On federal broadband tax

Telecoms and taxes go hand in hand in Pakistan. Telco’s had thought that at least the federal government would have their back on the broadband tax, even as provinces went about taxing the Internet. The idea behind a lower, or zero, tax is to push broadband uptake in a largely low-income economy. However, the federal government has now also bailed on this issue.

For a background, the provinces started charging a sales tax (also called FED) on usage as soon as broadband uptake started growing in major cities earlier this decade. Advance income tax (or WHT) of 12.5 percent was also levied on broadband usage in the provinces. The federal government, to its credit, refrained from doing the same for many years in its administrative territories that include Islamabad.

The federal government’s soft approach on broadband tax had given a hope to Telco’s, especially the fixed broadband companies, that they had the government’s ear. During sit-downs with BR Research, the Telco’s top management often made the case that the federal government should go a step further and talk to the provinces to bring down the provincial broadband taxes to a lower level, if not zero.

The levies of those high expectations broke in 2018 when the federal government also followed suit and imposed the 12.5 percent WHT on broadband bills and packages in Islamabad and other jurisdictions. And now, in 2019, the budget for this fiscal calls on the broadband companies to charge a 17 percent FED on Internet bills and data packages consumed by the residents of the federally-administered areas.

This move will of course make Internet pricier for those residents. However, the main cause for concern is the federal government failing to lead by example. In the future, Islamabad will not have the high ground to ask the governments in Lahore, Karachi, Peshawar and Quetta to bring down the broadband tax. The twin federal levies of FED and WHT effectively bury the discourse on making broadband affordable in this country.

Squeezing the industry with measures like this will further jeopardize broadband’s potential for creating jobs in the digital domain and lead to deepening digital inequalities. But the policymakers continue to view industries through a fiscal lens. Another example of which is the fresh measure of doubling the broadband WHT on non-filers to 25 percent. This move will also hurt the spread of broadband, without leaving a mark on the ATL list.