Ministry Suggests reduction in taxes/duties on mobile phones

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The Ministry of Information Technology and Telecommunication has opposed Federal Board of Revenue’s (FBR) taxation on mobile phones import under baggage rules and recommended for reducing taxes/duties on mobile phones to achieve the digital vision of the government.

Officials’ sources revealed that a meeting was held in the Ministry of IT & Telecom where besides Federal Board of Revenue (FBR) other stakeholders also participated and discussed mobile phones import under the baggage rules.

Ministry Suggests reduction in taxes/duties on mobile phones

The MoITT confronted FBR on taxes on mobile phone import, saying it is affecting IT sector growth negatively as well as the digital agenda of the government. According to FBR the duty-free allowance on import of mobile phone brought by international passengers was withdrawn vide amending SRO 689 (I) 2019 dated 29-6-2019.

The said SRO was made effective from 1-7-2019. The reasons for withdrawal of duty-free allowance were that the facility was being misused. Data of international arriving passengers were being stolen and the passport numbers and flight data were being used to enter data details in the Mobile Device Registration Software to claim an exemption under the baggage rules.

While Device Identification Registration and Blocking System (DIRBS) delivered the expected decline in illegal phones in the market, the unrealistic duties also brought down the number of even legally imported phones. The situation is the result of the outdated thinking that the mobile phones are a luxury item and should be taxed heavily, the companies said.

Taxes/duties on mobile phones

The DIRBS and the related taxation regime have significantly increased the prices of the handsets in Pakistan which coupled with Pak rupee deprecation, has increased consumer prices by more than 50 percent. Although it has been reported that an additional Rs 7 billion may have been collected by the government as direct consensuses of DIRBS, yet at least an equal amount if not more of other taxes revenue (GST, withholding tax etc) has been lost. Factors contributing to this loss of alternate tax revenue include customer churn as customers have stopped using their SIMs, lesser number of total handsets being imported in the country, and less quantity of 4G handsets being imported while seeing an alarming increase in cheaper 2G handsets which are not internet capable.

Furthermore, this higher tax on mobile handsets has certainly slowed down the GDP growth of the economy due to the expected decline in mobile broadband adoption. Steep taxation on smart phones will certainly hinder the government’s plans to progress to a knowledge base economy for Pakistan. It has also portrayed a regressive image of the country since visitors and overseas Pakistanis suffer. This greatly undermines the government’s efforts to boost Pakistan’s image as an investor and tourist-friendly country, the presidents/chief executive officers of cellular companies added.

Further expensive mobile devices were mostly being registered by using international passengers’ data

Furthermore, the government desired that there should be uniformity in the application of duty/taxes whether brought into Pakistan by passengers or locally procured and, therefore, the exemption was withdrawn to avoid this anomaly. The FBR official said that around Rs 10 billion have been collected during this period from taxes on mobile imports.

However, no final decision was reached on reviewing taxation and allowing duty-free import of mobile phones.

A senior official of the IT Ministry said if a sector can contribute to the national economy in services and exports, it is none other but IT sector. He said if mobile manufacturing plants are not available; it is not feasible to import mobile phones with such taxes and duties. He said that the matter has been taken with FBR.

Presidents/chief executive officers (CEOs) of the telecom companies, Federal Board of Revenue (FBR) and Ministry of Information Technology also submitted their viewpoints on taxation of mobile phones and allowing duty-free import of mobile phones on December 24 at a meeting held at the Ministry of IT, however, no decision has been reached at in this regard.

Chairman Federal Board of Revenue (FBR) Shabbar Zaidi had said before different parliamentary panels that recommendation for allowing duty-free import of mobile phones under Baggage Rules would be tabled before the Economic Coordination Committee (ECC) of the Cabinet. Baggage Rules were misused in the past, compelling the government to withdraw the facility, he said, adding duty/taxes are applicable on import of every mobile handset.

The verdict of Telecom Operators:

Presidents/Chief Executive Officers (CEOs) of four telecom companies collectively informed Abdul Hafeez Shaikh, Advisor to the PM on Finance, about the taxation on import of mobile devices and smartphones. The companies recommended retention of the current tax structure on low-end 2G handsets/feature phones (i.e. Rs 500 as tax per device); reduce tax/duty on 3G/4G handsets (smart phones) below Rs 10,000 and cap it to a maximum of Rs 1,000 per device and reduce tax/duty on smartphones in the higher price brackets and cap it to a maximum of Rs 5,000 per device.

They further informed that a tax regime that focuses only on the short-term gains is going to negatively impact the uptake of Internet of Things (IoT) ecosystem in the country including smartwatches, sensors, smart metering, smart cities and other upcoming machine-to-machine (M2M) systems. This shall also impact the government’s efforts to introduce 5G in future.

Countries like Myanmar have reached 80 percent smartphone penetration despite opening up their market only 5 years ago, while in Pakistan it stands at below 40 percent at present.

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