The Asian Development Bank (ADB) has called on Pakistan to reduce high taxes on its digital infrastructure, citing the heavy burden these taxes place on the sector and the broader economy. In its latest report, “Pakistan’s Digital Ecosystem,” the ADB highlighted that Pakistan’s tax system is not user-friendly, adding unnecessary compliance costs for taxpayers and hindering the growth of digital technologies.
The ADB recommends that the government rationalize digital infrastructure taxes to make them competitive with those of other countries and establish sector tax rates for at least 10 years. The policy should also fix future spectrum floor prices and de-link them from the US dollar.
The report estimates that these measures would help reduce the digital divide, particularly for women and marginalized groups, who face barriers in accessing affordable internet.
According to the report, Pakistan’s digital sector contributes 1.5% to the national GDP and plays a vital role in driving growth and societal development. However, Pakistan’s slow adoption of emerging technologies, such as 4G and 5G, and high taxation in the telecom sector remain significant challenges. The ADB noted that mobile operators, already struggling with the lowest average revenue per user (ARPU) in the world, are finding it difficult to secure investments for a 5G rollout under the current economic conditions.
Additionally, Pakistan’s inefficient spectrum allocation and pricing, combined with power shortages and frequent internet shutdowns, are limiting the growth of mobile services. The ADB recommends restructuring spectrum auction starting prices to make them more attractive to operators and facilitate the timely introduction of 5G services.
The bank also pointed to the lack of a long-term strategy and cohesive institutional governance in the ICT sector, impeding progress in e-government and digital infrastructure development. The report suggests that the government should establish a more predictable policy framework that promotes private investment in digital infrastructure and fosters competition in the sector.
To stimulate demand, the ADB recommends that provinces invest in fiber broadband for schools and hospitals, which could encourage internet service providers to expand their networks. It also suggests promoting local manufacturing of smartphones and creating a robust regulatory framework for public-private partnerships (PPPs) in digital infrastructure development.
The ADB’s recommendations emphasize the need for a comprehensive approach to digital policy reform that addresses taxation, infrastructure, and investment to ensure long-term growth in Pakistan’s digital economy.
