The telecom sector in Pakistan is currently grappling with a deepening crisis as a policy linking spectrum fees to the US dollar pushes the industry into a state reminiscent of the dark ages. The latest business confidence survey conducted by the Overseas Investors Chambers of Commerce & Industries (OICCI) has revealed a significant decline in confidence among businesses in 2023.
The telecom services industry is bearing the brunt of a 34.5% tax on telecom services, in addition to a 29% corporate income tax and a 4% super tax imposed last year, with further proposed increases in the upcoming budget. These exorbitant taxes mean that more than half of the telecom sector’s earnings are being directed straight to the government. Moreover, the industry is crippled by a dollarized cost structure and an interest rate hike, leading to a steep rise in business costs for telecom companies.
The impact of this policy is far-reaching. The devaluation of the Pakistani rupee has severely affected the sector, as spectrum prices, renewals, and even installment interest are linked to the US dollar. Aamir Ibrahim, CEO of Jazz, Pakistan’s leading digital operator, has highlighted an alarming 86% increase in forex rates over the past two years, creating immense uncertainty and jeopardizing the telecom business case.
Ibrahim has expressed deep concern over the dire situation faced by the telecom sector. In a tweet, he emphasized the declining business confidence among OICCI members and underscored the sector’s vital contribution to the economy. With a total investment of $25 billion and over Rs1.1 trillion in exchequer contributions from FY17-22 alone, the telecom sector’s plight cannot be ignored, he stressed.
The situation is further aggravated by soaring network energization costs. Fuel and electricity tariffs have skyrocketed by 172% and 67% respectively, placing a heavy burden on the already capital-intensive telecom industry. Furthermore, even a slight increase in interest rates translates into an additional financial burden of Rs1.5 billion for the sector, which has witnessed a staggering fourteen-percentage-point increase compared to 2021.
The telecom industry now stands on the verge of an existential crisis, demanding immediate intervention from the government. Ibrahim stressed the urgent need to resolve the policy that links telecom license fees to the US dollar. Such a resolution is crucial to safeguard the sector’s sustainability and ensure the provision of essential digital connectivity.
