Poor Govt Policies, High Taxes Ruining Telecom Sector: GSMA

According to the Global Mobile Industry Association, the exacerbating effects of recent macroeconomic developments as well as the current market and regulatory environment pose a serious risk to the realization of Digital Pakistan (GSMA).

According to the Association’s most recent report on Pakistan, “Making Digital Pakistan a reality,” Pakistan now has one of the lowest aggregate mobile ARPUs in the world ($1), ranking below the global average of $8. In August 2022, annual inflation in Pakistan reached over 27 percent (the highest level in 47 years), due to disruptions in the food supply chain caused by floods and difficult monetary conditions worldwide.

The health of the industry’s economy is affected by the negative effects of inflation on consumer spending, which includes spending on telecom services, and by rising operating costs, which are partly brought on by currency depreciation and higher energy prices.

Two mobile operators reported a combined loss of about Rs. 50 billion ($226 million) in H1 2022, according to publicly available data, while Jazz reported four straight quarters of negative growth for foreign investors in US dollar terms.

These challenges come as Pakistan continues to lag behind its South Asian counterparts in a number of indicators for the adoption and usage of mobile internet. The country has a much larger coverage gap than its peers and a sizable usage gap, illuminating the extent of non-infrastructure barriers to the adoption and use of mobile internet.

According to the report, Pakistan has some of the highest taxes in the world on service providers, consumer electronics, and services. The affordability of network investment is frequently impacted by these taxes, some of which are sector-specific, and the most vulnerable are disproportionately affected. The 19.5 percent sales tax on mobile services and the 15 percent Advance Income Tax (AIT or withholding tax) on necessary telecom services, which impose additional barriers to digital inclusion for low-income households, should be gradually eliminated by policymakers.

In terms of the opportunity cost of the amount deposited, cash margins essentially raise the price of imports. In order to avoid endangering the current and future network rollout, the SBP’s requirement for a 100% cash margin on imports should be removed for telecom equipment. Batteries used in optical fiber equipment and renewable energy sources should also be exempt from customs taxes.

To support investment in fiber rollout, the Finance Bill 2022’s proposed increase in the regulatory duty on imported optical fiber from 10% to 20% should be reversed.

A three-year spectrum strategy for 2023 was unveiled by policymakers in 2020. Investors, however, are not given the necessary visibility due to the short duration. A clear, long-term roadmap of at least five years would increase the industry’s ability to secure funding for infrastructure rollout.

Additionally, since the operators must pay higher spectrum fees in US dollars as a result of the local currency’s depreciation, doing so exposes them to a significant risk of currency devaluation. The erratic value of the currency has an impact on business plans, which ultimately has an impact on company revenues and consumer retail prices.

Pakistani policymakers have the chance to advance Digital Pakistan’s development and build a solid base for 5G. In order to improve the financial health of the entire telecoms sector and the ability of industry players to invest and innovate, this can be done by implementing crucial reforms using a WGA. Particularly, the following areas demand immediate attention.

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