Pakistan's PC/server shipments grew by 16.4 percent in 2006, lower than expected market performance, due mainly to the 15 percent goods and services GST imposed in June 2006, resulting in higher prices for IT products.
According to Springboard Research Asia Emerging Countries (AEC) quarterly 'Tracker', local IT companies would suffer most from Pakistan's current market conditions because, in addition to the 15 percent GST, the government has withdrawn the 3.5 percent sales tax exemption, previously given to local vendors.
Although the government has implemented IT development measures, such as infrastructure building and automation, its policies to support fair market competition have been undermined by the 15 percent GST.
"The GST tax imposition is being perceived, within the IT industry, as a serious setback, which will particularly impede hardware market growth," noted Rehan Ghazi, a research analyst. "The tax will raise the cost of hardware, and the cost of doing business, in the IT sector," he added.
The new tax imposition has come at a time when Pakistan's IT industry is at growth stage. Massive investments in IT infrastructure are being planned by financial services and telecommunications industries, and the new GST could delay their ambitious plans.
The fast growing software export market is also expected take a hit due to rising operational costs, adds the report. The fallout from the recently imposed tax includes increase in smuggled components.
Springboard reports a 10-15 percent increase in the grey-market business and this trend is expected to gain momentum in the future. In addition, the refurbished market is expanding its presence in the country.
In 2006, the multinational corporations led the market, with HP at 5.4 percent of total PC shipments, followed by Lenovo and Dell. Leading local brands Inbox and Raffles contributed a combined 4.6 percent share to total PC shipments.
Springboard's AEC report data further shows that Pakistan's portable segment experienced the highest growth in 2006 with a 30.4 percent increase in business, followed by desktop and X86 server products. Among the application segments, the large enterprises, especially telecom and banking, invested in IT, receiving 24.3 percent of total PC shipments in 2006, followed by the government and home sectors. Small and medium size business (SMB) showed less IT spending in 2006, and seem to be waiting for the Pakistan government to abolish or reduce the 15 percent GST.
In its 2007 market forecast, Springboard Research predicts the market to grow 17.4 percent, less than expected, due to the increased tax burden and decreasing imports. Nevertheless, it anticipates that the government would take some positive steps in promoting healthy competition in the domestic market by abolishing, or reducing, the tax.
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