FBR agrees to review sales tax on smartphones

The Federal Board of Revenue (FBR) is learnt to have agreed to a proposal of mobile phone importers to review sales tax of Rs 1000 on all new sets of smart cellular phone or satellite phone. Sources told Business Recorder here on Wednesday that representatives of mobile phone industry met FBR senior officials to discuss the SRO.280(I)/2013 here at the FBR House.
Under the said notification, the Board had increased sales tax from Rs 250 per set to Rs 1000 per set on smart cellular phones or satellite phones and Rs 250 per set to Rs 500 per set on other mobile phones. During the day-long meeting, the FBR agreed to seriously examine the proposal of reducing sales tax on the said smart cellular phones or satellite phones. The FBR will examine the whole issue in the light of presentations made by the concerned industry. "We will review the proposal however no final decision has been taken in this regard", sources added.
The FBR has further informed the industry that the views being presented in the proposal that imposition of sales tax under SRO 280(I)/2013 will ruin the businesses or lead to smuggling of mobile phones is also not correct as the present notification only brings the tax structure in line with the current cellular technology and it is aimed at safeguarding the interests of the exchequer which were being hurt due to the existence of a notification based on an obsolete technology.
According to the SRO.280(I)/2013, the fixed amount of sales tax would be collected at import stage, and would not be collected at the time of activation of mobile phone as specified in the rescinded SRO.542(I)/2008. The FBR will collect sales tax of Rs 1000 per cellular mobile phone in case of smart phones or satellite phones. The FBR will collect fixed amount of Rs 500 per cellular mobile phone in case of other than smart phone or satellite phone.
The FBR informed the participants of the meeting that the Board has collected a very negligible amount of sales tax at the time of activation of new mobile phones. Now, the charge of levy at the import stage would ensure sales tax collection on each set. SRO 280(I)/2013 does not impose any new tax, rather it only aligns the law with the latest mobile technology.
The FBR said that the fixed amount of sales tax on activation stage was first introduced through SRO 390(I)/2001 dated 18th June, 2001, with a rate of Rs 2000 per cell phone and on the request of cellular company operators to encourage the sector, the rate was reduced from time to time. Under SRO 542(I)/2008 dated 11 June, 2008 the fixed rate was Rs 500 per mobile phone, which was subsequently reduced Rs 250 per mobile phone.
The collection mechanism in all these notifications was based on the old CDMA technology, which required activation/energization of mobile phones by the cellular company operators before they could be operated. The CDMA technology is no longer prevalent on any mobile network in Pakistan as all mobile networks in the country are presently operating on GSM technology and under this technology only a SIM card is inserted in mobile phone which is ready for usage, FBR said.
The GSM technology-based mobile phones do not require activation/energization by the cellular mobile network. Due to this technology change from CDMA to GSM, SRO 542(I)/2008 dated 11 June, 2008 had become redundant and the government exchequer was not getting the proper revenue from this sector as pre-activated cell phones were being imported, resulting in a steep fall in revenue despite tremendous increase in volume of import.
SRO 280(I)/2013 necessitated removal of the anomalies due to change in technology and it has shifted the time and mode of payment of tax from activation stage to import stage.
The FBR said that the standard rate of sales tax under the Sales Tax Act, 1990 is 16 percent and prices of new mobile phones go as high as around Rs 80,000 or more. At the standard rate of sales tax, the amount of sales tax payable on a mobile phone costing Rs 50,000 would be Rs 8,000, but under SRO 280(I)/2013 the fixed sales tax is only Rs 1000 which comes to around 2 percent.
Thus the fixed rate of sales tax under SRO 280(I)/2013 is still much lower than the standard rate of 16% chargeable on all other goods. This reduced fixed rate of sales tax has been retained on the request of cell phone operating companies to help and encourage the sector, sources said.