In the face of economic challenges, including foreign exchange fluctuations and rising inflation, the GSMA has urged policymakers in Pakistan to implement several critical measures to support the telecom sector. These recommendations include reviewing and stabilizing the forex rate for license-fee payments to reduce currency risk and facilitate business planning, extending the payment period for license fees to 10 years to alleviate fiscal pressures, and removing sales tax on affordable mobile phones to encourage long-term growth in the sector.

These recommendations are detailed in the GSMA report, “Realising Pakistan’s Aspiration to Become a Digital Nation,” launched at the Digital Nation Summit in Islamabad. The report highlights that taxes on service providers, consumer devices, and services in Pakistan rank among the highest globally, which hinders network investment and disproportionately impacts the most vulnerable populations.

The report emphasizes Pakistan’s potential to unlock significant economic growth through accelerated digital transformation. It recognizes the country’s progress in mobile connectivity and smartphone adoption while outlining the steps needed to fully realize these benefits for its citizens. However, achieving these goals will require substantial reforms.

One key issue identified is the high taxation on essential telecom services, including a 15% Advance Income Tax (AIT) and a 19.5% sales tax on mobile services. These taxes create significant barriers to digital inclusion, particularly for low-income households. The recently passed Pakistan Finance Bill has further complicated the situation by imposing sales tax on low-cost mobile handsets and a hefty advance tax on telecom services for certain taxpayers, while also requiring mobile network operators to disconnect services for non-compliant users.

To avoid undermining digital inclusion and access, the GSMA recommends removing the sales tax on affordable mobile phones and reducing the advance tax on telecom services to encourage wider adoption. By introducing incentives and educational programs, the government can also promote voluntary tax compliance. Additionally, exploring alternative revenue streams could support the growth of the digital economy without compromising essential services.

As Pakistan prepares for a 5G spectrum auction scheduled for early 2025, the report stresses the importance of adopting a sustainable approach to spectrum pricing. Currently, the spectrum cost in Pakistan is high, and the Average Revenue Per User (ARPU) has been declining. Therefore, a rational pricing strategy is crucial to ensure that operators can invest in network expansion, deliver affordable connectivity, and bridge the digital divide.

Another concern is the practice of denominating spectrum costs in US dollars, which exposes operators to significant currency devaluation risks. The depreciation of the local currency leads to higher spectrum fees when converted to US dollars, complicating business planning and affecting revenues and consumer prices. Policymakers are urged to consider denominating spectrum payments in local currency, aligning costs with the operators’ local revenue streams.

The report also highlights the uneven adoption of smartphones across regions, which risks leaving large segments of the population without internet access. While smartphones are the primary means of accessing the internet, they remain unaffordable for many. The government has introduced a smartphone financing policy aimed at improving access for lower-income groups by offering installment-based financing options, although this policy is still awaiting cabinet approval. Despite these efforts, more needs to be done to increase smartphone adoption and affordability across all regions and demographics.

The GSMA also raises concerns about the negative impact of Service Restrictions Orders (SROs) in Pakistan. Such restrictions violate individual rights, disrupt businesses, and damage the country’s reputation in managing its economy and attracting foreign investment. Instead, the GSMA advocates for initiatives like the “Always-on Network Service” (AONS), which ensures accessibility for critical mobile applications, such as financial services and emergency communications, even during network shutdowns. The AONS project has already seen success in trials, with JazzCash remaining operational during a network shutdown for Moharram, allowing over 5,000 users to complete transactions.

In conclusion, the GSMA’s report outlines a clear path for Pakistan to achieve its digital transformation goals, but it emphasizes the need for strategic reforms and supportive policies to ensure that the benefits of digital connectivity are accessible to all citizens.