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ISLAMABAD: Pakistan’s information technology and telecom sector is lagging behind its potential due to ineffectiveness of the Ministry of IT and Telecom in developing consensus on policy level decisions among all stakeholders, coupled with apathy of the Finance Ministry, Federal Board of Revenue (FBR) and the State Bank of Pakistan (FBR) in resolving outstanding issues.
This was the crux of background discussions with the ministry officials, industry stakeholders and sector experts.
The government has set IT and IT-enabled Services (ITeS) export remittances comprising computer services and call centre services target of $5 billion for the current fiscal year.
However, ITeS exports declined by 0.3 percent during the first quarter of current fiscal year 2022-23; in total terms IT exports registered $633 million in the first quarter of the current year compared to $635 million during the same period of last fiscal year. ITeS exports remittances declined by around 10 percent on a month-on-month (MoM) basis in September 2022 and were $206 million compared to $228 million in August 2022.
Talking to Business Recorder Federal Minister for Information Technology and Telecommunication Amin-ul-Haque said there were several reasons behind the under-performance of the sector including failure to resolve some outstanding issues of the sector by Ministry of Finance, FBR and SBP.
“We seek incentives including tax rationalization for the sector in every budget, but Ministry of Finance ignores it,” said the minister, adding that FBR’s policies and some rules of SBP are hindering the growth of IT exports and increasing export remittances through freelancers. He further said that political instability as well as crunch in the international market are some other reasons negatively affecting the sector.
He said there was need for incentivizing the sector in terms of tax relief capacity building to achieve the desired results.
Sources in telecom sector told Business Recorder that Ministry of IT and Telecom being the mandated institution for steering consensus on policy level decisions for ensuring well-being of the IT and telecoms sectors, has so far remained grossly ineffective in getting due alignment of stakeholders. There has been no movement towards a decision to create fiscal and operational space that falls squarely within the ambit of the Ministry and the Regulator i.e. Pakistan Telecommunication Authority (PTA), said the source, adding that resultantly the sector was continuously suffering and both the export value in IT sector and size of sector as well as investment attractiveness in telecoms sector continued to decline.
The official said that one of the agreed measures was to suspend Universal Service Fund (USF) and R&D contributions besides withholding tax increase reversal to provide fiscal space and cash flow support to the beleaguered industry. Not only that Ministry of IT and Telecom could not get Finance Ministry to favourably consider the justified tax proposal to give relief to users, and even the contribution reduction proposal has seen no movement.
Further, all proposed measures to be taken by PTA including licence obligation moratorium and measures to allow commercial space to industry (e.g. inflation charge and price floors), have been denied. So neither economy wise measures nor the Ministry and PTA specific proposals had gone through, the official added.
Sector experts further contended that the government had withdrawn 100 percent tax credit regime for exporters of IT and IT enabled services and introduced reduced rate of final tax of 0.25 percent. However, heavy taxation of the IT sector and withholding tax (WHT) on goods and services with General Sales Tax (GST) on utilities etc was creating cash flow problems and increased cost of services.
Pakistan Business Council (PBC) and the Global Mobile Industry Association (GSMA) have urged the government to urgently review the current set of policies and practices affecting digitisation and connectivity.
PBC said Pakistan needed an integrated long-term policy to promote digitisation and connectivity if it was to find meaningful space in the knowledge economy. The GSMA, while addressing the Ministry of Information Technology and Telecom and PTA, said that policy reforms and creating the right regulatory framework was needed for Pakistan to become a digital nation. Both the PBC and the GSMA reacting to the current digital emergency in Pakistan triggered by challenges facing the telecom sector argue that if they remain unresolved it can push the country into “digital dark ages”.
Aamir Ibrahim, CEO, Jazz and Chairman of Prime Minister’s IT and Digital Economy Advisory Council’s Subcommittee on Telecom, said that while the country aspires to become a leading destination in terms of Ease of Doing Business (EoDB), the way telecom companies are handled, having around $25 billion investment contribution, tells a different story.
He quoted a recent decision regarding telecom companies’ request for the conversion of electricity tariff from commercial to industrial. Although telecom was declared an industry by the government in 2004, and its industrial status has been validated by various ministries over the years, its towers and data centres are still being subjected to commercial tariffs in the same category as restaurants, salons, and cinemas.
Aamir said telecom was a cross-sector enabler, building the digital highways, which facilitates other sectors to create value. There is consensus around the world that digital infrastructure is no less than any other critical national asset. Unfortunately, in Pakistan, the industry is still perceived as an opportunity to fill short-term revenue gaps for the government, which consequently deters a broader and longer-term policy agenda aimed at expanding universal broadband coverage.
Despite the affordability of smartphones being a key barrier to internet adoption, there is a Rs11,000 duty on the most basic imported smartphone of about $100. At the same time, telecom users are exorbitantly taxed at 34.5 percent – one of the highest rates in the world.
Aamir said “some of the strongest economies in the world today are the ones with a robust digital economy which rests on telecom. Digital dividends such as a thriving startup ecosystem, exports of IT and IT-enabled services, etc all depend on ubiquitous broadband connectivity that is provided by the sector. While we have talked a lot about Digital Pakistan, without the right policy interventions we could actually be looking at ‘digital dark ages’. We must act now with meaningful policy action to ensure the future remains bright.”
Copyright Business Recorder, 2022
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