ISLAMABAD: The Global System Mobile Association (GSMA) on Thursday urged the government to reduce sales taxes and abolish Rs250 SIM tax to enable more consumers to access mobile services.

At an event to discuss problems faced by the telecom sector caused by excessive taxation, a report prepared by GSMA titled ‘Country Overview: Pakistan A digital future’ was also shared.

GSMA emphasised in the report that high consumer taxes mean the poorest Pakistanis are unable to afford mobile broadband. GSMA, which represents the interests of mobile operators’ worldwide, gave three core recommendations — reduce sales tax/FED on mobile from 19.5 per cent to 17pc, abolish SIM tax and reduce withholding tax on mobile to 12pc.

Participants observed that only 47pc of the population subscribes to mobile services and only 10pc subscribe to 3G and 4G data services.

Spread on more than 80 pages, the report describes Pakistan as a country with the second highest tax rates on mobile devices and telecom services compared with a dozen Asian nations. With 19pc sales taxes/VAT, Pakistan is second to Uzbekistan, with 20pc sales tax/VAT on mobile devices and telecom services. Sales tax/VAT in Bangladesh is 15pc, 14pc in India, and 11pc in China, said the GSMA report.

More than half of the report is critical of the heavy taxation on the mobile sector, which eventually hurts mobile subscribers more.

According to GSMA, the government collected the highest rates of withholding tax from mobile telephony and internet services at 14pc, compared with the petroleum sector which pays 12pc withholding tax.

The report said that mobile subscribers in Pakistan are affected by taxes that apply to devices, SIM cards and usage charges. These taxes are especially likely to affect the prices paid by consumers and may have a particularly strong effect on the poorest consumers. Many of these taxes are sector-specific or have higher rates for the mobile sector than other sectors of the economy.

The report said that customs duty on handsets is applied at a flat rate of Rs250. In the last three years, sales tax charges on handsets increased from Rs150, Rs250 and Rs500 (depending on handset features) to Rs300 and Rs1,000 and Rs1,500. “Total taxes could amount to over a third of a handset’s import cost.

Similarly, not only did consumers had to pay sales tax, value addition tax and custom duty every time they bought a new device, subscribers are also charged sales tax and withholding tax separately while making calls and sending text messages. Users paid separate taxes for mobile broadband services. Customers also paid additional sales and withholding taxes when transferring money using mobile services.

Speaking at the event, GSMA Public Policy Manager - Asia Pacific, Henry Parker said a key factor is that government taxes presently account for 31pc of the total cost of acquiring and using a mobile, pushing the prices beyond the reach of many.

“Mobile broadband is growing in Pakistan. The government is rightly investing in new networks in rural areas. However, all citizens must be able to use these networks. Introducing just one reform, such as reducing sales tax/FED could deliver $2.8 billion in additional GDP growth by 2021,” Mr Parker added.

Published in Dawn, March 17th, 2017