Aurora Magazine

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Taxing growth

Updated 04 Apr, 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.”