Unexpectedly, the Punjab government has reportedly withdrawn the 19.5 percent sales tax on internet services. This reversal, less than two weeks after the taxs imposition, has been brought about thanks to advocacy of online community and behind-the-scene efforts of PTA, the telecom regulator.
Commenting on Pakistan's telecom regulatory environment, credit-rating agency Moody's noted earlier this week, "Increased taxes on handsets or data would discourage users, especially those with lower incomes, from switching to smartphones and using more data. This would dampen revenue growth at telecom operators..."
So, the tax reversal on data services is welcome. Punjab government showed belated wisdom by not digging its heels. In its wake, the episode leaves open several questions, however.
The starting point is realizing that broadband-enabled services are fast becoming the main connectivity drivers for information-sharing, social interaction and economic activity. Once the government acknowledges that, it needs to introspect whether it is doing all it can from legal and regulatory standpoint to promote this connectivity and remove obstacles on the way.
Taxation hiccups (like Punjab's) and lack of uniformity in provincial telecom taxation are key issues, but they are not the only issues when it comes to ensuring a rising adoption and usage of broadband services. Taxes on traditional telecom services remain really high, but even if they are suddenly zeroed down in a utopian swing, that will not ease other bottlenecks blocking the way.
It is daunting but efforts must be made for universal broadband access, to provide equal digital opportunities across income groups and geographies. Currently broadband is unable to reach most of rural areas, so even a policy of zero broadband taxes alone won't help. For quality broadband services, rural areas need the strength of fiber optic networks, bulk of which remains buried in urban areas.
The 3G mobile broadband subscriptions reached almost 13 million as of April, in less than a year of service rollout. That's an impressive feat for which operators deserve appreciation. But this adoption is mostly urban, which was expected. The real challenge is to take broadband to "actual" rural areas. But rural areas lack adequate fiber optic. And fiber optic is the backbone of mobile broadband.
So, yes, keep trying to solve the tax riddle. But the federal government and telecom operators also need to focus on speedy lay-down of fiber optic cables in rural areas. The government needs to address infrastructural issue. It must also use the full force of USF funds to expedite this process by sweetening the deal for fixed-line operators, who have to lay down those cables.
Perhaps duty relief on imports of telecom equipment, which is strictly meant for rural infrastructure roll out, may also be considered. A holistic approach would not stop there. Policies to harness broadband connectivity for beneficial services like blended learning, remote healthcare and agricultural extension services will also be needed. Unfortunately, one does not witness the policy urgency that is required here.