Pakistan’s political class loves the vocabulary of transformation. Every year, new visions promise a “Digital Pakistan”, an “empowered youth”, and a “modern economy”. Yet beneath the lofty language lies a stubborn contradiction: the state taxes broadband as if it were a luxury product rather than the backbone of the 21st century. This single contradiction explains why Pakistan continues to lag behind regional peers in digital adoption, economic modernisation, and technological capacity. The country claims it wants digital growth, but it taxes the very oxygen that allows digital ecosystems to breathe. To understand how self-defeating this policy is, one must begin with the tax structure itself. After the 18th Amendment, sales tax on services became a provincial matter, and broadband taxation now varies across the country. These differences only add confusion; they do not change the core problem. Punjab, the largest province and home to more than half the country’s population, continues to impose a 19.5 per cent sales tax on internet and telecom services — the highest among all provinces. Sindh taxes corporate broadband at 19.5pc but offers conditional exemptions for residential users below certain billing thresholds. Khyber Pakhtunkhwa and Balochistan apply lower or conditional rates; in some categories, residential broadband is exempt. On paper, this produces a patchwork of rates. In practice, the effective burden on consumers remains heavy, because provincial taxes stack on top of a 15pc federal advance income tax applied uniformly to all telecom bills. Even low-income households and students who do not fall under the income tax net are forced to pay this federal levy. Once all taxes are added, broadband prices for millions of Pakistanis are grossly inflated. Taxing connectivity is one of the least efficient ways to raise revenue as it suppresses adoption, reduces investment, slows GDP growth, and ultimately shrinks the long-run tax base This regressive structure is not a technical oversight. It is a policy choice; one with severe consequences. Pakistan’s fixed-broadband penetration stands at roughly 1.3pc — among the lowest in Asia. Mobile broadband, though more widespread, still does not provide the reliability or capacity required for serious digital work. The result is an economy where the majority of citizens participate in the digital world through unstable connections, high costs, and frequent outages undermining productivity in every sector. What makes this failure particularly tragic is that Pakistan does not lack demand. It lacks affordability as surveys consistently show. Internet usage statistics show that the country has well over 110m users, yet even this figure is misleading. A large portion of users rely on sporadic mobile data packages instead of stable broadband connections. When a consumer’s monthly bill is swollen by provincial sales tax and federal withholding tax, upgrading to broadband becomes an unaffordable luxury. The provincial variations in tax policy exacerbate the problem rather than alleviating it. A student or micro-entrepreneur in Lahore faces a significantly higher tax burden than someone in Peshawar or Quetta. A small business in Karachi may benefit from conditional exemptions, while a similar business in Punjab pays full tax. Telecom companies, already burdened by spectrum fees, energy costs, currency depreciation, and regulatory delays, ultimately pass these variations onto consumers. Yet, the economic cost of this policy extends far beyond the consumer. It affects investment, productivity, and long-term competitiveness. Operators expand fibre networks where commercial returns justify it. High taxes shrink the revenue base, slow customer acquisition, and weaken the investment case for expanding into underserved areas. Pakistan already allocates far less spectrum than what international benchmarks recommend. Its fibre infrastructure trails far behind regional peers. Investors look at this environment — high taxes, unpredictable shutdowns, sectoral fragmentation — and move capital to more rational markets. The result is a structural digital deficit that compounds over time. The social consequences are equally worrying. Pakistan has one of the largest digital gender gaps in the world. Women are significantly less likely to own a smartphone, use mobile internet, or access online platforms. When broadband becomes a taxed commodity, it disproportionally excludes women, rural households, and low-income families. A female entrepreneur in rural Sindh cannot compete on e-commerce platforms if she cannot afford a stable connection. Pakistan’s policymakers often justify broadband taxation as a revenue necessity. But this logic collapses under scrutiny. The revenue generated is modest relative to provincial budgets, while the economic damage caused by digital exclusion is enormous. Taxing connectivity is one of the least efficient ways to raise revenue. It suppresses adoption, reduces investment, slows GDP growth, and ultimately shrinks the long-run tax base. Countries that adopted aggressive broadband expansion policies have seen increases in productivity, exports, and employment that far outweighed short-term tax reductions. Pakistan’s reluctance to follow this path is rooted not in economics but in inertia. If the country is serious about building a modern digital economy, it must begin with a simple premise: broadband is not a luxury. It is a public utility. It is as essential as electricity or clean water. It enables education, healthcare, commerce, financial inclusion, and governance. A country fighting to overcome low productivity, low exports, and low investment cannot simultaneously impose high taxes on the fundamental infrastructure of the modern world. Abolishing or drastically reducing sales tax on broadband across all provinces would declare that digital inclusion is not an afterthought but a central pillar of economic policy. It would encourage telecom operators to accelerate network expansion. It would narrow the gender gap and empower freelancers, startups, and small businesses. It would even align Pakistan with global best practices and enable the digital economy to emerge as a genuine driver of growth. The choice is stark: either continue taxing broadband as a luxury and watch another decade slip by in underperformance, or treat digital access as the foundation of national development. The writer is the former head of Citigroup’s emerging markets investments and author of ‘The Gathering Storm’. Published in Dawn, The Business and Finance Weekly, December 15th, 2025