Telecom Industry Pushes for Major Tax Reforms in Budget 2025-26
Pakistan’s Telecom Operators Association (ToA) has submitted a budget proposal for FTY 2025-26, urging the government to introduce key tax reforms to reduce financial burdens, enhance digital infrastructure, and support industry growth. The telecom sector, which plays a vital role in the country’s economy, has raised concerns over high taxation, excessive regulatory duties, and the need for a fair tax environment to attract investment.
According to the ToA, one of the biggest challenges is the advance tax under Section 147 of the Income Tax Ordinance 2001. Moreover, the Finance Act 2024 gave tax authorities the power to reject advance tax estimates, which has led to unnecessary litigation and business disruptions. ToA is requesting that this power be revoked to ensure a more predictable tax environment.
The Alternate Dispute Resolution Committee (ADRC) has also become a major concern. Amendments made through the Finance Act 2024 have made ADRC decisions binding on taxpayers, eliminating their right to appeal. This has discouraged businesses from using ADRC as a means of resolving tax disputes. ToA has proposed restoring the previous mechanism, which allowed businesses to challenge unfair decisions.
Withholding Tax Burden on Telecom Operators
Telecom companies handle millions of transactions daily, yet they are subject to complex withholding tax compliance. ToA has requested exemptions from withholding tax, similar to the relief already provided to the banking and oil sectors. If granted, telecom operators would instead pay quarterly advance tax under Section 147, which would simplify tax collection without reducing revenue for the government.
The 4% withholding tax on telecom services, introduced in 2015, is another point of contention. Telecom companies argue that this tax functions as a minimum tax, negatively impacting profitability. ToA has urged the government to make it adjustable, so businesses are taxed fairly based on actual earnings rather than fixed charges.
- Telecom Sector Employees Face Rising Income Taxes
The telecom industry has also expressed concerns about high-income tax rates on employees, which have reduced their purchasing power amid rising inflation. ToA is pushing for sector-specific tax relief, such as revised tax brackets, lower withholding tax rates, and increased exemptions. The association argues that these measures would help retain skilled professionals and strengthen Pakistan’s digital economy.
5G Readiness and High Import Duties
With 5G deployment on the horizon, telecom operators need essential infrastructure upgrades. However, high import duties on telecom equipment, SIM cards, and lithium-ion batteries are making expansion difficult. ToA has proposed removing the 5% regulatory duty on telecom power equipment and SIM cards, emphasizing that these products are not for resale but for internal network operations.
Additionally, the 9% regulatory duty on telecom infrastructure equipment has been labeled as a barrier to digital progress. ToA suggests reducing this duty to encourage investment in 5G networks and broadband expansion.
ToA has also addressed concerns over harsh tax recovery measures, which include freezing bank accounts and sealing business premises. The association has proposed that such extreme actions should only be taken with the approval of the FBR Chairman and only after at least one independent appellate forum has reviewed the case.
Reduction in Advance Income Tax and FED
The proposal calls for a reduction in advance income tax and Federal Excise Duty (FED), arguing that high tax rates are slowing down business growth. The current 15% advance income tax and 19.5% FED are making telecom services expensive for consumers, discouraging investment and expansion. ToA has requested a reduction in both taxes to support industry growth.
The telecom industry is one of Pakistan’s largest revenue-generating sectors, yet excessive taxation and regulatory challenges are stifling its potential. With the Budget 2025-26 approaching, ToA has made it clear that major policy changes are needed to ensure a sustainable digital future.
Whether the government adopts these critical reforms will determine the pace of Pakistan’s digital transformation in the coming years.
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