ISLAMABAD: For improving the affordability of mobile services and encourage the adoption of communication services, especially for lower income segments in Pakistan, the Global Mobile Industry Association (GSMA) has proposed the gradual abolishment of Advance Income Tax (AIT) on telecom services.

In a letter addressed to the finance minister, the Federal Board of Revenue (FBR) and the Minister for IT & Telecom Aminul Haq, the GSMA made key recommendations on tax reforms to accelerate the digital economy, including the reduction of AIT from 15 per cent to 8pc in the upcoming federal budget as envisaged in the Finance Act 2021, and repealing the increase in AIT rate made through the Finance (Supplementary Act) 2022.

The GSMA has said that mobile consumers face a high-level of sector-specific taxes in addition to general taxes.

There is a 19.5pc sales tax on mobile services, plus a 15pc AIT, which is among the highest in the region.

This creates additional barriers to digital inclusion, for low-income households. Removing sector specific consumer taxes would accelerate digital inclusion by facilitating access to and usage of mobile services.

The GSMA has said that a reduction in consumer taxes would generate higher government tax revenue and GDP in the medium term. This would result from the expansion of the mobile sector and the induced growth in productivity.

The international association has said that the AIT was particularly regressive given that many users on low income are not required to, and do not, file their tax returns and therefore are unable to claim the tax back.

“Therefore, the application of this tax to the entire telecom subscriber base only disproportionately adds to the cost of mobile ownership for poorer individuals and further deepens the gap in mobile ownership and usage,” the letter added.

It added that there was a significant unconnected population in terms of unique subscribers, and the GSMA estimates that around 43pc of Pakistan’s population remains unconnected to a mobile network and only 30pc of the population is using mobile internet services, which is lower than the average in South Asia.

The tax contribution of the mobile sector in Pakistan remains considerably higher than the average for Asia and other regional averages, which constrains mobile operators’ ability to invest in connectivity, as well as the availability and affordability of mobile services to consumers.

It added that in 2020, the total tax contribution of the mobile sector, amounted to Rs 170bn, equivalent to 38pc of mobile sector revenues.

But it was substantially higher than the Asia Pacific average of 24pc and the global average of 22pc.

The GSMA further highlights that the 100pc cash margin restriction on imports imposed by the State Bank of Pakistan on telecom equipment should be removed for telecom equipment, to avoid jeopardising current and future network roll-out.

It added that “custom duties” should be reduced on batteries used for telecom infrastructure to encourage green energy use. A conducive regulatory environment, especially the tax framework, is required to accelerate countries’ digital transformation and maximise the benefits of connectivity.

Published in Dawn, May 22nd, 2022