Pakistan’s telecom paradox: taxing the backbone of digital growth

As the federal budget approaches, the question is no longer whether telecom should contribute to national revenues; it already does at scale. The real question is whether current taxation policy is aligned with Pakistan’s ambition to build a competitive, inclusive digital economy.

Telecom today is not just an industry. It is the infrastructure layer on which financial inclusion, e-commerce, digital governance, and IT exports depend. Over the past decade, the sector has contributed more than PKR 2.5 trillion in taxes and levies to the national exchequer.

At the same time, it has enabled the rapid expansion of digital services across the country, from mobile payments and online businesses to public service delivery.

Industry-wide data from the Pakistan Telecommunication Authority (PTA) indicates that telecom operators contribute between approximately 35% and over 40 percent of their revenues annually to the government through taxes, levies, and regulatory payments.

At a broader level, when additional flows across the value chain are considered, including consumer taxes, corporate taxation, regulatory fees, and withholding taxes linked to vendors and employees, the total fiscal footprint of the sector becomes even more significant. An analysis of one large operator over the 2019–2025 period suggests that close to half of total revenues are ultimately transferred to the state on a fully loaded basis,.

This dual role is both its strength and its strain. On one hand, telecom is a reliable revenue contributor. On the other, it is expected to continuously invest in expanding and upgrading the very infrastructure that drives economic growth. The tension between these two roles is now becoming unsustainable.

The government continues to tax one of its most critical growth enablers as if it were a mature, high-margin sector. That contradiction sits at the heart of the country’s digital challenge.

Today, mobile users in Pakistan face a combined tax burden of approximately 33–35 percent on prepaid services, placing telecom among the most heavily taxed consumer sectors. Yet, the sector operates in a low-pricing environment, with average revenue per user hovering around USD 1, among the lowest globally.

This imbalance is not just a sectoral issue. It directly affects affordability. A significant portion of users, many below the taxable income threshold, continue to pay advance withholding taxes on mobile usage. In practice, these often function as final taxes due to low awareness and limited refund mechanisms. The result is a structural barrier to access, disproportionately affecting low-income populations.

The impact is visible in Pakistan’s persistent usage gap. While around 81 percent of the adult population is covered by mobile broadband, nearly 40 percent of mobile users do not actively use these services. The challenge is no longer coverage but affordability.

Taxing connectivity at current levels is no longer just a fiscal measure. It risks becoming a barrier to digital inclusion. At the same time, the sector is entering its most capital-intensive phase.

The recent spectrum auction required a collective commitment of over USD 500 million, with substantial upfront payments. The transition to 5G will require further investments in network densification, site upgrades, and equipment, alongside ongoing annual reinvestment of 15–20 percent of revenues into infrastructure.

These pressures are compounded by rising energy costs, currency depreciation, and inflation, all of which erode investment capacity.

A critical structural constraint remains the country’s limited fibre backbone. With only around 18% of towers fiberized, Pakistan lags significantly behind regional benchmarks. Without robust fibre backhaul, both 4G performance and 5G scalability remain constrained, regardless of spectrum availability.

In this environment, taxation is no longer a neutral policy variable. It is a determining factor in how quickly or whether the next phase of digital infrastructure can be built. This is where a shift in policy thinking becomes essential.

Telecom taxation should be repositioned from a static revenue source to a strategic policy lever that catalyses investment and drives accelerated adoption. A more balanced framework would link fiscal flexibility to measurable outcomes such as network expansion, rural coverage, and 5G rollout milestones.

Pakistan already has strong institutional mechanisms, including the Universal Service Fund, which has generated significant resources for connectivity expansion. With better alignment, these can be directed more effectively towards fiberisation and underserved areas, unlocking both efficiency and scale. The objective is not to reduce contribution, but to improve its multiplier effect.

International experience reinforces this approach. Countries such as Indonesia and Malaysia have demonstrated that targeted fiscal easing, combined with clear deployment incentives, can accelerate digital adoption without compromising long-term revenues. By lowering investment friction and improving affordability, these markets expanded their user base, increased overall economic activity, and ultimately broadened their tax base.

The lesson is clear: telecom policy works best when it is aligned with growth.

For Pakistan, the stakes are significant. The digital economy is projected to contribute up to 7 percent of GDP by 2030. But this potential is contingent on affordable, reliable, and widely accessible connectivity. High taxation and constrained investment risk slowing that trajectory at a critical moment.

As the Overseas Investors Chamber of Commerce and Industry has highlighted, enabling high-impact sectors is not about offering concessions, it is about building sustainable revenue ecosystems. A financially strong telecom sector expands coverage. Coverage enables connectivity. Connectivity drives inclusion. And inclusion fuels economic growth.

Pakistan stands at an inflection point. The foundations of a digital economy are in place. What will determine its scale is the policy framework that supports it. The question is not how much telecom can contribute today. It is how much more it can unlock tomorrow.

Copyright Business Recorder, 2026