Discouraging Govt Policies Resulting into Decline in Telecom Investments

The telecom sector remains one of the top sectors that contributes in bringing foreign direct investment (FDI) in Pakistan. However, the sector’s investment currently stands at $25.8 million in the first quarter of 2015-16.

Statistics from the State Bank of Pakistan (SBP) stated that the foreign investment inflows brought by the foreign telecom companies stand at $25.8 million as against $27.9 million outflow of investment, mainly carried out through local companies or with joint-ventures with multinational companies, showing negative FDI of $2.1 million.

The investments of the telecom operators were recorded as $16.4 million in July but gradually reduced to $4.6 million in August and $4.8 million in September, which showed that the market players of the sectors have slowed down their investments.

The imposition of 19.5% general sales tax (GST) on mobile Internet (3G/4G services) by the Punjab government has curtailed the usage of the Internet services. On the other hand, the targets for subscriber acquisitions are not being achieved by the operators.

There were 15.7 million 3G/4G Internet users in Pakistan by August 2015, out of which more than 60% of the users belong to Punjab.

The mobile operators have slowed down investment in the sector because the profits of the companies have declined as compared to the previous year, which witnessed quite impressive and encouraging growth when it came to return on investment made by cellular operators, a senior official of a mobile phone company said.

He said in the first half of 2014-15, the telecom operators made record revenue of Rs. 300 billion, however the rest of the half was not good as it was expected to touch revenues Rs 600 billion, but the entire sector saw a correction stage and spent Rs 3 billion on setting up biometric verification of subscribers for SIM sales. This period also include no-sale of new SIMs, no growth and no acquisition of new subscribers for three to four months, he added.

“The mobile phone operators were optimistic that the new investment would drive their revenues to new heights; hence, they also embraced the government’s will to change the entire system for the sake of the country’s security,” he said on the condition of anonymity.

He said the government did not recognise their investment and taxed the telecom sector, which is already heavily taxed. “It is a double whammy for the telecom operators who invested heavily but in return were slapped with taxes. How much and how long the headquarters of foreign companies would support their subsidiaries in terms of investments because they believe that the companies should manage their expenses themselves through reinvestment of the profits they earned from the market,” he remarked.

The cellular operators are looking towards the telecom authority and the ministry to take up the issue with the provincial government that would set the future course of action of operators, said an official of another mobile phone operator, which made highest investment to launch the next generation technologies.

The operators are not happy at all with heavy taxation but the government is looking for new entrants in this situation with a purpose to generate investment, he added.

“We have planned for investment in the future but the government should realize its policy for investors,” he said optimistically.

In the financial year of 2013-14 and 2014-15, the operators made an investment of $904 million and $948 million, which shows that an average quarter investment stood at $226 million and $237 million respectively; however, numbers for first quarter investment of current financial year were nine times less than that of previous year.

This also depicts the plunging imports of overall telecom equipment which declined significantly by 46% to stand at Rs 8.9 billion in July and August against values of previous year which stood at Rs 16.3 billion, according to available figures of Pakistan Bureau of Statistics (PBS).

Though the net FDI numbers portray a very negative picture of the telecom sector, it’s clear that foreign operators did not stop their investments in Pakistan but have continued their investments which stand at mere $25.8 million in the first quarter of 2015-16. If a similar trend continues in later three quarters, it will translate into $100 million FDI in the whole year.

While mobile phone operators introduced 3G/4G services in dozens of cities, there is still a lot of room to explore many locations of these cities including new locations.

The slowdown of the investment also affected existing users of 3G/4G users who are not experiencing a high quality service of mobile internet services in many parts of those cities where 3G/4G network was available.

There is still a large room for investment in the telecom sector as there are only 15.7 million subscribers of 3G/4G services out of 120 million subscribers of GSM service.

The government should review its taxation policy to attract investment not only from existing players but later for new entrants which will definitely consider Pakistan as a lucrative market.

  • Our government is pathetic. They wont let anything good happen to this country. They will make this country a living hell for everyone.

  • its not the Govt. policies ….its the military forcing Govt. to take actions which are resulting in decline in telecom investments …..
    they forced govt. to block blackberry services in recent months…
    before that they forced govt. and telecom companies to activate every sim after bio metric verification….which doesn’t happens anywhere in the world

    • Something good always happened first time in the world so you have to digest that Biometric verification was nice move by Govt.
      And what Military have to deal with tax on internet?? or tax on activation of sim? or on import of mobile? or even on card recharge?
      all are Govt. policies

      • 3G auction kiya, uss ka credit khud liya. taxes lagay, woh military pay daal diya. What kind of mindset and skill-set is this? Khud kushi kar laini chiyey aisa sochnay walay ko :D

    • To Zain: how military is responsible for heavy taxation on internet services? You are totally out of mind:)

  • The taxation policy is the problem. It is NOT the security measures such as closing down networks. I work for a telco and trust me everyone understands the Military and Government needs to temporarily shutdown network.

    The taxation is the core problem. Today there is a 19.5% service tax, plus 14% advance tax, plus now a crazy 8% tax minimum on gross revenue (effectively 12%) and the costs for tower rentals and right of ways for our fiber backhauls all going up. The corporate income tax rate is effectively 35%

    We pay about 50% of our REVENUES in just taxes compare this to other countries where it is 7-11% at most.

    And I have not even mentioned increased in tax on imports of essential equipment which is hovering at 20%. Compare this to UAE where the prices for call are highest in world but import tariff is 4-5% only and no income tax. Compare to Singapore, no import duty, call rates are reasonable but 5x Pakistan prices and corporate income tax fixed at 11% max and no minimum tax.

    This whole industry is not attractive thanks to Ishaq Dar and his policies.

  • پی ٹی آئی کے انقلابیوں کا مسلہ یہ ہے کہ یہ صرف منفی سوچتے ہیں عامر صاحب بھی ایک انقلابی ہیں اس فورم پر اچھی خبروں کے ساتھ ساتھ اکثر ایسی کھٹیا خبروں کو بھی برداشت کرنا پڑتا ہے …. پی ٹی آئی کی کوئی چیز ان کو بری نہیں لگتی بس حکومت پر تنقید کرتے رهتے ہیں. ٣جی اور ٤جی کا کریڈٹ دینا ہو تو فوج اور اور کوئی بری خبر ہو حکومت ہے نا …. بے شرمی کی انتہا ہے ایسے فورم پر بھی کھٹیا سیاست کی جا رہی ہے اگر حکومت کچھ برا کر رہی ہے تو آپ لوگ کون سے توپ چلا رہے ہیں

    • عامر صاحب اتنے برے دن آ گے ہیں اب جعلی اکاونٹ سے اپنے مخالفین کو گالم گلوچ کروا رہے ہو

      • haha first of all I am not amir. secondly you can see progress by dar and noora govt yourself. NO ONE NEEDS TO EXPLAIN THAT.

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