid merged with Mobilink (now Jazz) with the latter company further reaffirming its place as the largest telecom company in Pakistan with 37.59% of the market share. This has left Telenor and Zong, once would-be contenders for the top spot, sputtering in the dust with market shares of 28.88% and 20.06% respectively, whereas Ufone, which once held the record for selling the most SIMs in a day, is at number four with a mere 13.48% of market share.

Although the majority of telecom indictors are positive and the Minister of State for Information Technology, Anusha Rahman recently issued a statement saying that the sector is growing fast with an annual turnover of $4.5 billion, and the number of internet users increasing from three to 40 million in three years, the fact is that not all is hunky dory in telecom land.

While there are more telecom and 3G subscribers now, cellular companies are having a harder time convincing consumers to buy new mobile connections and spend money on basic telecom services, efforts which are further compromised by the presence of free messaging and voice services such as WhatsApp, Skype and Facebook Messenger, but more so because of prohibitively high taxation on basic telecom services. With 19.5% sales tax and 14% withholding tax, Pakistan’s telecom sector is one of the highest taxed in the world, second only to Uzbekistan! Add to that, taxes on devices, SIM cards and other usage charges, using a mobile phone is not as affordable a proposition as it was, say, five or six years ago.

According to a white paper published by the Global System Mobile Association (GSMA) in association with Deloitte earlier this month, only 47% of Pakistanis subscribe to a mobile service and a mere 10% have a 3G or 4G connection – which is ‘somewhat’ different from the telecom indicators published by the Pakistan Telecommunications Authority (PTA). The paper goes on to say that if the current tax regime continues, mobile subscriptions will only grow by five percent until 2020, which means that 48% of Pakistanis will be left without a mobile phone.

So what is needed to improve growth? The paper gives three recommendations: reduce sales tax on mobile to 17%, abolish the Rs 250 tax on SIMs, and reduce withholding tax on mobile to 12%. According to GSMA, not only would these measures help in improving mobile growth and penetration, but introducing even one of the three tax reforms will “deliver $2.8 billion in additional GDP growth by 2021.”


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Comments (11)

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MOUZA ALI Mar 31, 2017 11:11am

Telecom sector is the fastest growing sector in the world and the governments should take all steps to enable citizens to join this information revolution. This industry should be opened up more and all road blocks should be removed to that people are connected to each other. There are many social and economical benefits which will accrue to people if governments become facilitators.

A. A. Mar 31, 2017 11:32am

Well written and well said. The government has always considered the Telecom industry to be the hen that lays golden eggs. Unfortunately, they are after the hen itself. The profit margins have shrunk to a level where there is a talk of pulling out of Pakistan altogether by top telecom companies (I have first hand knowledge as I have been part of such meetings). I hope better sense prevails, otherwise we are bound to lose billions of dollars of investment in the next 5 years.

Behram bashir khan Mar 31, 2017 11:54am

Telecom companies conveniently transfer the tax to consumers, as done so by other providers of goods & services. At the end of the day individual's budget is shrinking with no comparable increase in income. Affordability will affect customer base as individuals adjust their budgets.

HAKIM Mar 31, 2017 12:22pm

A very pathetic situation compared to many other countries - including Gulf. The government is addict to taxing the common man only - be it mobile phone or petroleum products.

Yaa Mar 31, 2017 03:43pm

Why 1 GB data costs 30 times to India. Same like electricity. It's there but too expensive.

Ali S Mar 31, 2017 05:34pm

Pakistan govt should be taxing its landowners who get precious resources like water (which is becoming increasingly scarce) for free! Or institute a system of progressive income tax like most developed countries do. But no, that would hurt our parasitic elite. So what do they do? Tax the living daylights out of necessities and utilities like telecom, bread and dairy. There's no end in sight to the shortsightedness of this nation's leaders.

Sameer Mar 31, 2017 07:13pm

Rest assured...Telecom sector like all the rest will pass this on to the consumer.

asad malik Mar 31, 2017 09:00pm

@HAKIM Yes because the common man barely pays taxes. Secondly, it may be the highest taxed in the world but the service is still better than US telecoms like Sprint and AT&T which charge outrageous amounts for service.

Manzoor Ahmad Apr 01, 2017 10:55am

The current government is only interested in promoting the traditional sectors such as textiles and leather. Its policies have pushed out several pharma multinationals. Now it wants the same thing with telecom. It is not interested in poor having mobile phone or youth to usefully employ themselves through IT outsourcing.

Fudayl Z. Ahmad Apr 03, 2017 12:15pm

Good article. The 14% withholding taxes are adjustable in the tax returns for the salaried people and other tax returns filers. The nature of adjusting the taxes, indirectly means that one should not use cell phones beyond a certain limit.

Parvez iftikhar Apr 11, 2017 04:58pm

@Fudayl Z. Ahmad it also means that this particular withholding tax is to discourage those who are too poor to require filing Tax Returns - as they will never be able to "adjust" this withholding tax! And these are about 80% of the mobile phone users.