Telecom industry seeks tax relief in budget proposals

ISLAMABAD: Pakistan’s telecom industry has put forward a set of fiscal and policy proposals for the federal budget 2026-27, seeking measures it says would improve the sector’s viability, speed up digital inclusion and support the government’s wider digitisation plans.

According to the proposals, the industry wants lower connectivity costs, faster broadband expansion and a more supportive investment climate for telecom infrastructure and next-generation technologies. It says the sector, despite being a major enabler of the digital economy, is under growing financial strain due to heavy taxation, rising operating expenses, currency depreciation and increasing infrastructure investment needs.

The industry also says Pakistan remains behind comparable regional countries in mobile broadband penetration and affordability.

Tax and policy proposals

Among the key recommendations is a proposal to cut withholding tax under Section 153 of the Income Tax Ordinance, 2001 from 6% to 4%, while making it adjustable instead of treating it as a minimum tax. Telecom operators have also proposed extending the carry-forward period for turnover tax credits under Section 113 from two years to five years.

According to the proposal, the existing tax structure creates serious cash flow pressures and increases the cost of capital for operators, which in turn restricts long-term infrastructure spending and network growth. The industry says rationalising these taxes would strengthen investment capacity, accelerate broadband rollout and help expand services in underserved areas.

The sector has also recommended reducing advance income tax on telecom services under Section 236 from 15% to 8%. The proposal says high upfront taxation on mobile usage disproportionately affects low-income and prepaid users, discouraging digital adoption and limiting access to essential digital services.

The industry notes that the tax rate had earlier been reduced through a decision of the Economic Coordination Committee before being raised again under the Supplementary Finance Act 2021. Operators say lowering consumer taxation would improve affordability, increase usage and support broader digital and financial inclusion.

Import duties and infrastructure costs

The proposals also call for the abolition of customs duties on the import of 5G and fixed-line telecom equipment, including network infrastructure, smartphones, servers, batteries, SIM cards and related telecom components. According to the proposal, high import duties raise deployment costs for operators and slow the rollout of next-generation connectivity technologies, particularly in rural and underserved areas.

Telecom operators estimate that rationalising these duties could unlock around Rs12 billion in additional capital deployment for network expansion and digital infrastructure.

The industry has further proposed reducing overall duties and taxes on optic fibre cable imports from about 67% to 5%. It says high fibre deployment costs, along with global supply shortages and elevated freight charges, have become a major obstacle to broadband expansion in Pakistan.

Operators argue that lowering fibre-related duties would speed up fibre rollout, improve broadband quality and support fixed broadband penetration, which the proposal says remains below 2% and is among the lowest in the world.

Regulatory concerns and sector context

Another recommendation is the withdrawal of the commissioner’s authority under Section 147(6B) of the Income Tax Ordinance, 2001 to reject taxpayers’ advance tax estimates. According to the proposal, the current arrangement leads to more disputes, litigation, compliance costs and uncertainty for businesses.

The industry says removing these powers would improve the ease of doing business, strengthen taxpayer confidence and reduce the administrative burden on both companies and tax authorities.

The proposals place these demands within the broader context of Pakistan’s digital economy goals and connectivity gaps. The industry says more than 30% of the population remains outside 4G coverage, around 12% still does not have access to basic mobile signals, and consumer taxation on telecom services in Pakistan stands at 34.5%, among the highest in the region. It also says Pakistan has one of the lowest average revenue per user levels in the region.

The industry maintains that a more sustainable investment environment for telecom operators would help speed up digital inclusion, broadband expansion, financial digitisation and broader economic growth. It also cites studies indicating that a 10% increase in broadband penetration can raise GDP per capita by about 2%.