Government should consider tax incentives proposed by telcos

Last Updated: June 5, 2023

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Telecom operators in Pakistan recently proposed to the Pakistani government to adopt a model to generate revenue from 5G development instead of imposing spectrum fees and taxes. They argued that the high capital expenditure (Capex) and operational expenditure (Opex) requirements related to 5G rollout would pose significant challenges for telcos in achieving a satisfactory return on investment. With these challenges in mind, telcos proposed an alternative model that emphasized monetization through 5G development rather than imposing spectrum fees and taxes.

The telecom operators proposed tax breaks in spectrum fees and local mobile production applications. They are convinced that the government can boost investment in 5G infrastructure and speed up the process of 5G launch in the country by taking these measures. They also stressed the importance of streamlining the Right of Way (ROW) decision-making process, aiming for a one-window operation. It would help minimize delays in getting the necessary permissions to deploy 5G infrastructure.

Why should the government consider the tax breaks proposed by telcos?

We agree with the telecom operators’ proposal and the government should consider these recommendations. This is why?

Economic impact:

5G can have a positive impact on the economy by fostering innovation, enabling new services and applications and supporting digital transformation. The tax cuts could prove to be a crucial factor in accelerating the rollout of 5G. Consequently, it will play a vital role in Pakistan’s economic growth, job creation and overall development.

Competitive Position:

Pakistan risks falling behind in terms of technological advancement and regional competitiveness as its South Asian neighbors have already made progress in 5G rollout. Providing tax breaks could boost investment and accelerate the rollout of 5G services, helping Pakistan to keep pace with regional developments.

Return on investment (ROI):

The high capital expenditure (Capex) and operational expenditure (Opex) requirements of 5G deployment have been highlighted by the telcos. If these costs are huge and limit telcos’ ability to achieve an acceptable ROI, then tax incentives could encourage investment in 5G infrastructure.

Government revenue:

Spectrum fee exemptions and equipment import exemptions can lead to a transient reduction in government revenues. Therefore, the government must assess the future financial impact and determine whether the long-term benefits of promoting 5G development outweigh the short-term revenue loss.

Regulatory structure:

In addition to tax incentives, the government must ensure the establishment of a comprehensive regulatory framework for 5G. This framework should cover spectrum allocation, infrastructure deployment, security considerations, consumer protection measures and competition policy. The government can take this opportunity to boost the development of 5G while protecting national interests.

Our recommendations to the government regarding network coverage and 5G deployment:

Quality of Service (QoS) monitoring mechanism:

The Pakistani government should also devise a strict quality of service mechanism to monitor the existing networks. The Pakistan Telecommunications Authority has already established a QoS monitoring system, but it needs to be updated so that the quality of the network can be judged by the end user’s experience. It is quite important in Pakistan as the network quality and coverage are not up to par even in the capital Islamabad and other major cities. The telecom operators should be held accountable on this front as it is their responsibility to ensure proper network coverage. Unfortunately, telcos are lagging behind on this front. That is why the government must devise a modern Quality of Service (QoS) mechanism to monitor the performance of telecom operators. If an operator does not meet the quality standards, he should be penalized.

Skill development and training:

The deployment of 5G technology requires trained personnel who are able to operate and maintain the infrastructure. Therefore, the Government of Pakistan should emphasize investment in training programs to help develop the required skills and expertise in areas such as network architecture, cybersecurity, etc.

Spectrum management:

Efficient spectrum management is essential for optimal use of limited frequency resources. Therefore, the government should take steps to introduce spectrum sharing mechanisms and explore new frequency bands to adapt to the growing demand for wireless internet.

Tackling digital divide:

While the roll-out of 5G in major cities is critical, steps must also be taken to address the digital divide in rural areas. In this regard, the government can look for innovative approaches such as community networks and public-private partnerships to extend 5G coverage to remote regions, leading to digital inclusion and socio-economic development.

Regulatory environment:

In addition to tax incentives, the government should also work to create a favorable regulatory environment that promotes investment, innovation and healthy competition in the 5G ecosystem. The government can do this by ensuring fair market practices, protecting consumer rights and establishing clear guidelines for spectrum allocation and network deployment.

International standards and cooperation:

The government should actively participate in international standardization bodies and work with other countries to establish its 5G policies, technical standards and spectrum bands. It will enable interoperability, roaming contracts and international connectivity, paving the way for global collaborations and partnerships.

last words:

The proposed measures proposed by the telcos to generate revenue from the development of 5G instead of imposing spectrum fees and taxes matter. By considering tax incentives, the government can boost investment in 5G infrastructure and accelerate the rollout of 5G services. It would likely lead to economic growth and employment in the country. However, the government still needs to assess the potential revenue impact and work towards establishing a comprehensive regulatory framework to ensure the successful rollout of 5G.