Pakistan is Fourth Highest Taxed Telecom Market in the World

Pakistan ranks fourth among the most heavily taxed telecom markets in the world. Taxes on telecom consumers account to over 30% of the total cost of mobile ownership and this is exactly why ARPUs of Pakistani telecom market are lowest in the world.

This was stated by Aslam Hayat Khan, Chief Corporate Affairs and Security Officer, Telenor Pakistan, during a pre-budget seminar organized by ICAP.

Mr. Aslam Hayat Khan, on behalf of telecom industry, explained why and how the government of Pakistan could have much to gain from the telecom industry through rationalization of taxes.

Key Telecom Indicators

According to Mr. Hayat, here are some key indicators of Pakistani telecom market:

  • Telecom Subscriptions and Users: 137 Million Connections / 60 Million Users
  • Revenues of Telecom industry in 2014: PKR 466 Billion
  • Foreign Direct Investment in 2014: PKR 90.3 Billion (34.1% of total FDI)
  • Contribution to National Exchequer (through taxes) in 2014: PKR 130 Billion (excluding PTA’s deposits, which stood at PKR 104 Billion)
  • Telecom Imports in 2014: PKR 123 Billion

Current Taxation on Telecom Industry

Mr. Hayat went on to explain the types and magnitude of taxes imposed on Telecom industry

  • Consumer Taxes:
    • Sales Tax on Mobile Phone: Rs. 150-500
    • IMEI Tax: Rs. 150-500
    • SIM Issuance Tax: Rs. 250 (usually paid by telcos)
    • SIM Activation Tax: Rs. 250 (usually paid by telcos)
    • FED / Sales Tax (on calls, SMS): 18.5% and 19.5%
    • Advance Tax (WHT): 14%
    • FED on banking services (branch-less banking transfer charges): 16%
  • Corporate Taxes:
    • 33% of Taxable Profit or 17% of Accounting Profit or 1% Annual Turnover – Whichever is Highest
    • Advance Tax at Import Stage: 5.5% of value of goods which is considered as final tax

The plethora of taxes on telecom industry only lower the consumption abilities of telecom consumers, which not only hurt the overall tax collections by the government but the overall economic growth of the country.

This is evident from the fact that growth in tax collections from telecom industry has remained flat during past few years.

Tax collections, as an example, from telecom industry during 2007/07 were Rs. 111 billion, which reached just Rs. 130 billion during 2014, despite the fact that subscriptions and coverage grew multiple-folds during this duration.

Industry Proposals for Rationalization of Taxes

Eliminate taxes on SIM activation /supply and IMEI registration

Aslam Hayat Khan, on behalf of telecom companies, said that the multitude of taxes on SIM sales and handsets restrict the investment in telecom sector.

He proposed that SIM activation Tax should be reduced from PKR 250 to PKR 150; similarly, sales Tax on SIM Issuance should be removed.

Mr. Hayat said that IMEI Tax should be eliminated as handsets are already taxed and IMEI tax is simply a double tax on devices.

Mr. Hayat opined that removing above mentioned taxes will increase telecom subscriptions and hence the usage, which would translate into more revenues for the operators and the government.

Telenor VP explained that SIM activation tax was once reduced in the past which resulted into better mobile penetration and increased tax revenues for the government.

Rationalize rate of subscriber related taxes both FED and WHT

As mentioned above, a telecom consumer pays more than 30% taxes on telecom services, which is fourth highest in the world.

Interestingly, all other industries in Pakistan are taxed at 16% while its only Telecom industry that is charged at 18.5% or even 19.5% taxes in form of FED.

Telecom operators urged the government to align FED with other sectors at 16% while advance tax (WHT) should be lowered to 5%.

Government, at the time of imposition of WTH (advance tax) on telecom sector, had argued that consumers can get advance tax back at the time of filing of their annual taxes. However, as per cellular mobile operators, more than 80% of their customers are non-taxable and hence this 14% advance tax is never returned, instead it adds up to the cost of those 80% plus consumers who are living below the threshold of taxable income.

Aslam Hayat explained that this reduction in taxes will definitely hamper tax revenues of government during next two years, however, potential increment in service usage and corresponding impact on economy will surpass projected tax-revenues during 2018.

Eliminate custom duties and sales tax on network equipment

Mr. Aslam Hayat said that SRO 575 has been rescinded in finance act 2014-15 and consequently customs duties on network equipment have been increased from 5% to 15-20%. He said that exemption of imported equipment from sales tax has been removed.

The increase in custom duty has affected the telecom industry negatively in term of slow investment.

