Pakistan’s telecom industry has recommended reducing the withholding tax rate from 6% to 4% in the upcoming federal budget for fiscal year 2026-27, as part of a broader set of fiscal reforms aimed at supporting digital growth, broadband expansion and investment in telecom infrastructure.
The telecom sector submitted its budget proposals to the government with a focus on improving sector sustainability, accelerating digital inclusion and supporting Pakistan’s long-term digitisation agenda. Industry stakeholders believe that lower taxes and reduced import duties would help telecom operators improve network coverage, lower connectivity costs and increase investment in next-generation technologies.
Telecom Industry Calls for Tax Relief in Budget 2026-27
According to the industry proposals, telecom operators are facing increasing financial pressure due to high taxation, rising operational costs, currency depreciation and growing infrastructure investment requirements.
The industry noted that Pakistan continues to lag behind regional countries in mobile broadband penetration and internet affordability. Telecom operators argued that the current tax regime limits their ability to expand services, particularly in underserved and rural areas.
The industry has proposed reducing withholding tax under Section 153 of the Income Tax Ordinance, 2001 from 6% to 4%. Operators have also recommended making the tax adjustable instead of treating it as a minimum tax.
Industry representatives stated that the existing taxation structure creates cash flow constraints and increases the cost of capital for telecom companies. They believe that rationalising taxes would improve investment capacity and accelerate broadband deployment across the country.
Proposal to Reduce Advance Income Tax on Telecom Services
The telecom sector has also recommended reducing advance income tax on telecom services under Section 236 from 15% to 8%.
According to the proposal, high upfront taxation on mobile services disproportionately affects low-income and prepaid consumers, reducing digital adoption and limiting access to online services.
The industry pointed out that the tax rate had previously been reduced under a decision of the Economic Coordination Committee (ECC) before being increased again through the Supplementary Finance Act 2021.
Telecom operators maintain that reducing consumer taxation would improve affordability, increase mobile usage and strengthen digital and financial inclusion in Pakistan.
Telecom Sector Seeks Duty Cuts on 5G Equipment and Smartphones
Another major recommendation includes abolishing customs duties on the import of 5G and fixed-line telecom equipment.
The proposal covers network infrastructure, smartphones, servers, batteries, SIM cards and related telecom components.
Industry stakeholders stated that high import duties significantly increase deployment costs and slow the rollout of next-generation connectivity technologies, especially in remote regions.
According to telecom operators, rationalising duties could unlock nearly Rs12 billion in additional capital investment for digital infrastructure and network expansion.
Proposal to Reduce Fibre Optic Cable Import Duties
The telecom industry has also proposed reducing overall duties and taxes on optic fibre cable imports from approximately 67% to 5%.
The proposal highlighted that high fibre deployment costs, global supply shortages and elevated freight charges have become major obstacles to broadband expansion in Pakistan.
Operators argued that reducing fibre-related taxes would accelerate fibre rollout, improve broadband quality and support fixed broadband penetration, which remains below 2% in the country.
Industry Calls for Changes to Tax Administration Rules
In addition to tax relief measures, the telecom industry has recommended revoking the commissioner’s authority under Section 147(6B) of the Income Tax Ordinance, 2001 to reject taxpayers’ advance tax estimates.
According to the proposal, the current mechanism increases disputes, litigation, compliance costs and uncertainty for businesses.
The industry believes that withdrawing these powers would improve the ease of doing business, strengthen taxpayer confidence and reduce the administrative burden on both businesses and tax authorities.
Pakistan’s Telecom Sector Faces Connectivity Challenges
The telecom industry linked its recommendations to Pakistan’s broader digital economy goals and ongoing connectivity challenges.
Industry data shows that more than 30% of Pakistan’s population remains uncovered by 4G services, while nearly 12% still lacks access to basic mobile connectivity.
The sector also noted that Pakistan continues to have one of the lowest average revenue per user (ARPU) levels in the region, while consumer taxation on telecom services remains among the highest at 34.5%.
Industry representatives argue that creating a sustainable investment environment for telecom companies would help accelerate broadband expansion, financial digitisation and economic growth.
The proposal also referenced studies suggesting that a 10% increase in broadband penetration can increase GDP per capita by around 2%.
Key Highlights of Telecom Budget Proposals 2026-27
• Reduce withholding tax under Section 153 from 6% to 4%
• Make withholding tax adjustable instead of minimum tax
• Reduce advance income tax under Section 236 from 15% to 8%
• Abolish customs duties on 5G telecom equipment and smartphones
• Reduce fibre optic cable import duties from 67% to 5%
• Revoke commissioner powers under Section 147(6B)
• Encourage telecom investment and broadband expansion
• Improve digital inclusion and affordability in Pakistan