ADB Warns High Taxes and Spectrum Pricing Are Strangling Pakistan’s Digital Economy

Pakistan’s digital future hangs in the balance as the Asian Development Bank (ADB) calls for an urgent and sweeping policy overhaul to remove structural roadblocks choking the country’s telecom sector. In its newly released report, Pakistan’s Digital Ecosystem, the ADB urges the government to rationalize digital infrastructure taxation, fix spectrum pricing for at least a decade, and create investor-friendly conditions to catalyze digital growth, especially as the country teeters on the edge of falling behind in the global 5G race.

The report highlights excessive taxation, policy inconsistency, inefficient spectrum pricing, and a lack of strategic planning as major impediments to the sector’s growth; issues that not only restrict mobile operators but also deepen the digital divide, particularly for women and marginalized communities.

High Taxes Crippling Growth, Especially in Underserved Communities

One of the central concerns raised by ADB is the high taxation burden on Pakistan’s digital infrastructure, both direct and indirect taxes, which are among the highest in the region and globally. These are levied by both federal and provincial governments, making the sector financially unattractive for operators and investors alike.

The Bank recommends that all sectoral taxes be benchmarked against a competitive basket of peer countries and then fixed for a minimum of 10 years to offer predictability and stability. It also calls for the removal of dollar indexation in spectrum pricing, which exposes telecom companies to forex volatility in a fragile economic environment.

Tax authorities’ analog systems further burden taxpayers with hidden compliance costs, this complexity reinforces the digital exclusion of women and low-income households.

-The report noted

Spectrum Policy Holding Back 5G Investment

According to the report, spectrum pricing and allocation in Pakistan remain inefficient and uncompetitive, discouraging long-term investment. The ADB urges the government to set reasonable and attractive floor prices for future spectrum auctions, particularly for 5G, and to de-link prices from the US dollar to avoid exchange rate shocks.

If operators cannot afford to bid or deploy infrastructure profitably, the 5G launch will be delayed and underutilized.

Pakistan’s current telecom revenues and foreign investment levels are in decline, reflecting an environment that deters capital inflows. The ADB suggests creating a predictable policy framework and re-engaging with investors to restore confidence.

Provincial Role in Driving Demand and Digital Public Services

The ADB highlights that provincial governments have a pivotal role in stimulating demand and driving digital service penetration, particularly in education and health, sectors under their jurisdiction.

It recommends that provinces act as anchor clients by subscribing to fiber broadband for public schools and hospitals in tier-2 and tier-3 towns. This, in turn, would incentivize internet service providers (ISPs) to extend fiber networks to households and small businesses.

Reforming the USF and Encouraging Local Manufacturing

The Universal Service Fund (USF), originally designed to bridge the digital divide, must be retooled to channel investments more effectively. ADB suggests that USF:

• Lay fiber optic lines to all Union Councils

• Fund telecom infrastructure providers instead of only service providers

• Support demand-generation initiatives like smartphone subsidies and Smart Village projects

To build a sustainable digital ecosystem, the Bank also calls for promoting local smartphone manufacturing through targeted incentives and R&D allowances as outlined in Pakistan’s Mobile Devices Local Manufacturing Policy 2020. This would reduce the reliance on 2G feature phones and could even enable smartphone exports in the long term.

Enabling PPPs and Inclusive Digital Access

ADB also stressed the urgent need to create a robust legal and regulatory environment that enables public-private partnerships (PPPs), particularly in building open-access digital infrastructure that allows all service providers to compete on equal footing.

The report emphasizes inclusive access, calling on the government to expand internet access and smartphone ownership, particularly for women and low-income groups, by working with global partners and offering low-cost installment-based devices.

Without expanding device access and broadband coverage, digital development will remain skewed toward urban elites.

Lack of Industry Voice in Policymaking

A striking observation in the report is the absence of a strong, united telecom association that can engage with the government through data-backed policy advocacy. Despite being one of the highest tax-contributing sectors, telecom operators have little influence over regulatory developments and strategic digital planning.

ADB calls for structured, research-driven dialogue between the government and the industry to ensure policies are innovation-friendly, investment-oriented, and aligned with long-term digital transformation goals.

Conclusion: A Make-or-Break Moment for Pakistan’s Digital Economy 

The ADB’s report serves as both a diagnosis and a roadmap for Pakistan’s struggling digital ecosystem. If the government acts swiftly to reform taxation, spectrum policy, digital infrastructure investment, and device affordability, it could set the country on a path to becoming a competitive player in the global digital economy.

If not, Pakistan risks missing the 5G revolution and widening the digital divide for its most vulnerable populations.

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