Pakistan’s heavy taxes on mobile telecom services are slowing digital adoption, discouraging investment and undermining long-term economic growth, according to a new study by Frontier Economics prepared for VEON.
The report, titled ‘Unlocking Digital Growth by Reducing Sector Taxation in Pakistan’, argues that high taxes on mobile services are creating a “tax trap” by raising consumer prices, discouraging smartphone adoption and limiting expansion of the digital economy.
The study noted that the monthly average revenue per user (ARPU) remains around $1 in Pakistan, reflecting weak affordability and low digital consumption.
According to the findings, Pakistan imposes one of the region’s highest tax burdens on mobile internet usage, including elevated sales taxes, advance income tax and annual regulatory duties targeted specifically at the telecom sector.
The report said the current tax structure contradicts the principle of efficient taxation, under which taxes should be broad-based rather than concentrated on sectors critical for economic transformation.
The study’s econometric analysis found that a 1% increase in mobile penetration could raise real gross domestic product (GDP) per capita growth by 0.115 percentage points. It estimated that improving connectivity could lift Pakistan’s annual GDP per capita growth rate from a baseline of 4.2% to nearly 4.5%.
Frontier Economics modelled the impact of reducing sector-specific taxes from 2027 onward and concluded that although the government might initially face a decline in telecom-sector tax revenues, broader economic gains would eventually offset the losses.
Khayyam Mushir, Deputy CFO and Head of Tax at JazzWorld, said the company supports the government’s digitalisation agenda, but warned that high taxes on handsets and telecom services continue to limit affordability and slow digital adoption.
“Pakistan’s digital future depends on making connectivity more accessible for the common citizen. High taxation is affecting smartphone adoption and restricting access to mobile internet and the essential services that increasingly depend on it — including education, healthcare, financial services, and employment opportunities,” he said.
Mushir added that the report demonstrates how a more balanced taxation framework could deliver stronger long-term economic and fiscal outcomes.
“While there may be some short-term revenue impact, greater digital inclusion can expand economic activity, raise per capita incomes, and ultimately generate significantly higher tax revenues for the government over time,” he said.
Also read: Pakistan’s telecom paradox: taxing the backbone of digital growth
Under the projections, annual government tax revenues would turn positive by 2031, while cumulative fiscal gains would continue rising through 2035 due to higher economic activity, increased investment and expansion of the formal tax base.
The report argues that lower taxes would stimulate mobile usage, improve access to markets and public services, reduce transaction costs and support job creation and financial inclusion.
It recommended that Pakistan gradually rebalance taxation away from sector-specific levies that directly increase consumer prices and instead focus on broadening the tax base through higher digital adoption and economic formalisation.
“Pakistan is a mobile-first economy where mobile connectivity underpins digital inclusion, financial access and participation in the formal economy,” the report stated, warning that excessive taxation risks undermining the country’s wider digitalization agenda.
