The global mobile industry association, called GSMA, has proposed that the withholding tax on essential telecom services in Pakistan should be brought down from 15% to 8% in the federal budget for 2022-23 in order to improve the affordability of mobile services, especially for the lower income segment.

In a letter written to the Federal Board of Revenue (FBR), the GSMA has suggested tax reforms to facilitate access and the use of mobile services by the low-income households.

“The AIT (advance income tax) rate, increased through the mini-budget, should be repealed with gradual abolition. Currently, 193 million cellular subscribers in Pakistan are subjected to exorbitant taxes of 34.5% including 19.5% sales tax and 15% withholding tax,” the global body said.

The association called it a regressive taxation regime, which was a barrier to the digital inclusion for the low-income households. “Removal of sector-specific consumer taxes will accelerate digital inclusion by facilitating access and the use of mobile services.”

Such a reduction in consumer taxes would generate higher government tax revenue and gross domestic product (GDP) in the medium term through the expansion of the mobile sector and induced growth in productivity, the letter quoted the GSMA as saying.

Moreover, the industry body pointed out, the AIT was particularly regressive given many users on low income were not required to, and did not, file tax returns and therefore were unable to claim the tax back.

“The application of this tax to the entire telecom subscriber base only disproportionately adds to the cost of mobile ownership for the poorer individuals and further deepens the gap in mobile ownership and usage.”

GSMA said the tax contribution of the mobile sector in Pakistan remained considerably higher than the average for Asia and other regional averages, which constrained the mobile operators’ ability to invest in connectivity, as well as the availability and affordability of mobile services for the consumers.

In 2020, the total tax contribution by the mobile sector amounted to Rs170 billion ($1.1 billion), equivalent to 38% of the sector’s revenues. Furthermore, it is substantially higher than the Asia-Pacific average (24%) and the global average (22%).

Over the past decade, the mobile sector in Pakistan has expanded rapidly, enabling life-enhancing benefits such as financial inclusion via mobile money, access to educational resources and connected businesses.

As highlighted by the prime minister’s Digital Pakistan Vision, the mobile sector plays a critical role in the development of the country’s economy and its digital transition.

However, there remains a significant unconnected population in terms of unique subscribers.

GSMA estimates that about half of Pakistan’s population (43% unique-subscriber penetration) remains unconnected to a mobile network and only 30% population (unique penetration) are using mobile internet services, which is lower than the average in South Asia.

“A conducive regulatory environment, especially the tax framework, is required to accelerate the digital transformation and maximise the benefits of connectivity,” it said in the letter.­­

Published in The Express Tribune, May 22nd, 2022.

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