The government’s Digital Pakistan drive depends on making Information and Telecommunication Technology (ICT) services accessible and affordable for a large number of individuals and businesses. The final, voted FY22 budget is a mixed bag in that regard, primarily due to the imposition of a fresh duty that serves to penalize folks who have to make longer phone calls, as well as those who don’t have ready availability of broadband to be able to make or receive free Internet-enabled calls.
The budgetary measure of one percentage point (pp) reduction in FED on mobile and Internet usage to 16 percent, as well as the 2.5 pp cut in advance tax (WHT) on prepaid mobile recharge/monthly phone and internet bills to 10 percent, will help make ICT services affordable to a degree. The government promise to further bring down WHT to 8 percent in the future is welcome. However, less favorable for user affordability is the imposition of additional FED on mobile calls.
As per the Finance Act, 2021, the federal government has imposed additional FED on mobile phone calls exceeding five minutes at a rate of 75 paisa per call. Last month, the initial proposal was to levy FED of Rs1 on every call exceeding three minutes (along with similar duties on SMS and data consumption). So, relatively speaking, the Rs0.75/call FED will entail a comparatively lower burden than originally thought on those who have to talk at length. But it’s still a new levy on those who have to make long calls for personal or occupational reasons. And it will disproportionately affect mobile phone users in regions where broadband access is patchy or non-existent.
How much can the government hope to net through the new FED? It’s difficult to get a complete picture, given that the latest numbers on ‘outgoing minutes’ of national mobile traffic aren’t available. The most recent publicly-available figure is from a previous Annual Report by the Pakistan Telecommunication Authority (PTA) which noted that national cellular mobile outgoing traffic was 394 billion minutes during FY15. One can work with that official number to get an idea of how much the treasury can possibly net.
Since the mobile broadband rollout in FY15, the opposing forces of i) transition from mobile to OTT calls (leading to lower cellular voice traffic) and ii) cheaper mobile phone calls and expansion of cellular coverage to un-served and under-served areas (leading to more voice traffic), have been at work, potentially keeping the outgoing minutes around the 400 billion level per year.
Using that crude estimate, and if we also safely assume that about a quarter of outgoing voice traffic is on calls exceeding the five-minute mark, then the government is set to collect at most Rs15 billion per annum on account of the Rs0.75 FED on 20 billion such long calls. That’s money right out of people’s pockets. Considering there are likely 84 million unique cellular subscribers (183 million official cellular subscriptions, discounted by GSMA estimate of each Pakistani user holding an average of 2.17 Sims), an average user can expect to pay Rs178 per annum, or Rs15 per month, under the new duty.
On an individual level, it doesn’t seem like a lot of money, and perhaps users will change their calling frequencies and time spent on the phone. But it still matters as such duties and levies have a way of adding up over time. Once this kind of squeezing starts by the treasury, and telecoms is an easy target, there is precedent that extra charges can escalate over the years in terms of their size and variety.
To help keep tariff low, the PTA possesses some regulatory tools through which it can still make phone calls affordable for customers. One of those levers is the ‘mobile termination rate’ (MTR), which is the price one operator charges to another in return for forwarding latter’s calls to its own network. From a high of Rs2 per minute back in 2000, MTR has been gradually reduced to Rs0.7 per minute as of 2020. But PTA considers this level as higher than international benchmarks and regional levels (see the illustration). Next door in India, the MTR has been reduced to near zero in the interest of consumers and competition.
The regulator has recently started a consultation to bring MTR drastically down to Rs0.3 per minute from October 1, 2021. If that happened, the effect of the government’s penal duty on phone calls may be somewhat mitigated. More than that, a much-reduced MTR will lower customer tariffs across the board, encourage competition among operators, and help increase ICT usage in the country. However, the onus is still on the government to rationalize existing duties and taxes to make ICTs accessible and affordable.