Taxes Are Hindering Broadband Adoption in Pakistan: SBP

Earlier this month, the World Bank ranked Pakistan as having the fourth highest offline population in the world after India, China and Indonesia. The State Bank of Pakistan (SBP) has now pointed out its main reason as heavy taxation for low internet broadband use through mobile and different technologies.

According to State Bank of Pakistan quarterly report, Pakistan presents a huge market of about 130 million people that needs broadband services. Currently, there are 16.7 million broadband users (now 24.7 million by November 2015, including 21.65 mobile broadband users).

“Despite being among top 10 countries of the world in terms of number of mobile users, share of broadband and mobile users in Pakistan is still low,” SBP stated in its report with its independent analysis on mobile phone sector and taxation over its mobile broadband services.

Mobile sector is heavily taxed in Pakistan, impacting devices, usage and sim cards. Following are the key taxes that directly impact consumers and providers of mobile industry in Pakistan:

  • 19.5 percent GST mobile services.
  • 14 percent withholding tax on mobile services.
  • Custom duty of Rs 250 on mobile handsets.
  • On Broadband Internet Services, the tax rate is 19.5 percent in Punjab for more than 2 mbps speed. It was removed by Punjab government after fierce campaign by digital publishers along with cellular operators.
  • In Sindh, the tax is 18 percent if broadband bill exceeds Rs 1500.
  • 10 percent duty on import of equipment used for voice reception, switching and routing of data etc.
  • Corporate tax of 32 percent.

The report did not mention 19.5 percent GST on broadband and 3G/4G services in KPK.

SBP reiterated in its report (as was earlier mentioned in our stories) that data services and mobile internet have been exempted from taxes all over the world because of their benefits to masses and effects on social developments and economic growth.

The report also mentioned that studies show that increased internet usage contributes positively to country’s economic growth quoting World Bank analysis that indicated that for every 10 percent increase in the penetration of broadband services, there is an increase in economic growth of 1.3 percentage points, which was proved in 120 countries.

tax rates telecom sector pakistan

SBP believes heavy taxation on mobile services in Pakistan does not bode well for economic growth in the country.

This shows large untapped potential in the broadband segment. Other issues such as quality of services, complex price structure, and high charges of devices result in lower mobile and broadband usage.

From the perspective of mobile operators, high cost of entry, costlier devices, poor fixed line infrastructure, and taxation on imported equipment hinder the new investment necessary for the expansion of such services to the unserved areas of the country, SBP report mentioned.

The analysis is not different from what digital publishers and media have explained to policymakers repeatedly in the past six month. Now, the same has been highlighted by a highly competent and independent organization of the country and it should not fall on deaf ears.