Country overview: Pakistan A digital future Copyright © 2016 GSM Association COUNTRY OVERVIEW: PAKISTAN GSMA Intelligence The GSMA represents the interests of mobile GSMA Intelligence is the definitive source of mobile operators worldwide, uniting nearly 800 operators operator data, analysis and forecasts, delivering the with almost 300 companies in the broader mobile most accurate and complete set of industry metrics ecosystem, including handset and device makers, available. software companies, equipment providers and Relied on by a customer base of over 800 of internet companies, as well as organisations in the world’s leading mobile operators, device adjacent industry sectors. The GSMA also produces vendors, equipment manufacturers and financial industry-leading events such as Mobile World and consultancy firms, the data set is the most Congress, Mobile World Congress Shanghai and the scrutinised in the industry. Mobile 360 Series conferences. With over 30 million individual data points For more information, please visit the GSMA (updated daily), the service provides coverage of corporate website at www.gsma.com the performance of all 1,400+ operators and 1,200+ Follow the GSMA on Twitter: @GSMA MVNOs across 4,500+ networks, 77 groups and 238 countries worldwide. www.gsmaintelligence.com [email protected] This report was authored by Jan Stryjak, Lead Analyst Henry James, Mobile Ecosystem Specialist Important notice from Deloitte The chapters entitled “Supporting mobile’s contribution The scope of Deloitte’s work has been limited by the to Vision 2025: the role of tax”, “Supporting mobile’s time, information and explanations made available to us. contribution to Vision 2025: promoting investment, The information contained in Chapters 2 and 3 and the affordability and economy growth” and “Appendix: Appendix has been obtained from the GSMA and third- methodology” (“Chapters 2 and 3 and the Appendix”) party sources that are clearly referenced in the appropriate have been prepared by Deloitte LLP (“Deloitte”) for the parts of Chapters 2 and 3 and the Appendix. 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No financial or other professional advice, and specific advice party other than the GSMA is entitled to rely on Chapters 2 should be sought about your specific circumstances. In and 3 and the Appendix for any purpose whatsoever and particular, Chapters 2 and 3 and the Appendix do not Deloitte accepts no responsibility or liability or duty of care constitute a recommendation or endorsement by Deloitte to any party other than the GSMA in respect of Chapters 2 to invest or participate in, exit, or otherwise use any of the and 3 and the Appendix or any of their contents. markets or companies referred to in it. To the fullest extent possible, both Deloitte and the GSMA disclaim any liability arising out of the use (or non-use) of Chapters 2 and 3 and the Appendix and their contents, including any action or decision taken as a result of such use (or non-use). i COUNTRY OVERVIEW: PAKISTAN Contents Executive summary 2 1 Pakistan as a digital society 6 1.1 Pakistan in numbers 7 1.2 Mobile market evolution 10 1.3 Looking to the digital future 19 2 Supporting mobile’s contribution to Vision 2025: the role of tax 34 2.1 Taxes on mobile consumers 37 2.2 Regulatory fees and taxes on mobile operators 42 2.3 The contribution of the mobile sector 45 2.4 Taxes and fees on the mobile sector in Pakistan and taxation best practice 48 3 Supporting mobile’s contribution to Vision 2025: promoting investment, affordability and economic growth 52 3.1 Impact of tax reform on mobile affordability and investment 54 3.2 The impact of specific tax and fee changes 61 4 An agenda for reform: an enabling environment for mobile consumers and operators 68 4.1 The current taxation of the mobile sector 69 4.2 Projected benefits of tax reform towards Pakistan’s Vision 2025 objectives 71 4.3 Options for tax reform 72 4.4 A forward-looking regulatory framework 73 Appendix: methodology 76 Estimation of the economic impact of a tax change 77 Key assumptions 79 Scenario estimations 81 COUNTRY OVERVIEW: PAKISTAN Executive summary 2 COUNTRY OVERVIEW: PAKISTAN Pakistan has grown quickly, but the digital divide is still wide Pakistan has an emerging mobile industry: there Afghanistan. Many citizens either cannot afford or do are approximately 90 million unique subscribers in not know how to use the devices and services that the country, accounting for 47% of the population. deliver mobile broadband. However, the enablers of mobile internet connectivity: infrastructure, affordability, consumer readiness Over the next three years, mobile subscriber and content, all rank low in Pakistan relative to its penetration will grow to just over half of the neighbours. These enablers are critical to creating country’s population – only a small increase from the right conditions of supply and demand for mobile now. Today’s users will accelerate their transition to internet connectivity to flourish. Pakistan therefore has mobile broadband from 2G services, with improved one of the lowest penetration rates in South Asia. network coverage and more affordable smartphones the key drivers. By 2020, mobile broadband will be Although mobile broadband (3G and above) coverage accessed by about a third of the population, albeit has increased rapidly since launch in 2014, reaching predominantly those migrating from 2G. Given the lack 75% of citizens by mid-2016, uptake has remained of fixed line broadband connectivity in Pakistan, the low: as of June 2016, only around 10% of Pakistanis digital divide – between those that have access to the subscribed to mobile broadband services. This internet and those that do not – will remain substantial. is the lowest of any South Asian country except Mobile is laying the foundations for a digital society Pakistan is an emerging digital society: digitisation Pakistan’s mobile sector is in a unique position to is still in its early stages, and is used mainly as a support the country’s digital development for three tool for accelerating socioeconomic development, key reasons: particularly in improving digital and financial inclusion. However, through its Vision 2025 strategy, Pakistan • mobile can connect more people than any other aims to complete its transition to a knowledge- technology, particularly in underserved rural areas based economy, creating a globally competitive and • mobile can provide secure access to a variety of prosperous country that provides a high quality of life digital services such as health and education for all its citizens. • mobile can provide a platform to provide financial Vision 2025 aspires to a more advanced digital society: inclusion, engaging many people in the economy digital development can drive increased engagement for the first time. between individuals and institutions, provide huge In parallel, innovative services that run over mobile growth potential and productivity gains in all networks can support many of the government’s sectors, and enable more advanced and innovative Vision 2025 objectives, such as increasing enrolment in government services. education, improving food security and driving private sector growth. 3 COUNTRY OVERVIEW: PAKISTAN Accelerating mobile-led growth Mobile operators in Pakistan are playing their part in innovating to deliver the services that will accelerate progress towards the goals of Vision 2025 – and in doing so generating growth, jobs and investment in the wider economy. But they have an opportunity to do more. Today, more than half of Pakistani citizens do not subscribe to a mobile service, and some (predominantly rural) areas of the country do not have high-quality mobile broadband coverage at all. There is a clear role for the government in addressing some of the factors that lie at the heart of this issue, and its agenda must focus on the following areas. Recognising the impact that mobile-specific taxation has on uptake of mobile services Mobile consumers and operators in Pakistan are These higher taxes and fees on mobile services may subject to general taxes, some of which are higher for reduce affordability: for example, for the poorest 20% mobile services than for other goods and services. of the population, the total cost of mobile ownership These include sales tax/federal excise duty (FED) and may account for as much as a fifth of average withholding tax, which together account for more than annual income.