The telecom sector remains one of the top sectors that contributes in bringing foreign direct investment (FDI) in Pakistan, however the sector’s investment currently stands at $25.8 million in the first quarter of 2015-16.
Statistics of the State Bank of Pakistan (SBP) stated that the foreign investment inflows brought by the foreign telecom companies stand at $25.8 million as against $27.9 million outflow of investment, mainly carried out through local companies or with joint-ventures with multinational companies, showing negative FDI of $2.1 million.
The investments of the telecom operators were recorded as $16.4 million in July but it gradually reduced to $4.6 million in August and $4.8 million in September, which showed that the market players of the sectors have slowed down their investments.
The imposition of 19.5% general sales tax (GST) on mobile Internet (3G/4G services) by the Punjab government has curtailed the usage of the Internet services, on the other hand, the acquisition of number of subscribers are not being achieved by the operators.
There are 15.7 million 3G/4G Internet users in Pakistan by August 2015, out of which more than 60% of the users belong to Punjab.
The mobile operators have slowed down investment in the sector because the profits of the companies have declined as compared to the previous year, which witnessed quite impressive and encouraging growth when it came to return on investment made by cellular operators, a senior official of a mobile phone company said.
He said in the first half of 2014-15, the telecom operators made record revenue of Rs. 300 billion, however the rest of the half was not good as it was expected to touch revenues Rs 600 billion, but the entire sector saw a correction stage and spent Rs 3 billion on setting up biometric verification of subscribers for SIM sales. This period also include no-sale of new SIM, no growth and no acquisition of new subscribers for three to four months, he added.
“The mobile phone operators were optimistic that the new investment would drive their revenues to new heights; hence, they also embraced the government’s will to change the entire system for the sake of the country’s security,” he said on the condition of anonymity.
He said the government did not recognise our investment and taxed the telecom sector, which is already heavily taxed. “It is a double whammy for the telecom operator who invested heavily but in return were slapped with taxes. How much and how long the headquarters of foreign companies would support their subsidiaries in terms of investments because they believe that the companies should manage their expenses themselves through reinvestment of the profits they earned from the market,” he remarked.
Two out of five operators—Mobilink and Telenor—have passed on the Internet tax to a subscriber base of almost 8.65 million a couple of weeks ago, whereas three operators are still waiting for the reversal of notification that was earlier promised by Punjab Chief Minister Shahbaz Sharif and Punjab Finance Minister Dr Aysha Ghouse.
Three mobile phone companies—Ufone, Zong and Warid—have been bearing the burden of taxes by paying to the provincial government from their own pockets. The cellular operators are looking towards the telecom authority and the ministry to take up the issue with the provincial government that would set the future course of action of operators, said an official of another mobile phone operator, which made highest investment to launch the next generation technologies.
The operators are not happy at all with heavy taxation but the government is looking for new entrants in this situation with a purpose to generate investment, he added.
“We have planned for investment in the future but the government should realise its policy for investors,” he said optimistically.
In the financial year of 2013-14 and 2014-15, the operators made an investment of $904 million and $948 million, which shows that an average quarter investment stood at $226 million and $237 million respectively, however numbers of first quarter investment of current financial year was nine times less than that of previous year.
This also depicts the plunging imports of overall telecom equipment which declined significantly by 46% to stand at Rs 8.9 billion in July and August as against values of previous year which stood at Rs 16.3 billion, according to available figures of Pakistan Bureau of Statistics (PBS).