High taxes on Pakistan’s telecoms industry has curbed uptake as well as usage of broadband services and left the country lagging behind its peers in the region, according to a report by the State Bank of Pakistan.

Mobile broadband penetration increased from about 10 per cent to 18.5 per cent last year, according to GSMA Intelligence, while the country’s internet penetration is only about 12 per cent, the report stated.

Despite having a fairly high mobile penetration rate of 65 per cent, “the share of broadband mobile users in Pakistan is still low”, the bank’s report said, noting there is a large, untapped potential in the broadband segment.

The quarterly report summarised the tax regime the industry faces: 19.5 per cent GST and 14 per cent withholding tax on mobile services; custom duty of PKR250 ($2.35) on handset imports; 19.5 per cent tax on broadband internet services exceeding 2Mb/s in Punjab; 18 per cent tax on broadband bills over PKR1,500 in Sindh; 10 per cent duty on equipment imports used for voice reception, switching and routing of data; and a corporate tax of 32 per cent.

The report, which covers the July-September period, pointed out that the country’s tax rate (VAT or GST) for operators was the second highest compared with Bangladesh, Egypt, India and Turkey. Pakistan also had the highest corporate tax rate for telecoms operators among the five countries.

The bank noted that the government’s new telecoms policy does not properly address the industry’s concerns about high taxes, Express Tribune reported.

The report reinforces the findings of a committee set up by the Ministry of Information Technology that showed that the high tax burden slowed revenue growth and hampered the government’s effort to hold a 3G/4G spectrum auction.

Moves to cut taxes
The committee proposed a tax relief package for the sector, which struggled last year with declining revenue after the government raised taxes and introduced a number of new levies.

Three mobile operators — Mobilink, Telenor and Warid — earlier this week united in urging the government to drop a proposal to impose sales tax on SIM cards and handsets. The Federal Board of Revenue has proposed introducing a tax on the import and supply of SIM cards, ProPakistani reported. The country already taxes the import and supply of handsets.

Despite the heavy burden, operators’ data revenue expanded more than threefold over the last five years and now accounts for a quarter of total turnover, the Pakistan Telecommunication Authority said.