1. Introduction / Executive Summary

Digital connectivity is no longer a discretionary consumer good; it is a core economic infrastructure underpinning productivity, innovation, employment, and social inclusion. In Pakistan, however, the promise of digital transformation is constrained by a fiscal and regulatory framework that prioritizes revenue and localization over access and competitiveness. High and layered taxation and customs tariffs on mobile handsets and broadband services have deepened Pakistan’s digital divide, escalating the persistent usage gap despite widespread network coverage.

This report examines how Pakistan’s tax regime- spanning mobile device import duties, the Device Identification, Registration and Blocking System (DIRBS), telecom service taxation, and the Mobile Device Manufacturing Policy (MDMP) 2020 has increased the cost of digital access and undermined national digital objectives. The policy has successfully created over 60,000 jobs since 2021, with local mobile assembly plants in Pakistan. Using administrative data, international comparisons, and household-level evidence from the Household Integrated Economic Survey HIES 2024-25, the analysis shows that smartphone affordability is a binding constraint on digital inclusion.

This paper finds that while MDMP has succeeded in shifting imports from finished phones to CKD/SKD kits, it has failed to generate meaningful localization, noticeable price reductions, or foreign exchange savings. While local assembly has increased, domestic value addition remains minimal with most of the mobile phone components still being imported. Instead, high effective tax rates-exceeding 50% on higher-end devices have fuelled grey market activity, distorted consumer choice, and weakened revenue efficiency.

In addition to raising the cost of smartphones, Pakistan’s taxation regime has created broader structural barriers to economic modernization and digital participation. Affordable connectivity should be viewed as a national development priority rather than a narrow fiscal instrument. Smartphones and broadband services are no longer optional consumer products. They are gateways to education, employment, innovation, entrepreneurship, and participation in the digital economy. By lowering barriers to digital access and aligning industrial policy with inclusion and competitiveness, Pakistan can accelerate economic modernization, strengthen human capital, and unlock the full potential of its young and increasingly connected population.

The report concludes that aligning fiscal policy with digital inclusion goals requires rationalizing device and service taxes, removing abrupt tax cliffs, and replacing unconditional protection with performance-based industrial incentives. It argues for a strategic policy shift that recognizes digital connectivity as essential national infrastructure rather than a revenue tool because affordable digital access is fundamental to Pakistan’s economic competitiveness and social inclusion.