A new report published by the Policy Research Institute of Market Economy has laid out in stark terms the cost of Pakistan’s approach to taxing smartphones and internet services, finding that the country has created a 52 percentage point gap between the proportion of the population covered by mobile broadband networks and the proportion that actually uses the internet. Mobile network coverage reaches 81 percent of the population, yet only 29 percent of people regularly use the internet, with the report identifying this gap as driven primarily by the unaffordable cost of devices and services rather than any lack of physical infrastructure. The report, titled “Taxing Connectivity: How Taxes and Tariffs Deepen Pakistan’s Digital Divide,” warns that fiscal policies continue to treat smartphones and internet access as revenue-generating instruments rather than as essential infrastructure for economic and social participation, directly undermining the government’s stated ambitions to build a modern, inclusive, and competitive digital economy.
Imported smartphones face a combined burden of regulatory duties, advance income tax, withholding taxes, and standard sales taxes applied at the point of entry, and this steep taxation structure has severely distorted Pakistan’s mobile device market and significantly expanded its informal, unregulated grey economy. High-end phones are routinely sold through unofficial channels after being altered to bypass PTA’s Device Identification, Registration, and Blocking System, with industry estimates cited in the report showing that PTA blocked nearly 100 million illegal mobile devices during the 2024-25 fiscal year alone, including millions with cloned or duplicate International Mobile Equipment Identity numbers. The scale of the grey market problem is not incidental but a direct consequence of a tax architecture that has made legitimate smartphone ownership prohibitively expensive for large segments of the population, effectively pricing millions of people out of the formal digital economy while pushing device acquisition into unregulated channels that carry their own risks.
Using data from the Household Integrated Economic Survey 2024-25, the report estimated that an entry-level smartphone consumes 62 percent of a poor household’s monthly expenditure, with the national average affordability ratio for smartphone ownership standing at 31 percent of monthly household spending. The report also found that the Mobile Device Manufacturing Policy of 2020, which was designed to reduce import dependence and build a domestic manufacturing base, has delivered limited results. Pakistan now locally assembles more than 30 million mobile phones annually with over 30 companies operating assembly units, but localisation remains below 10 percent against the policy target of 49 percent, and despite the shift from finished phone imports to completely knocked-down kit imports, Pakistan’s foreign exchange burden has not declined meaningfully because the industry still relies heavily on imported parts.
The report warned that expensive digital access is particularly hurting women, students, freelancers, and gig workers, noting that Pakistan currently has more than 1.5 million freelancers dependent on affordable smartphones and reliable internet access to earn their livelihoods, and that women with access to mobile phones are significantly more likely to participate in the labour force, making digital access increasingly linked to economic inclusion. To address these structural problems, the report recommended harmonising sales tax on mobile phones at 18 percent, removing punitive tax slabs on high-end devices, and reducing taxes on telecom services, while calling on policymakers to treat digital connectivity as essential national infrastructure rather than a narrow fiscal instrument. The findings carry particular urgency at a moment when Pakistan has just completed its fifth generation spectrum auction and is actively positioning itself as a digital economy, since the benefits of fifth generation connectivity will remain inaccessible to the majority of the population for as long as the device and data costs that gate access to the mobile internet remain beyond the financial reach of ordinary households.
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