Telecom sector seeks budget tax relief

Pakistan's telecom industry has submitted a set of fiscal and policy recommendations for the federal budget 2026-27, aimed at improving sector sustainability, accelerating digital inclusion and supporting the government's broader digitisation agenda. The proposals focus on reducing the cost of connectivity, enabling faster broadband expansion and improving the investment environment for telecom infrastructure and next?generation technologies.

The industry notes that despite telecom's role as a key enabler of Pakistan's digital economy, the sector continues to face mounting financial pressure from high taxation, rising operational costs, currency depreciation and increasing infrastructure investment requirements. Pakistan continues to lag behind regional peers in mobile broadband penetration and affordability.

Key budget recommendations

The industry has proposed reducing withholding tax under Section 153 of the Income Tax Ordinance, 2001 from 6% to 4%, while also making the tax adjustable instead of treating it as a minimum tax. Telecom operators have recommended increasing the carry?forward period for turnover tax credits under Section 113 from two years to five years. According to the proposal, the current taxation structure creates significant cash flow constraints and raises the cost of capital for telecom operators, limiting long?term infrastructure investment and network expansion. The industry believes rationalisation of these taxes would improve investment capacity, accelerate broadband deployment and support expansion into underserved areas.

The industry has also recommended reducing advance income tax on telecom services under Section 236 from 15% to 8%. The proposal argues that high upfront taxation on mobile usage disproportionately impacts low?income and prepaid consumers, suppressing digital adoption and limiting access to essential digital services. The industry notes that the tax rate had previously been reduced under an Economic Coordination Committee (ECC) decision before being increased again through the Supplementary Finance Act 2021. Operators maintain that reducing consumer taxation would improve affordability, increase usage and support broader digital and financial inclusion across Pakistan.

The industry has proposed abolishing customs duties on the import of 5G and fixed?line telecom equipment, including network infrastructure, smartphones, servers, batteries, SIM cards and related telecom components. The proposal states that high import duties significantly increase deployment costs for operators and slow the rollout of next?generation connectivity technologies, particularly in rural and underserved regions. Telecom operators estimate that duty rationalisation could unlock approximately Rs12 billion in additional capital deployment for network expansion and digital infrastructure.

The industry has also proposed reducing overall duties and taxes on optic fibre cable imports from the current level of about 67% to 5%. The proposal highlights that high fibre deployment costs, combined with global supply shortages and elevated freight charges, have become a major bottleneck for broadband expansion in Pakistan. Operators argue that rationalising fibre duties would accelerate fibre rollout, improve broadband quality and support fixed broadband penetration, which remains among the lowest globally.

Furthermore, the industry has recommended revoking the commissioner's authority under Section 147(6B) of the Income Tax Ordinance, 2001 to reject taxpayers' advance tax estimates. According to the proposal, the current mechanism increases disputes, litigation, compliance costs and uncertainty for businesses. The industry argues that withdrawing these powers would improve ease of doing business, strengthen taxpayer confidence and reduce the administrative burden for both businesses and tax authorities.

The telecom industry has positioned these recommendations within the broader context of Pakistan's digital economy ambitions and ongoing connectivity challenges. More than 30% of the population remains uncovered by 4G services, about 12% of the population still lacks access to basic mobile signals, fixed broadband penetration remains below 2%, Pakistan continues to have one of the lowest average revenue per user (ARPU) levels in the region, and consumer taxation on telecom services in Pakistan remains among the highest in the region, at 34.5%. The industry maintains that enabling a more sustainable investment environment for telecom operators would help accelerate digital inclusion, broadband expansion, financial digitisation and wider economic growth. It also cites studies indicating that a 10% increase in broadband penetration can increase GDP per capita by about 2%.