Home »Taxation » Pakistan » Telecom sector: GSMA expects some major changes in tax policy

  • News Desk
  • Mar 17th, 2017
  • Comments Off on Telecom sector: GSMA expects some major changes in tax policy
Global Mobile Association (GSMA) is expecting some major changes in tax policy for the telecom sector in the coming budget (2017-18) after holding meeting with Federal Board of Revenue (FBR) on budget proposals for next fiscal year.

At an event organized by Global Mobile Association (GSMA) in collaboration with PRIME here on Thursday, the GSMA has collectively raised voice over heavy taxation on cellular companies, which further hampered investment in telecom sector due to flawed tax polices, discriminatory tax treatments and excessive taxation.

The GSMA set out a number of measures that Pakistan will need to take in order to close the digital divide in the country and reach its Vision 2025 goals. In a white paper prepared by GSMA Intelligence, supported by Deloitte, it identified that only 47 per cent of the population subscribe to a mobile service, and only 10 per cent subscribe to a 3G or 4G data service.

Despite the government's intentions laid out in Vision 2025, it is forecast that the total number of mobile subscribers will only grow by 5 per cent by 2020. More worryingly, in a country where 99 per cent of people rely on mobile to access the internet, up to 48 per cent of Pakistanis is expected to be without a mobile subscription in 2020.

A key reason is affordability. In a recent survey of 1000 Pakistanis, 57 per cent who own phones, but don't connect to the internet, said the main reason was that smartphones are too expensive. 42 per cent said the cost of a data plan was a major inhibitor. For the poorest 20 per cent, owning and using a mobile might cost as much as 20 per cent of their annual income. Government has a major role to play in addressing this problem since 31 per cent of the total costs of acquiring and using a mobile are accounted for by taxes levied by it.

"Mobile Broadband is growing in Pakistan, and the government is rightly investing in new networks in rural areas," said Henry Parker, Public Policy Manager, Asia Pacific, GSMA. "However, all citizens must be able to afford to use these networks. Today many cannot. Prices in Pakistan are already some of the lowest in the world. So to boost uptake, Government must relieve some of the tax burden it imposes on consumers in the upcoming budget."

The GSMA has made three core recommendations for consideration as part of the upcoming budget. All of them aim to ensure that mobile usage is taxed in the same way as other goods and services, and that mobile is not singled out for high rates as if it were a 'luxury':

Reduce sales tax/FED on mobile to 17%

Currently sales tax and federal excise duty (FED) are charged at higher rates (18.5-19.5 per cent) for mobile services than others. The rates should be harmonised at 17 per cent. This would help to make services and phones more affordable for all levels of society.

Abolish the SIM Tax.

The PKR 250 SIM Tax places a cost barrier in the way of acquiring a mobile that is imposed regardless of ability to pay. It should be abolished.

Reduce Withholding Tax on Mobile to 12%

Mobile consumers pay more withholding tax than consumers in any other sector. Many cannot reclaim what they pay as they don't file a tax return. This tax makes mobile less affordable for the poorest in society. It should be reduced and reformed.

"This package of measures isn't just good for Pakistani consumers, it would be good for the economy as well. There is a well-defined link between increased investment, GDP and job creation through wider user of mobile and investment in networks. Introducing just one reform, such as reducing sales tax/FED could deliver US$2.8 billion in additional GDP growth by 2021".

The current treatment of the mobile sector in Pakistan, including higher taxes and fees, may reduce affordability and lead to inefficient investment decisions and reduced returns on investment, besides creating potential issues arising from the complexity and frequent changes of the tax regime as well as uncertain business climate, maintained in GSMA report.

The mobile industry recognises that its fiscal contribution remains critical to financing public expenditure in Pakistan. However, the current treatment of the mobile sector may be limiting growth in connectivity that could not support each of the seven pillars of the Vision 2025 strategy, said the GSMA report 'Current Overview: Pakistan, a Digital Future,'.

The report said that mobile penetration and internet usage in Pakistan are notably lower than other comparable markets, and a key factor in this regard is taxation, which may impact on consumers and wider mobile ecosystem.

Mobile subscribers in Pakistan are affected by taxes that apply to devices, SIM cards and usage charges. These taxes are especially likely to affect prices ultimately paid by consumers and may have a particularly strong effect on the poorest consumers. Many of these taxes are sector-specific or have higher rates for the mobile sector than other sectors of the economy.

The GSMA has forecast 90 percent 3G and 80 percent 4G coverage for Pakistan by 2020. Following heavy investment, 3G coverage reached 65% by the end of 2015, and by mid-2016, just under three quarters of the Pakistani population had access to 3G services. With continued investment - forecast to reach $2.8 billion over the next four years (not including any additional spectrum costs) - 90% of the population will be covered by the end of the decade.

With only two operators, 4G rollout has proceeded more slowly, reaching 18% of the population by mid-2016. However, with Mobilink acquiring Warid and Telenor beginning 4G rollout in August 2016, 4G coverage will rapidly increase to 80% of the population by 2020.

Prime Institute Senior Fellows Dr Ikramul Haq and Huzaima Bukhari spoke about the problems in tax policy relating to telecom sector, but also spoke how bad tax policies were detrimental to the survival and growth of other major productive sectors.

Haq observed that Pakistan's telecom sector was one of the highest taxed in the entire world.

Copyright Business Recorder, 2017


the author

Top
Close
Close