Islamabad, March 27, 2025 – The telecom sector in Pakistan is calling for significant tax reforms and policy relief in the upcoming federal budget for the fiscal year 2025-26.
The Telecom Operators Association has urged the government to address pressing fiscal and regulatory challenges that hinder the industry’s growth and sustainability.
In an official communication to the Minister of Finance, the association highlighted that the telecom industry is a key driver of economic progress, contributing substantially to digital connectivity, employment generation, and overall revenue collection. However, the sector is facing excessive taxation and regulatory burdens that negatively impact investment, expansion, and service affordability.
One of the major demands put forth by telecom firms is the exemption from withholding taxes. Cellular Mobile Operators (CMOs) are classified as essential service providers, yet they are required to comply with a complex and costly withholding tax system. The telecom industry is burdened with multiple income tax deductions under the Income Tax Ordinance (ITO) 2001, including taxes on utility bills, corporate customer sales, and imports. This compliance structure creates significant administrative hurdles and discourages business expansion within the telecom sector.
To improve tax compliance efficiency and foster a favorable business environment, the telecom industry has requested an extension of withholding tax exemptions. Industry representatives argue that exempting telecom companies from withholding tax provisions under the ITO 2001 will streamline the advance tax payment process. Instead, they propose that telecom firms should continue paying quarterly advance tax under Section 147 of the ITO without facing excessive compliance requirements.
Another key concern raised by telecom operators is the minimum tax regime. The Finance Act of 2015 amended Section 153(1)(b) of the ITO 2001, converting the previously adjustable withholding tax into a non-adjustable minimum tax on telecom services. As a result, the current 4% minimum tax rate on telecom services has become a major financial burden, especially for operators struggling with fluctuating revenues and high operational costs. Industry leaders argue that this tax system transforms a direct tax into an indirect one, disproportionately affecting service providers, regardless of their profitability.
The telecom association has also emphasized the need for a fair and balanced tax enforcement approach. Industry representatives argue that tax authorities should refrain from taking extreme measures such as freezing bank accounts or sealing offices unless absolutely necessary. They stress that compliant telecom businesses should not be penalized due to enforcement actions intended for habitual defaulters.
The rising taxation on telecom sector employees is another critical issue. With inflation soaring, higher income taxes on salaries are making it difficult for telecom companies to attract and retain skilled professionals. The association has proposed sector-specific tax reforms to alleviate this problem, including inflation-adjusted tax brackets, reduced withholding tax rates, and targeted incentives for telecom professionals to ensure workforce stability.
Additionally, the telecom industry has urged a reduction in the income tax rate under Section 236 of the ITO 2001, which increased from 12.5% to 15% in 2022. The sector has also called for a rollback of the Federal Excise Duty (FED), which rose from 16% to 19.5% under the Federal Excise Duty Act 2005. Given that telecom services are already heavily taxed, lowering these rates would not only enhance affordability but also encourage increased usage, ultimately boosting government revenues.
As Pakistan moves towards greater digitalization and economic expansion, ensuring a tax-friendly environment for the telecom industry is crucial. The association hopes that the government will acknowledge these concerns in the 2025-26 budget and introduce reforms that support sustainable growth in the telecom sector while maintaining an equitable tax system.