THE government has increased tax on mobile connectivity and the internet by 50 per cent, as well as on advanced mobile phone sets through the mini budget. The latter was passed by the PTI-led government in accordance with the IMF’s demands to qualify for the Fund’s loan. This move will impact the poor most, stunt digital progress, impact IT exports, reduce the potential competitiveness of Pakistanis in an increasingly competitive digital world, and further widen the gender gap in the use of mobiles and the internet.

The Finance (Supplementary Act), 2022, passed in January brought in a mini budget with the aim of raising Rs350 billion from mostly poor citizens through indirect taxation on telecom services and withdrawal of GST exemptions. Indirect taxes are regressive as the poor end up paying a way larger percentage of their income as compared to the wealthy for whom a small increment in tax is negligible.

As per the Pakistan Telecommunication Authority, there are 189 million cellular subscribers which comes to a tele-density of 85.49pc, though the PTA data does not account for the multiple connections held by a single user, which is a common practice. Of this, there are 108m 3G/4G subscribers, which translates to 49.04pc mobile internet penetration in Pakistan. Contrast this with the taxation statistics in the country. Less than 2pc out of the 6pc Pakistanis who have registered tax numbers, file income tax returns, which means that most mobile phone subscribers cannot claim rebates on withholding tax paid on mobile phone bills. Despite the PTI government’s promise in the last budget to decrease the 10pc tax on telecom services, it increased the rate to 15pc last month.

How do proportionately higher taxes on cheaper mobile phones make sense?

Additionally, the tax on advanced higher-end mobile phones has also increased disproportionately. Imported phones with advanced technology and the latest features have seen the already high taxes on them double this year.

What is most unfair is that the tax on the lower spectrum of imported phones is proportionately higher than the tax rate imposed on the most expensive ones. For instance, the tax on a mobile phone costing $100 to $200 (Rs17,500 to Rs35,000) has been increased from Rs11,500 to Rs25,000, while the tax on a mobile phone costing more than $500 (Rs87,600) has increased from Rs46,500 to Rs85,500. How does a higher proportion of tax on a cheaper mobile phone, as compared to a more expensive one, make sense?

Mobile phones cannot be considered luxury items anymore, considering how common they are. Mobile phones with more advanced technology may be a necessity for certain jobs or professions; taxing them further is akin to discouraging citizens from adopting more advanced technology that can aid their professional growth. Young and older people alike save for months and years to purchase a good quality mobile phone or computer, but in Digital Pakistan, they seem to be the target population for revenue collection; not the billionaire agriculturalists and the wealthy real estate tycoons who live in extreme luxury.

According to the UNDP’s National Human Development Report 2020, the Pakistani elite enjoyed privileges worth Rs2,660bn (equivalent to 7pc of the country’s GDP) in 2017-18, led by the corporate sector, the feudal class, exporters and the military establishment. The privileges came in the form of favourable pricing, lower taxation and preferential access. It is from the groups mentioned that tax should be sought by the government rather than from the poorest of its citizens.

Such taxes impact women and girls more than men and boys. Pakistan has the widest gender digital gap in the region. According to Unicef, internet usage by girls is a quarter of that of boys, and phone ownership is 30pc higher in the latter category. Higher taxes mean disproportionately fewer girls and women will have access to mobile phones and the internet, including their associated benefits.

The lockdowns in the past two years due to the Covid-19 pandemic have demonstrated the necessity of mobile phone and internet connectivity for the population. From online classes to remote doctors’ appointments, technology helped bridge the gap. But inequality of the kind that is exacerbated by taxes that the government has increased meant that only the more privileged could access these services, and this led to more students from lower-income households dropping out of school and missing out on education.

The importance of connectivity can especially not be undermined for the millions of migrant workers who rely on their phones to stay connected to their loved ones, or for those seeking access to entertainment that technology enables when mobility and access to entertainment venues is limited due to geography, curfews, lockdowns and poverty.

Access to quality and affordable mobile phone and internet connectivity also means that Pakistan’s IT sector can see a further boom and exports can increase. IT exports rose by 39pc to more than $830m in July to October 2021; Pakistan is the fourth fastest-growing market for freelancers, who rely on better technology and affordable internet to succeed. These taxes impact such exports exponentially.

The GSMA, which represents the global mobile industry association and supports countries transitioning to a digital economy, has written to Pakistan’s finance minister, its IT minister and the PTA chairperson, to register its concern over the increase in tax. In its letter, it said: “The telecommunication sector is a key enabler for social and economic growth and Pakistan’s mobile market has significant potential, but current levels of mobile internet adoption, smartphone take-up and usage of digital services lag behind those of other countries in the region by 2023.”

If the government is serious about benefiting the poor, a successful Digital Pakistan, increasing exports and making the country globally competitive, such regressive taxes must be reduced immediately. Instead, the subsidies and privileges accorded to elite interest groups in excessive and unnecessary amounts must be withdrawn for a just and equitable tax and revenue collection system. The poor’s hard work must not pay for elite privileges, and their connectivity should be encouraged.

The writer is director of Bolo Bhi, an advocacy forum for digital rights.

usama@bolobhi.org

Twitter: @UsamaKhilji

Published in Dawn, February 12th, 2022