If Digitalization is the Way, Telecommunication is the Vehicle

We explore the era of digitalization. Gartner’s glossary defines it as using digital technology to alter, disrupt and create new opportunities for revenue and value.

It covers business optimization with global connectivity, inclusivity, and ease of lifestyle, enabling individuals and businesses efficiency of processes and time.

Ironically the event (Covid19) that introduced social distancing also created a speedy global connection through online highways. Businesses found Teams and Zoom to be the new board room, and families moved to the WhatsApp video lounges to stay connected. Schools created a virtual classroom, and work-from-home (WFH) became the new office functionality.

Enabling this massive paradigm shift was the reasonably smaller, portable, savvy device that a substantial population had access to – a smartphone.  Those who had regular mobile phones switched to smart ones to stay connected in the workspace with the world. Even those who didn’t switch realized that the cell phone was no longer a communication or entertainment product it was a lifeline, and in being so, it also became an enabler of almost all industries for meetings, decision-making, and data analysis.

Then came the developments regarding big data, coding, enhanced features, financial inclusivity, wallets, shopping, and connectivity through apps, and overnight a cell phone with internet transformed into a home/office/market space that the whole world lived in.

A kind of new planet called the Digital World emerged that had no geographical or ethnical boundaries and where only meritocracy determined success, where distance was measured in exact seconds that it took for the algorithm to match the request, and where the impact was far stronger than any previously non-digital verse.

The globe took to this new ride, and national economies became dependent on this drive.

Pakistan is a developing country with a challenged economy, and even while its teledensity stands at 82.08% with 194 million subscribers, smartphone users stand at 125 million broadband users. This data needs to improve.

The smart cell phone has become essential to survival, especially if you need to combine it with success and growth. Nations that ensured the deeper penetration of this technology saw greater good than the ones who deliberated over determining the impact.

Unfortunately, Pakistan falls in the latter category. A nation that has yet to come to terms with the paradigm shift and where a smartphone is still being looked at as a luxury.

Pakistan’s telecommunication industry has five major players: Pakistan Mobile Telecommunication Limited (Jazz), Telenor Pakistan (Telenor), China Mobile Pakistan Limited (Zong), Pakistan Telecom Communication Limited (Ufone), and Special Communication Organization SCO.

With five main players and the availability of smart models, what stands in the way of the digital revolution in Pakistan is invariably the taxation policy that has taken too many turns and is not always in the interest of the nation or economy.

Looking at the bursting 240 million population, a natural assumption is for ground-breaking profits by the operators but do be prepared for the shock when you review the Pakistan data for the Average Revenue per User (ARPU), which stands at less than USD 1, placing Pakistan at the lowest rung in comparison with many countries. And this is a sharp drop from USD 9 in 2004 when Pakistan did not even have 3G or 4G.

In contrast, General Sales Tax (GST), commonly known as Value Added Tax (VAT) at 19.5%, and an additional Withholding Tax (WHT) at 15 % is levied on the telecom industry. For example, WHT is only charged on license and spectrum fees all over, and never on consumers yet, is that not the case here?

With the rising inflation, more than half of the population is now sinking below the poverty line and is inaccessible to the tax threshold. This automatically complicates the case, and then combined with corporate tax at 34%, the landscape is worrisome, with Pakistan having one of the highest tax rates on consumers.

The government increased telecom taxes in the mini-budget at the start of the fiscal year. The main budget is around the corner, and unless sharp repositioning is done, the telecom players may wish to reduce their footprint, creating a decline in communication and internet penetration, ruining the international image of the country for other investors, and most of all bringing around massive unemployment in the wake.

Ideally, withholding tax (AIT) on Telecom Services should be reverted to the earlier decision of 8% – 10% for future years, as per the previous budget. In fact, OICCI, in their recent budget proposal, recommended the same “Rate of withholding tax on subscribers should be abolished completely as a majority of the subscriber’s base falls below the taxable limit or the withholding tax reduction made through Finance Act, 2021 should be reinstated, i.e., 8 percent effective Fiscal Year 2023.”

An argument in favor of recalibrating our approach towards what is now essential for growth is in order. The telecommunication industry has to be placed alongside Food, Pharmaceutical, Power, and Technology as not only essential but the enabling industry to support and facilitate, expediting growth, export, and education. Reversibly, the benefits of low taxation can bring increased affordability, improved connectivity, and penetration can expedite growth and investment, leading to inclusion and social development.

It is easy to translate all this into prosperity with innovation and entrepreneurship, job creation, economic diversification, and the development of knowledge-based industries.

Pakistan’s economic, educational, and logistic challenges stand to gain many solutions from fully immersing in the digital world. And for that, we have to acknowledge the life-enabling status of telecommunication. Pakistan has to take a deep dive into the opportunities for digital inclusion for social development, innovation, entrepreneurship, efficiency, transparency, education, and employment opportunities and construct an international image where most of its citizens are globally connected and are part of the growing economy.

This article is written by Shaha Tariq. Shaha Tariq is an educationist, content strategist, and storyteller. She tweets @Shahajamshed.

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