Mr. Hayat proposed the government to reinforce SRO 575 which, as per telecom industry, will make investment in essential network rollout and quality improvements more affordable.

Mr. Hayat explained that reducing the custom duty increases investment and access to mobile services, promoting digital inclusion with wider economic impact.

He said that since sales tax is charged in VAT mode which is recoverable as input tax adjustment so restoring the SRO 575 will not reduce sales tax revenue of Government. In fact, it will reduce administrative complexity for the government and operators, he added.

Harmonization of provincial sales tax laws, single return, single audit etc

Currently both Federal and Provincial revenue collectors peruse the taxpayers with regard to deposit of tax/ duty within their respective jurisdiction. This gives rise to undue hardship and double taxation claims for taxpayers.

Mr. Hayat, on behalf of telecom industry, proposed the government to centralize revenue boards so that the issues of ‘origin’ and ‘consumption’ on services and claim of input taxes should be clarified in a simple and understandable manner.

Mr. Hayat urged that resolution should be facilitating for the taxpayer, rather than creating hardship in compliance.

Telecom industry thinks that duplicate taxation has given rise to unnecessary litigations, which adds up in more operating cost for both the taxpayers and the government.

Status of Industrial undertaking to Cellular mobile operators for Tax Purposes

The tax paid at the time of import of telecom equipment @ 5.5% is considered as final tax rendering it non-adjustable against final tax liability.

This is just because of the fact that Cellular Mobile Operators are not recognized as an industry, instead the imported items are marked as imports from an importer.

Mr. Hayat urged the government to recognize Mobile operators as a industry so that import taxes are adjusted against final tax liability.

Mr. Hayat further explained that telecom companies are not commercial importers and equipment imported is used in the network to provide telecom services rather than for further selling of this equipment.

Tech reporter with over 10 years of experience, founder of ProPakistani.PK


  • Inam

    Oh not again! Weeping for “bechari” telecoms who in turn rip-off their customers.

    EVERY COMMON MAN IS BEING HIGHLY TAXED BY THESE MONARCH ELITISTS RULERS SINCE THE INCEPTION OF THIS COUNTRY.

  • Aadil

    A person is charged when they load a prepaid card and then taxed again on the already taxed balance when they call, SMS or use any other mobile service. Similarly, postpaid users are taxed once when they call and the tax is applied again when the whole bill is generated. Don’t understand whether its the government (which can’t tax something legally that’s already taxed) or whether its the telecom operators fooling the users in the name of taxes.

    • Hassam Tahir

      Your right double taxation is illegal. I don’t know how the govt is able to charge tax on something we have already paid tax on.

  • Raja Maja

    question is who are the top three taxed countries.

    • Jahangir

      Exactly the same question here.

      • Zawyar Ur Rehman

        Same here… @aamir bro tell us…

    • Hassam Tahir

      I came here just to read that, If your not going to mention that, don’t make your title like that.

  • tjnapster555

    in usa 10$ for one gb but here net is much cheaper why is that?

    • Zawyar Ur Rehman

      Smaller economy. = cheaper rates XD thats the benefit of a weak economy LOL

      • golf

        O, not exactly. Here in NL we do pay 1 euro for 1 GB 4g data. There are also some other things if it comes to telecommunication rates but that is a other story. Weak or smaller economy is not the case sir.

        • Zawyar Ur Rehman

          Thats just my views mate.. i do not call myself an “expert” in this case .. the first thought that came in my mind was smaller economy XD so i wrote it ….

        • Hassam Tahir

          A smaller economy is a case in point. As a smaller economy would mean lesser investment on Spectrum cost and hence lower telcom rates.

          • golf

            smaller economy or poor country so the rates are less that’s is what a child does understand and it does apply in much things. But in telecommunication sector that”s not the case

            • Hassam Tahir

              And why is that?

    • Hassam Tahir

      It depends on how expensive the Spectrum is. Compared to USA, because of a smaller economy the spectrum cost is quite less, meaning telecom can charge less to appraise there investment in the same time.

  • Zawyar Ur Rehman

    If the government reduces taxation on telecom services in the next budget (which i think has a great chance as nawaz government is focusing a lot on IT and cellular connectivity) then our telecom industry will really flourish a lot! Right now… i can easily afford a 20 gb 4g package and even if they add a 10% tax on it i am ok with it as the cost is still only 2200… but due to the taxation… a 2000 rupee prepaid package would cost me 2600 which really blows the budget!

    • Ahsan Shabir

      nawaz government is focusing a lot on IT and cellular connectivity 8D

    • Hassam Tahir

      Nawaz govt is focusing on IT and cellular connectivity? What? either your living under a rock or I’m.

