Government Should Consider Tax Breaks Proposed by Telcos

Dec 19, 2023

Telecom operators in Pakistan have recently proposed the government of Pakistan to adopt a model to earn revenue from 5G development instead of imposing spectrum fees and taxes. They contended that the high capital expenditure (Capex) and operational expenditure (Opex) requirements related to 5G deployment would pose considerable challenges for telcos in attaining a satisfactory return on investment. With these challenges in mind, telcos suggested an alternative model that emphasized revenue generation through 5G development rather than imposing spectrum fees and taxes.

The telecom operators proposed tax breaks in spectrum fees and local mobile manufacturing applications. They are confident that the government can boost investment in 5G infrastructure and speed up the process of launching 5G in the country by taking these measures. They also emphasized the significance of streamlining the Right of Way (ROW) decision-making process, seeking a one-window operation. It would assist in minimizing delays in acquiring the necessary permissions for 5G infrastructure deployment.

We agree with the proposal of Telecom operators and the government should consider these recommendations. Here's why?

Economic Impact:

5G can have a positive effect on the economy by promoting innovation, facilitating new services and applications, and supporting digital transformation. The tax cuts can prove to be a vital force in speeding up the deployment of 5G. Consequently, it will play a vital role in Pakistan's economic growth, job creation, and overall development.

Competitive Position:

Pakistan bears the risk of falling behind in terms of technological advancement and regional competitiveness, as it's South Asian neighbors have already made progress in deploying 5G. Providing tax benefits could encourage investment and accelerate the introduction of 5G services, allowing 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 enormous and restrict the ability of telcos to achieve an acceptable ROI, then tax incentives could encourage investment in 5G infrastructure.

Government Revenue:

Spectrum fee exemptions and equipment import exemptions could result in a transient decline in government revenue. Therefore, the government must assess the prospective 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 should guarantee the creation of a comprehensive 5G regulatory framework. This framework should deal with spectrum allocation, infrastructure deployment, security concerns, consumer protection measures, and competition policies. The government can take advantage of this opportunity to encourage 5G development while protecting national interests.

Quality of Service (QoS) Monitoring Mechanism:

The government of Pakistan should also devise a stringent quality of service mechanism to check the existing networks. Pakistan Telecommunication Authority has already set up a QoS monitoring system but it needs to be revamped so that the quality of the network can be assessed through end-user experience. It is pretty important in Pakistan as the network quality and coverage are not up to the mark even in the capital city of Islamabad and other major cities. The telecom operators should be held accountable on this front, as it's their responsibility to ensure good network coverage. Unfortunately, telcos are lagging behind on this front. Therefore, a modern Quality of Service (QoS) mechanism should be devised by the government to monitor the performance of telecom operators. If any operator fails to meet quality standards, then they should be penalized.

Skill Development and Training:

The deployment of 5G technology demands a skilled workforce capable of operating and maintaining the infrastructure. Therefore, the government of Pakistan should emphasize investing in training programs to assist in developing the required skills and expertise in areas such as network architecture, cybersecurity, etc.

Spectrum Management:

Efficient spectrum management is essential for the optimal utilization of limited-frequency resources. Therefore, the government should take measures for adopting spectrum-sharing mechanisms and explore new frequency bands to adjust to the growing demand for wireless internet.

Addressing Digital Divide:

While the deployment of 5G in major cities is critical, measures should 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 expand 5G coverage to remote regions, leading to digital inclusion and socio-economic development.

Regulatory Environment:

Along with tax incentives, the government should also work to create an enabling regulatory environment that fosters investment, innovation, and healthy competition in the 5G ecosystem. The government can do that by providing fair market practices, safeguarding consumer rights, and setting clear guidelines for spectrum allocation and network deployment.

International Standards and Collaboration:

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

The proposed measures put forward by the telcos to earn revenue from 5G development rather than imposing spectrum fees and taxes hold significance. By considering tax incentives, the government can promote investment in 5G infrastructure and speed up the deployment of 5G services. It would probably lead to economic growth and job creation in the country. However, the government should still assess the potential impact on revenue and work towards the establishment of a comprehensive regulatory framework to assure the successful deployment of 5G.