Poor government policies, high taxes ruining telecom sector

Poor government policies, high taxes ruining telecom sector

According to global mobile industry association GMSA, there is a profound threat to Pakistan not been realized as a digital country with current market failures and fluctuating environment. Not just this, but an increase in impact of macroeconomic development is leading to pose more harm.

In a latest report on Pakistan “Making digital Pakistan a reality” the average mobile ARPU is now below $1 in Pakistan while across the world the average is $8.

Since the flood has affected the economic conditions badly and annual inflation rose to 27% in August 22 (highest level in 47 years) which caused irregularities in food supply chain and global monetary conditions.

This has caused a decline in the growth of telecom industry as the depreciation of currency and high energy prices effected the consumers spending and rising operating cost.

According to a recent survey, two mobile operating companies reportedly bore a combined loss of Rs50 billion each of them bearing a loss of 226 million. During H12022, while Jazz has reported four consecutive quarters of negative growth for foreign investors in US dollars.

Pakistan, according to statistics lags far behind it’s peers in South Asia in several indicators for mobile internet adoption and usage.

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Pakistan is known to have imposed the highest taxes on service providers, consumer devices and services in Pakistan. It is reported that 15% advance income tax and 19.5 % percent sales tax is imposed on mobile services which is serving as a hurdle in digital inclusion of low income households. Policymaker should address this concern to ensure the greater inclusion of common population.

Moreover, according to finance bill 2022, an increment of 10 percent on import of optical fibers has further aggravated the issue so it should be reversed.

In view of challenging operational environment, including forex and inflationary headwinds policymakers should consider making following amendments

Review and freeze the forex rate for licence-fee payment to mitigate currency risk and remove uncertainty in business planning.
Stagger licence-fee instalments over 10 years to provide the much-needed fiscal space and ease cash-flow pressures.
Review policy-mandated levies, such as universal service funds (USFs) and research and development (R&D) contributions, and consider a moratorium on the rollout and quality-of-service obligations.

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