      • Zawyar Ur Rehman

        Uh, i think that the 3g/4g auction HAS been done..
        Just a few weeks ago there had been an anouncement for public hotspots
        Just a few days ago a mobile app award had been held
        cant you see where all this is going??!!
        either you guys are living under a rock or im living abroad…

        • Hassam Tahir

          The 3G auction was already planner since the last govt. The reason it was being delayed was that there weren’t many investors interested hence the auction would give lower prices. The govt just decided okay at least some money is coming less just auction it. That’s not policy.
          That wasn’t an announcement but a resolution. A smiler resolution has been passed to open YouTube. Meaning nothing is going to happen.
          The mobile app award is not the government. Its PTA. So its not a policy. And please don’t make me tell the difference between a govt a state institute.

          • Zawyar Ur Rehman

            Ok.. i take my words back…
            nawaz government is still trying to screw things up…
            Happy now?

            • Hassam Tahir

              With the current cyber law bill yes the govt is trying to screw things up.

  • franchise

    Aslam sb, aaap franchise waloon par tax discuss karnaa bhoool gyeee?????

  • Nomad

    A countery 146th in HDI (Human Development Index) is exposed to such high level Taxes in almost every sector.
    Quite an achievement for greedy FBR :(

  • Originative

    bhai tumhain kyun tension hoo rahi hai nikalna to hamari hadiyon sa hi hai na

  • Ali

    The article needs various clarification/verification on the facts. Lets get it verified from the tax authorities. situation may be otherwise !

  • so you are saying “bechari telcos”
    or “greedy govt”? or users that are being looted actually?

  • ashar

    Dears,
    On Recharge like Rs 500, Rs 121 ( Maintenance/Service Charges + Govt Tax) + Govt 10% Charges, Rs 100 Recharge you get 71 Rs ( 10 Govt + 19 Goes in Telco +Govt Tax)
    Similarity ” 12 Paisa + 1.50+ 19.5%” on single call.
    HelpLine Charges 2.80 Rs
    Transfer your own balance to Same Network User, Pay 5-7 %.
    How PTA approves such Illegal Charges, authority made to regulate telecom sector,here PTA is a money grabbing Govt Machine, how they allow such charges to collect from Customer? Now Closing Millions of SIMS, definitely with FOX Mind in PTA & Telcos will find way how to get it from Customer by Increasing More taxes or what?
    Secondly, with Telco help, People Call Villagers to Sent Amount and you’ll get rewards like Car, Most of people who call for Reward Schemes are EX- CSR’s of Telcos,any one who experienced they way they speak,they way they grab peoples attention.
    PTA need to be shut down, PTA shouldn’t be a Customer Protection Department Anymore, Give target to any Private Consultant and they can sell the Spectrum License with high rates,

    • Hassam Tahir

      Lol all the private consultants are saying the spectrum licenses are already sold at more than what they are worth. That’s actually an achievement for PTA

      • Dear Hassam,
        In bidding definitely, WIN Situation is only get by the Authority.Telecom sector should have to get License to survive in the Market. After Millions of SIMS Closure, what do you think Telcos will remain Quiet?
        No Justification for Maintenance/Call Setup Charges, i got reply from PTA, which shows PTA is more active to defend Telcos than Telcos.Regulatory Authority when doing such Illegal Steps,what do we expect more?

        • Hassam Tahir

          How are these charges illegal? Telecom is not a price regulated industry. (Its a sperate debate whether it should be or not) but its not hence these charges are not illegal. Besides its not upto PTA to regulate what telecom companies unless and until the parliment asks them too. So neither is it illegal nor in PTA’s jurisdiction.

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  • Abdullah

    govt ghereeb awam ka khoon choos rehi ha ameer bhi mobile pay wo he tax day reha ha jo ek ghereeb day reha ha what a equal distribution of wealth

  • Nomad

    W.H Tax aka (Bhata Tax) or (Ghonda Tax) is one of the favorite of Mr Ishaq Dar. He uses it to easily target

    70% Population which don’t have taxable income. e.g on recharge cards

    And he knows it very well, that no one will go after FBR to reclaim these 15 rupees.

    imagine how many cards are loading in one day by this 70% population?

    Calculate it and write an Article on this Bhata Tax on poor.

    • Hassam Tahir

      WHT is actually a great tool. That’s exactly the problem everyone has to file a tax return regardless if they have a taxable income or not. WH tax is an adjustable tax if your not having adjusted, it’s on you not on the govt.