The telecom industry in Pakistan, represented by the Overseas Investors Chamber of Commerce and Industry (OICCI), has called for significant tax reforms in its taxation proposals for the fiscal year 2025–2026. These proposals, aimed at streamlining operations and reducing financial burdens, are seen as a critical step toward accelerating digital transformation and enabling a faster 5G rollout in the country. One of the key recommendations is the exemption of tax withholding on payments to the telecom sector. Cellular Mobile Operators (CMOs), being large utility providers, currently face income tax deductions on multiple transactions, including imports and electricity bills for thousands of cell sites. This not only escalates costs but also increases administrative complexity.

OICCI suggests that all payments to telecom operators should be exempt from withholding tax provisions under the Income Tax Ordinance (ITO). This step would simplify compliance and free up resources for infrastructure investment, particularly in areas crucial for 5G readiness.

Adjustable Minimum Tax on Telecom Infrastructure Services

At present, telecom services are subject to a 4% withholding tax under Section 153(1)(b) of the ITO, which is treated as a minimum tax. OICCI recommends making this tax adjustable to ease the financial strain on telecom operators. By doing so, it would enhance cash flow and facilitate network expansion projects, including those required for 5G deployment.

Withholding Tax Rationalization for Telecom Services

The Finance Act of 2021 initially reduced the advance tax on telecom services from 12.5% to 10%, with a further reduction to 8% planned for subsequent years. However, the Finance (Supplementary) Act of 2021 reversed this decision, raising the rate back to 15%.

OICCI proposes abolishing the withholding tax on subscribers altogether, as the majority of telecom users fall below the taxable income threshold. Alternatively, it urges the government to restore the 8% rate initially set in 2021. Such reforms would lower service costs and enhance user affordability, a crucial factor in driving 5G adoption nationwide.

Unified Sales Tax for Telecom Services Across Pakistan

The OICCI has also highlighted the disparities in federal and provincial sales tax laws, which create compliance challenges and increase the risk of double taxation. Currently, each jurisdiction imposes its own sales tax rates, leading to administrative hurdles and legal disputes.

To address this, OICCI recommends implementing a single, uniform sales tax rate for telecom services across all provinces and the federal government. The Chamber also suggests drafting a unified service tax law in alignment with international practices, which would not only simplify compliance but also support the upcoming 5G infrastructure projects.

Spectrum Licensing Tax Exemption

The auction and renewal of spectrum licenses are currently treated as a sale, attracting advance tax under the “Sale by Auction” category. OICCI argues that this classification is inaccurate, as spectrum is intangible and only leased for a specific term, not sold as property.

To correct this, OICCI urges the government to introduce a specific exclusion under Section 236A of the ITO. This would prevent undue tax burdens on spectrum licenses, enabling telecom operators to invest more in network development and 5G technologies.

Reduced Duties on Telecom Power Equipment to Support 5G Rollout

The telecom sector is heavily reliant on power infrastructure, particularly lithium-ion batteries, to maintain network reliability. With the anticipated rollout of 5G, power demands are expected to surge. However, telecom operators currently face high import costs due to customs duties, taxes, and a 5% regulatory duty on batteries and related equipment.

To accelerate 5G deployment, OICCI proposes removing the 5% regulatory duty and excluding telecom power equipment from the Federal Board of Revenue’s (FBR) retail valuation list. These changes would cut costs for telecom operators, enabling faster network expansion and better service quality. Additionally, OICCI recommends exemptions on optic fiber deployment duties, which are currently taxed heavily. Reducing these barriers is seen as essential for widespread 5G connectivity, which is expected to unlock over $5 billion in economic value.

Easing Withholding Tax on Foreign Telecom Equipment Suppliers

Under the Finance Act 2018, amendments to Section 101(3) of the ITO require telecom operators to withhold 20% tax on imported equipment, even when the title of goods is transferred outside Pakistan. This inflated tax rate has been a significant barrier to telecom expansion, particularly in rural areas where infrastructure costs are already high.

OICCI proposes eliminating the 2.1% withholding tax on foreign suppliers and properly classifying telecom equipment under Part I of the Twelfth Schedule of the ITO. This change would level the playing field with other industries, allowing telecom companies to expand their networks more affordably.

The OICCI’s proposals are seen as a strategic move to align Pakistan’s telecom policies with global standards. By rationalizing taxes and eliminating bureaucratic barriers, the Chamber believes that Pakistan can not only accelerate its digital transformation but also position itself as a leader in 5G technology in South Asia.

The proposed tax cuts are not just about reducing costs; they represent a path forward for a more connected and digitally empowered Pakistan. With the 5G launch expected soon, these reforms could be the catalyst that propels the nation into a new era of digital growth and innovation.