Finally, the telecoms regulator is taking a strong line on fiscal issues affecting the sector. In its latest annual report, the Pakistan Telecommunications Authority (PTA) has pointed out a number of areas that need policy intervention. Whether or not the needle moves at the concerned ministries remains to be seen. But at least the sector custodian is talking. (The report was released just a week or so after the outgoing Chairman PTA was reportedly denied an extension in his four-year term).

The biggest issue facing the sector is arguably the high taxes that are bearing down on both customers and operators. PTA rightly points out in the report that the 12.5 percent withholding tax on mobile recharge is “still high”. The argument used by PTA is that majority of telecom users fall below the minimum tax threshold; therefore, such folks cannot get this WHT refunded/adjusted.

That argument has merit, but there is another way to convince the decision makers. PTA should do an empirical study that highlights the impeding impact this unnecessary WHT and the high FED (sales tax) on telecom services are having on ICT uptake at the bottom of the pyramid. Another point about high tax rates is that FED/GST collection has remained flat in recent years (see illustration).

In the report, PTA still didn’t call for abolition of WHT; rather a decrease in the tax, as done in the recent budget (from 14% down to 12.5%), seems to be the plea. But can small deductions really make a difference? To improve affordability and access of telecom services, the government should do away with the WHT and help bring down the FED significantly across the country.

The regulator is also calling for a harmonized telecoms tax regime in federal and provincial jurisdictions. The current hotchpotch – where FED is discriminatorily high on telecom services, different provinces levy different rates, some even tax broadband, collection issues have surfaced, and operators have threatened to sue government – is a situation that is by no means sustainable, leave alone attractive for more foreign investment.

The watchdog also points out the high tax incidence on mobile handsets and other telecom apparatus. Because telecommunications is still not officially an ‘industry’ in Pakistan, operators cannot adjust the taxes they pay on imported telecom equipment against their final tax liability. All of the above-mentioned affects customers in the end, through subpar quality of service that comes with a high tax bill.

While tax policy is admittedly a hard nut to crack, the bureaucratic issues are no less stubborn. “Telecom access and expansion is hampered by the lingering Right of Way issues, utility infrastructure and procedural delays in the approvals process at the provincial government’s level,” the report says. While PTA expresses its commitment to regulatory facilitation in solving such issues, it is unclear if the regulator has a strategy to clear the way.

This column has also pointed out these issues in the past. Be that as it may, the telecoms sector is in a better shape today than it was four years ago. Under the leadership of Dr. Ismail Shah, PTA has moved forward on a number of policy and regulatory issues. The regulator not only got the spectrum auctions going, it also beefed up its regulatory capabilities, besides engaging the operators collaboratively. Consumer protection could have received more attention.

The key is to carry the momentum forward. And for that, the government must appoint competent top leadership at the PTA, take steps to keep the regulator independent and also listen to what it has to say.