The telecom industry in Pakistan faces an alarmingly high tax rate of 33.2 percent, particularly in the context of regional competitors, which strongly crimps the growth of telecom industry. Data made available to Pakistan Today indicates that the government levies an aggregate tax of 33.20 percent, inclusive of 19.5 percent of Federal Excise Duty (FED) and 11.5 percent Withholding Tax (WHT) on one of the few star performers of the stagnating economy. Data highlights that Myanmar has the lowest taxes in comparison to Pakistan. Nepal, Thailand, Bangladesh, Sri Lanka, Samoa, Cambodia, India, Philippines, Indonesia, Lao RDP, Vietnam, Papua New Guinea, Malaysia, China and Bhutan all tax their telecom sectors less heavily than Pakistan.Telecom experts emphasised that the present tax regime has badly hampered the development of telecom companies. They said that out of five cellular operators, four have posted losses in their books owing to heavy taxation and sagging growth. They indicated that telecom sector, which was once considered a role model for regional competitors after deregulation in 2004, is also experiencing a downturn due to saturation in the market.Cellular sector analysts opine that the government and telecom watchdog, Pakistan Telecommunication Authority, were keen to launch 3G technology in Pakistan, but there was a lack of will in tackling the mounting problems faced by the industry. They pointed out that in the region, telecom operators were enjoying average taxes ranging between 10 and 12 percent, but in Pakistan, the telecom sector suffers the blight of heavy taxation and dangerously low tariffs due to cutthroat competition.Sustainable profitability will be steep hill for the operators. Data indicates that telecom sector has posted a cumulative loss of Rs135 billion in 2010. Telecom sector which once was a major lure for foreign direct investment (FDI) has lost its attraction.Responding to a query, a senior official of a cellular company pointed out that apart from these taxes, the government had imposed an additional activation tax of Rs 250 per cellular connection. Initially, this tax was applied in lieu of custom duty on mobile phone imports, but the government had also imposed it indirectly on the telecom sector. Mirroring the opinions of others, he categorically stated that if the government or telecom regulator really wanted to introduce new technologies and increased telecom penetration in the country, it had to review its backbreaking tax regime.
