Pakistan’s High Mobile Taxes Slowing Digital Growth and Investment, VEON-Backed Study Warns
VEON-backed study warns Pakistan’s high telecom taxes are slowing digital adoption, investment, smartphone penetration, and long-term growth.
Pakistan’s heavy taxation on mobile telecom services is suppressing digital adoption, discouraging investment, and slowing the country’s broader digital transformation, according to a new study prepared for VEON by Frontier Economics.
The report, titled “Unlocking Digital Growth by Reducing Sector Taxation in Pakistan,” argues that Pakistan has one of the world’s highest mobile-sector tax burdens, creating what researchers describe as a “tax trap” that raises consumer prices, reduces smartphone adoption, and limits expansion of the digital economy.
According to the study, around 68% of Pakistanis aged above 15 still do not own a smartphone, while the country ranks 101st out of 105 countries globally in average mobile internet speeds. The report also highlights that Pakistan’s monthly Average Revenue Per User (ARPU) remains close to just $1, reflecting weak affordability and low digital consumption levels.
The findings come at a time when Pakistan is attempting to accelerate digitalization, expand digital payments, and prepare for wider 5G deployment.
Pakistan Among the Highest-Taxed Mobile Markets
The report states that Pakistan imposes multiple layers of sector-specific taxes on telecom consumers and operators, including sales tax, advance income tax, annual regulatory duties, and other levies targeted specifically at mobile services.
Researchers estimate that Pakistan currently applies a combined 37% sales and turnover tax burden on mobile services, including:
| Tax Component | Current Rate |
|---|---|
| Sales Tax | 19.5% |
| Advance Income Tax on Consumers | 15% |
| Annual Regulatory Duty | 2.5% |
| Combined Burden | 37% |
The study further notes that telecom operators also face a 29% corporate tax along with an additional 10% super tax.
According to Frontier Economics, these taxes directly increase mobile service costs, discourage mobile internet usage, and weaken incentives for telecom companies to invest in network expansion and newer technologies.
Mobile Connectivity Directly Linked to Economic Growth
The report emphasizes that Pakistan is a “mobile-first economy,” where mobile connectivity serves as the primary gateway for education, commerce, banking, digital payments, e-governance, and financial inclusion.
Its econometric analysis found that every 1% increase in mobile penetration can raise GDP per capita growth by approximately 0.115 percentage points. Researchers estimate that improving connectivity could increase Pakistan’s annual GDP per capita growth rate from a baseline of 4.2% to nearly 4.5%.
The report also argues that stronger digitalization could gradually broaden Pakistan’s formal tax base by increasing digital payments, improving financial inclusion, and shifting more economic activity into traceable digital channels.
Proposed Tax Reforms and Economic Impact
Frontier Economics modeled a tax reform scenario beginning in 2027, proposing a reduction in sector-specific taxes to bring telecom taxation closer to other industries in Pakistan.
| Tax Measure | Current | Proposed |
|---|---|---|
| Combined Mobile Sales/Turnover Tax | 37% | 17% |
| Sales Tax | 19.5% | 16% |
| Advance Income Tax | 15% | Eliminated |
| Regulatory Duty | 2.5% | 1% |
Under the modeled scenario, operator revenues could increase by approximately 6.4%, driven by higher mobile adoption and increased data usage. The study estimates that more than half of the revenue growth would come from new users entering the digital ecosystem.
Although the government could initially lose around $439 million annually in direct telecom-sector taxes, the report predicts broader economic gains would eventually offset those losses through higher GDP growth and expansion of the formal economy. Annual fiscal gains are projected to turn positive by 2031, while cumulative long-term gains would continue growing through 2035.
Warning Against a “Tax Trap”
The study warns that Pakistan risks remaining stuck in a “tax trap,” where high taxes on mobile services suppress digital adoption, slowing economic formalization and forcing the government to continue relying heavily on telecom-sector taxation.
Researchers recommended that Pakistan gradually shift away from sector-specific mobile taxes and instead focus on broadening the overall tax base through higher digital adoption, increased financial inclusion, and stronger economic formalization.
“Pakistan is a mobile-first economy where mobile connectivity underpins digital inclusion, financial access, and participation in the formal economy,” the report stated, cautioning that excessive taxation could undermine the country’s wider digitalization agenda.
Also read:
Tired of Being Overcharged? PTA Just Made It Easy to Compare Every Telecom Package in Pakistan
Mobile Phone Taxes Portal
Find the PTA Taxes on All Phones on a Single Page using our Taxes Portal.
Note: Mobile phone tax rates and calculations fall under the jurisdiction of the Federal Board of Revenue (FBR), not the Pakistan Telecommunication Authority (PTA).
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