Pakistan's drive towards a digital economy is being hampered by one of the region's highest tax burdens on mobile telecommunications, with a new study warning that excessive taxation is slowing smartphone adoption, discouraging investment and constraining broader economic growth. The report, titled 'Unlocking Digital Growth by Reducing Sector Taxation in Pakistan' and prepared by Frontier Economics for VEON, argues that the country has fallen into a 'tax trap' in which elevated levies on mobile services raise consumer costs, limit connectivity and ultimately restrict the expansion of the digital economy. At the centre of the study's findings is the contention that taxation policies targeting the telecom sector are undermining affordability in a market where digital access remains heavily dependent on mobile connectivity. The report notes that Pakistan's monthly average revenue per user (ARPU) stands at approximately $1, a figure it says reflects weak affordability and low levels of digital consumption. Acc ording to the analysis, Pakistan imposes a combination of high sales taxes, advance income tax and annual regulatory duties on mobile internet usage, creating one of the heaviest tax burdens on telecommunications services in the region. The study argues that this approach conflicts with the principle of efficient taxation, under which governments generally seek broad-based revenue measures rather than concentrating fiscal pressure on sectors considered essential for economic transformation. Researchers contend that the implications extend beyond the telecom industry itself. The report's econometric analysis found that a 1% increase in mobile penetration could raise real gross domestic product (GDP) per capita growth by 0.115 percentage points. On that basis, improved connectivity could lift Pakistan's annual GDP per capita growth rate from a baseline of 4.2% to nearly 4.5%. The findings suggest that mobile connectivity is increasingly intertwined with wider economic performance, influencing access to digita l services, markets and formal economic activity. Frontier Economics also modelled the potential impact of reducing sector-specific taxes from 2027 onwards. While acknowledging that the government could experience an initial decline in telecom-related tax revenues, the study concluded that broader economic expansion would eventually compensate for those losses. Under its projections, annual government tax receipts would return to positive territory by 2031, with cumulative fiscal gains continuing to increase through 2035 as higher investment, stronger economic activity and expansion of the formal tax base generate additional revenue. Khayyam Mushir, Deputy Chief Financial Officer and Head of Tax at JazzWorld, said the company supports the government's digitalisation agenda but argued that current tax levels on handsets and telecom services continue to impede affordability. He said high taxation is limiting smartphone adoption and restricting access to mobile internet, which increasingly serves as a gatewa y to essential services including education, healthcare, financial services and employment opportunities. Mushir maintained that the study demonstrates how a more balanced fiscal framework could produce stronger long-term economic and revenue outcomes. While there could be some short-term impact on collections, he argued that broader digital inclusion would stimulate economic activity, raise incomes and eventually increase government revenues. The report further contends that reducing sector-specific levies would encourage greater mobile usage, improve access to markets and public services, lower transaction costs and support employment creation and financial inclusion. Rather than relying on taxes that directly increase the cost of connectivity, the study recommends a gradual shift towards broadening the overall tax base through greater digital adoption and economic formalisation. Its central conclusion is that Pakistan's status as a mobile-first economy makes affordable connectivity increasingly important to digital inclusion, financial access and participation in the formal sector. Excessive taxation, the report warns, risks slowing those objectives and weakening the country's wider digital transformation agenda. As policymakers seek ways to expand the digital economy and accelerate economic growth, the study adds fresh weight to an increasingly prominent debate: whether higher taxes on connectivity generate immediate revenue at the expense of longer-term development.