Next govt urged to cut telecom taxation, facilitate investment

ISLAMABAD: The Pakistan Business Council (PBC) has recommended that the incoming government should reduce the incidence of taxation on all facets of connectivity and remove impediments to further investment in telecommunications.

In its report, Agenda for the Incoming Government, the PBC stated that in a rapidly evolving digital world, Pakistan needs to reposition itself in the global economy in which cheap labour will not be a sustainable competitive advantage.

The key building blocks for future-proofing are: Stronger education foundation, starting with the school curriculum in Science, Technology, Engineering and Mathematics (STEM); Strengthen higher education in technology along the model of the Indian Institute of Technology; Enable nationwide e-connectivity through affordable high-speed internet to facilitate e-commerce, digital banking, e-schooling, software development and IT enabled services; Reduce the incidence of taxation on all facets of connectivity and remove impediments to further investment in telecommunications; Establish IT parks to clusterise IT talent and develop specialisation streams; Automate manufacturing through artificial intelligence and internet of things; Invest in innovation especially in medical/ diagnostic devices and agriculture to address healthcare and food security; Build bridges between Defence and Civilian technology and between business and academia in research, focused primarily on import substitution and exports; Public Private venture capital fund focused on funding digital innovation; Render manpower suitable for an ageing world, develop and export skills in healthcare, care of the elderly, hospitality, IT development etc., digitize the government to accelerate the adoption of technology; Deploy digitization to formalise the economy and reduce the use of cash; Rapidly grow Raast P2M to emulate the success of UPI in India.

In a bid to help formalise the economy, telecom industry leaders including Aamir Ibrahim, CEO of Jazz and chairman of the Telecom Operators Association of Pakistan, in his recent tweet have underscored the urgency of these reforms, crucial for improving access to education, healthcare, finance, and other essential services for the people of Pakistan.

Highlighting the successful implementation of the reduced General Sales Tax (GST) at eateries in Islamabad, Aamir advocates for nationwide incentives to drive the digitalization of payments, contributing to the formalization of economy. Despite the impressive surge in the adoption of digital payments, a substantial proportion of transactions in the country still relies on cash. Globally, numerous examples showcase that transitioning to a cashless system not only expands the size of the formal economy in various countries but also leads to an increased tax net and a boost in financial inclusion.

To foster widespread broadband adoption, particularly among low-income groups, Aamir proposes the rationalisation of Withholding Tax (WHT) from 15pc to 8pc, aiming to make essential telecom/internet services more affordable, aligning with the vision outlined in the Finance Act 2021. Presently, a 34.5pc tax burden affects over 190 million telecom users in Pakistan, including 15pc WHT and 19.5pc GST, positioning the country as one of the most heavily taxed telecom markets worldwide, hindering government efforts towards digitalization and overall economic growth.

He also advocated for reduction in levies and duties on productivity tools, including smartphones and laptops, while emphasising importance of prioritizing local manufacturing of 4G-enabled devices. Additionally, he called for the implementation of a ban on the import and local manufacturing of 2G-only handsets.

As per data from the Pakistan Telecommunication Authority (PTA) website, since 2019, over 90 million handsets have been assembled or manufactured locally in Pakistan, with only 30pc being smartphones. Notably, as of November 2023, approximately 42pc of handsets on Pakistani mobile networks remain 2G-only, representing a substantial portion of the population yet to experience the transformative potential of mobile broadband.

These comprehensive reforms have the potential to invigorate the local technology industry, spur innovation, and improve the affordability and accessibility of advanced technological devices for the people of Pakistan.