Telecom Industry Warns New Budget Taxes on Phones, Services Will Hamper Digital Progress

The telecom industry raised alarms over the proposed imposition of taxes on mobile handsets and telecom services in the country. The recently proposed budget for the fiscal year 2024-25 includes an 18 percent GST on mobile phones valued under $500 and a 25 percent tax on phones over $500.

Telecom operators argue that these new taxes will hamper digital progress and exacerbate the digital divide in the country as a majority of the population is unable to afford the high cost of connectivity.

Affordability remains one of the primary causes of the digital divide in Pakistan, where 20 percent of the population still lacks any connectivity and about half of the population lacks access to mobile broadband due to high cost.

In addition to the GST on mobile phones, the government has also proposed a whopping 75 percent withholding tax on telecom services for non-filers. The withholding tax, currently at 15 percent, was previously reduced to 10 percent with a promise to decrease it to eight percent in subsequent years, as per the Finance Act, 2021. However, this reduction was reversed in the Finance Supplementary Act, 2021, reinstating the tax to 15 percent.

While expressing concerns over the budget 2024-25 proposals, the Telecom Operators’ Association stated that the exacerbated taxes on telecom services and smartphones will make these essential services even more unaffordable for Pakistanis.

The operators cautioned that the measures will further widen the digital divide and negatively impact the lives and livelihoods of millions.

Furthermore, telecom operators have warned that the newly proposed telecom and phone taxes in the latest budget will discourage foreign direct investment (FDI) rather than attract it.
“We have seen two major telecom players exit the Pakistani market over the past decade, yet it shocks us that the government hasn’t learned anything from these unfortunate FDI exits,” the Telecom Operators’ Association stated.

“The telecom sector of Pakistan, which has already been one of the highest taxed global telecom markets, is being treated as a low-hanging fruit to make quick cash, which is quite distressing and damaging for the country’s digital agenda.”

The association highlighted that the telecom sector, one of the country’s largest economic contributors, has invested over $20 billion in Pakistan and has been indispensable for the country’s digital progress. It stressed that telecom services are pivotal for making the Digital Pakistan dream a reality, but sadly, this hard fact fails to register with the government and policymakers.

The telecom companies also expressed grave concerns over the government’s decision to penalize operators who fail to adhere to the new directives.

According to the Income Tax General Order, the Federal Board of Revenue (FBR) was instructed to penalize implementing agencies that do not block SIMs or mobile phones, fail to disconnect utility connections or comply with the newly introduced bar on foreign travel, with a penalty of Rs. 100 million on the first default and Rs. 200 million for each subsequent default.

“Besides being detrimental to FDI and digitalization, the new taxes and punitive measures are completely unworkable for operators because the local telecom infrastructure cannot support the proposed deductions,” the operators stated.

The telecom industry, which has been demanding either the complete abolishment or reduction of the withholding tax for a long time, is furious over the new tax proposal, calling it akin to killing the country’s digital agenda.

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