Pakistan collects one of the heaviest tax burdens on smartphones and telecom services in South Asia, a new policy report has revealed.
The Policy Research Institute of Market Economy published the report, titled “Taxing Connectivity: How Taxes and Tariffs Deepen Pakistan’s Digital Divide,” warning of serious economic consequences.
It found that high device and internet taxes are directly undermining the government’s stated ambitions to build a modern, inclusive, and competitive digital economy.
A growing gap between coverage and use
Mobile network coverage reaches 81 percent of the population, yet only 29 percent of people regularly use the internet.
The report identified a 52‑point gap between these figures, driven primarily by the unaffordable cost of devices and services.
Fiscal policies in Pakistan continue to treat smartphones and internet access as revenue‑generating tools rather than essential infrastructure for economic and social participation.
The cost of a smartphone
Imported smartphones face a combined burden of regulatory duties, advance income tax, withholding taxes, and standard sales taxes applied at the point of entry.
Devices priced above $500 attract a higher sales tax rate of 25 percent, while premium handsets can face an overall effective tax burden exceeding 50 percent.
The report estimated that a $700 smartphone eventually costs Pakistani consumers approximately Rs294,500 after all applicable taxes and import duties are included.
Of that final price, taxes alone account for roughly Rs98,500, meaning nearly one‑third of the total consumer cost consists entirely of government levies.
A grey market fuelled by high taxes
The report argued that 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 the Pakistan Telecommunication Authority’s Device Identification, Registration, and Blocking System.
Industry estimates cited in the report show that the PTA blocked nearly 100 million illegal mobile devices during the 2024–25 fiscal year alone.
Millions of those blocked devices carried cloned or duplicate IMEI numbers, highlighting the scale of fraud operating beneath the surface of Pakistan’s official smartphone market.
Local assembly falls short of targets
Pakistan’s Mobile Device Manufacturing Policy, introduced in 2020, was designed to reduce import dependence and build a genuine domestic mobile phone manufacturing capability.
More than thirty companies now operate local assembly units, producing over 30 million mobile phones annually, a sharp increase from the period before the policy’s introduction.
However, the report found that actual localisation of components and production processes remains below 10 percent, far behind the official policy target of 49 percent.
Most manufacturers continue importing completely knocked-down assembly kits rather than producing high-value electronic components and parts within Pakistan’s own industrial base.
The shift from finished phone imports to kit imports has not meaningfully reduced Pakistan’s foreign exchange burden, because the industry still relies heavily on imported materials.
Women, freelancers, and the poorest households hardest hit
Using data from the Household Integrated Economic Survey 2024–25, the report estimated that an entry-level smartphone consumes sixty-two percent of a poor household’s monthly expenditure.
Even middle-income households face significant affordability pressures, with the national average affordability ratio for smartphone ownership standing at 31 percent of monthly household spending.
Pakistan currently has more than one and a half million registered freelancers who depend on affordable smartphones and reliable internet access to earn their livelihoods.
The report also noted that women with access to mobile phones are significantly more likely to participate in the formal labour force, linking digital access to gender equality.
What the report recommends
The report called for harmonising sales tax on all mobile phones at 18 percent and removing punitive higher tax slabs that apply to more expensive handsets.
It also recommended reducing the overall tax burden on telecom services and treating digital connectivity as essential national infrastructure rather than a narrow fiscal revenue instrument.
The report urged policymakers to align Pakistan’s tax framework with its stated digitalisation goals, warning that continued inaction would deepen inequality and slow economic growth significantly.
