ADB flags high digital taxes, unfriendly analog tax processes
The bank in its latest report, 'Pakistan's Digital Ecosystem' recommended the government to rationalise all digital infrastructure taxes, making them competitive against a basket of countries, and fix sector tax rates for at least 10 years, besides fix future spectrum floor prices and de-link the prices from the US dollar.
The cost of service provision exacerbates the digital divide, especially for women and marginalised groups, who face asymmetric cost and cultural barriers to accessing the internet.
Pakistan's tax-to-GDP ratio lags due to narrow tax net, informal economy: ADB
By harnessing digital technologies, the government can drive sustainable economic growth, increase the tax-to-gross domestic product (GDP) ratio, grow exports, boost foreign direct investment, enhance social services, and improve governance, all while reducing costs and increasing efficiency.
Pakistan's digital sector directly contributes 1.5per cent to Pakistan's nominal GDP, driving growth, innovation, and societal development; reducing disparities; and unlocking opportunities for societal advancement. The indirect contributions of digital technology to all the other sectors of the economy are also significant, the bank added.
Pakistan's adoption of new emerging communication technologies has been slow, leading to delayed transitions between technology generations, as happened at the time of the introduction of 3G.
Pakistan's digital infrastructure faces a major challenge from high taxation. Taxes on this sector, both federal and provincial, are some of the highest globally and regionally, and the tax policies tend not to be very consistent, the bank added.
Mobile operators contend that, with the lowest-in-the-world average revenue per user (ARPU), exorbitantly high taxes, low adoption of 4G/smartphones, and multiple other outstanding sector issues, it will be extremely challenging to convince their parent companies to invest in 5G roll out in Pakistan, the report noted.
Since the beginning of 2021, three successive governments announced that they would organise spectrum auctions to sell a large amount of spectrum for 5G, but none of those announcements came to fruition. It may be noted that the MNOs fear that with the release of more spectrum, they will be pressured to launch 5G services.
The telecom sector's spectrum allocation and pricing are inefficient and uncompetitive, limiting the quality and coverage of mobile services. The spectrum auction starting prices and commercial conditions need to be reasonable and attractive for operators. This would facilitate the timely and cost-effective launch of 5G technology and enable new applications and innovations in the digital economy.
Other challenges for digital infrastructure include power shortages and frequent internet shutdowns. Although the provinces charge a 19.5per cent general sales tax (GST) on broadband services, they do not even help create demand for internet access, which could stimulate new private sector investments on the supply side.
Mobile internet coverage is available to over 80 per cent of the population; the rest live in geographically challenging areas. The gender gap in mobile ownership in Pakistan (86per cent men vs 53per cent women) and in internet access (53per cent vs 33 per cent) is significant.
The bank stated that Pakistan faces challenges in implementing e-government initiatives because of the absence of a long-term strategy and a policy framework that ensures continuity, policy evaluation, data driven monitoring, system integration, data management, and cybersecurity.
The institutional governance framework for the ICT sector lacks coherence and coordination, thus preventing adequate responsiveness to evolving sectoral needs. Comprehensive investment programs for digital public infrastructure are missing. Missed opportunities are particularly notable in revenue collection, public expenditure operations, and the integration and processing of digital payments across the government.
The telecom sector in Pakistan has experienced a decline in revenues and foreign investment, which reflects a very challenging business environment. A renewed focus is needed by the government on engaging with investors and industry stakeholders to address their concerns and provide incentives and facilitation to invest and operate in the country. This would also help to revive not only telecom sector but also every other sector, as telecom acts as an enabler for others.
The telecom sector lacks an influential association that can shape policy through dialogue, reliable research, or collaboration. The telecom sector is crucial for data communication, creation, and transmission, and for new technologies like 5G that can enable all other sectors to develop.
However, the telecom operators, while often highlighting a difficult business climate, do not have a significant influence on strategic regulatory development despite being a high tax contributing segment.
The bank has recommended for establishing a predictable policy framework that encourages private investment in digital public infrastructure. The rules and regulations that operationalize policies and regulate digital businesses need to support innovation and competition.
Provinces need to generate demand by subscribing to fiber broadband for schools and hospitals to boost digitalisation in the education and health sectors, which are provincial subjects. With those 'anchor customers,' internet service providers (ISPs) will be able to invest in fiber connections for businesses and households, it added.
Promote local manufacturing of smartphones, as against 'dumb' (2G) phones, through a well-conceived set of incentives for private sector and foreign direct investment (FDI), the bank recommended.
Create a robust enabling legal and regulatory framework for development and implementation of public–private partnerships (PPPs) for digital infrastructure. Such programmes must be restricted to 'open access' digital infrastructure (i.e., the infrastructure so built must be available to all service providers without any discrimination).
Copyright Business Recorder, 2025
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