Smartphone taxes in Pakistan are increasing the country’s digital divide and creating obstacles for education, employment, and online business opportunities, according to a new policy report. The study warned that the government’s heavy taxation on mobile phones and telecom services contradicts its own digitalisation agenda.
The report, titled “Taxing Connectivity How Taxes and Tariffs Deepen Pakistan’s Digital Divide,” was published by the Policy Research Institute of Market Economy. It argued that Pakistan continues to treat smartphones and internet access as luxury products instead of essential economic tools.
According to the report, although 81 percent of Pakistan’s population lives in areas covered by 3G and 4G services, only 29 percent of people actively use the internet. This leaves a digital usage gap of 52 percent mainly because of affordability issues rather than infrastructure shortages.
The study stressed that digital connectivity has become critical for economic growth, learning, and employment opportunities. However, Pakistan’s tax policies continue placing heavy financial pressure on consumers trying to access digital services.
The report highlighted that Pakistan imposes one of the highest telecom tax burdens in the region. Imported smartphones face multiple taxes including regulatory duties, advance income tax, withholding tax, and sales tax.
Under the current taxation structure, smartphones priced above 500 dollars face an additional 25 percent sales tax. Premium mobile phones can eventually carry a total tax burden exceeding 50 percent of their original value.
Researchers estimated that a smartphone worth 700 dollars eventually costs Pakistani consumers around Rs294,500 after taxes and duties. The total tax amount on the device reaches nearly Rs98,500.
The report warned that such high taxation has encouraged the growth of the grey market for mobile phones. Smuggled and patched smartphones are becoming increasingly common as consumers search for cheaper alternatives.
The study referred to the Pakistan Telecommunication Authority and its Device Identification, Registration and Blocking System known as DIRBS. According to industry estimates cited in the report, the PTA blocked nearly 100 million illegal mobile devices during fiscal year 2024 and 2025. These included millions of cloned and duplicate IMEI devices.
Experts believe the increasing grey market is reducing government revenue while also damaging legitimate businesses operating in the telecom sector.
The report also examined the performance of Pakistan’s Mobile Device Manufacturing Policy introduced in 2020. The policy aimed to encourage local smartphone manufacturing and reduce import dependence.
While local assembly has expanded significantly, the report stated that genuine localisation remains extremely limited. Pakistan now assembles more than 30 million mobile phones annually, with over 30 companies operating assembly plants.
However, localisation remains below 10 percent against the government’s target of 49 percent. Most manufacturers continue importing completely knocked down kits instead of producing high value components locally.
The report stated that the policy successfully reduced imports of finished mobile phones but failed to create a strong domestic manufacturing ecosystem. Pakistan still depends heavily on imported parts, meaning the country’s foreign exchange burden has not decreased significantly.
Researchers also highlighted the social impact of expensive smartphones in a country increasingly dependent on digital work and online services.
Using Household Integrated Economic Survey 2024 and 2025 data, the report estimated that an entry level smartphone priced around Rs25,000 consumes nearly 62 percent of the monthly expenditure of the poorest households.
Even middle income families face affordability challenges. The average affordability ratio for smartphones stands at 31 percent nationwide.
The report warned that high smartphone prices are affecting women, students, freelancers, and gig workers the most. Pakistan currently has more than 1.5 million freelancers who depend on affordable internet access and smartphones to earn income online.
Researchers noted that women with access to mobile phones are more likely to participate in the labour force. As a result, digital connectivity is becoming directly linked to economic inclusion and financial independence.
The study urged the government to reform its taxation structure on mobile phones and telecom services. It recommended introducing a uniform 18 percent sales tax on smartphones while removing additional punitive tax slabs on expensive devices.
The report also called for reducing taxes on telecom services and treating digital connectivity as essential national infrastructure rather than a revenue generation tool.
Analysts believe that lowering smartphone taxes could increase internet usage, improve digital inclusion, support freelancers, and strengthen Pakistan’s growing digital economy.