Poor government policies and high taxes are ruining the telecom sector: GSMA

Two mobile providers recorded a combined loss of over Rs. 50 billion ($226 million) in H1 2022, according to publicly accessible data, while Jazz reported four straight quarters of negative growth for foreign investors in US currency 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 survey, 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 fibre equipment and renewable energy sources should also be exempt from customs taxes.

To support investment in fibre rollout, the Finance Bill 2022’s proposed increase in the regulatory duty on imported optical fibre from 10% to 20% should be reversed.
2020 saw the release of a three-year spectrum strategy for 2023 by authorities. The brief term, however, does not give investors the essential visibility. A clear, lengthy roadmap of at least five years would give the sector more assurance in luring investors for infrastructure rollout.

Additionally, because local currency depreciation increases the spectrum fees paid in US dollars, denominating spectrum costs in US dollars exposes the operators to significant currency devaluation risk. Business plans are impacted by the unpredictability of currency values, which eventually has an impact on company revenues and consumer retail prices.
Because revenue is also produced in local currency, officials ought to think about denominating spectrum payments in that currency. Doing so would give operators more assurance.

In terms of energy prices, policymakers should work to put into practise the “industry” status given to the telecoms sector, considering the services a necessity rather than a luxury. Lower energy prices could enable operators to invest savings in network infrastructure and improve services. The Finance Bill 2021’s approval of the “industry” status will go a long way toward boosting investor confidence in local policies.
In view of the challenging operational environment, including forex and inflationary headwinds, policymakers should consider the following measures to mitigate economic pressures and spur long-term planning: 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.

To continue on this path, mobile industry players must be able to roll out the required digital infrastructure and innovative services to bridge the digital divide and accelerate the adoption of digital solutions. However, this requires a whole-of-government approach (WGA) to tackle the headwinds that could undermine the economic health of industry players and their ability to contribute to socioeconomic progress.
Policymakers in Pakistan have an opportunity to accelerate progress with Digital Pakistan and lay a strong foundation for 5G. This can be done by implementing vital reforms, using a WGA, to improve the financial health of the overall telecoms sector and the ability of industry players to invest and innovate. The following areas in particular require urgent attention.