Prime Minister's Advisor Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood on Monday hinted that the government will announce Pakistan's first Mobile Phone Policy next month. He said this while presiding over a meeting on draft Mobile Device Manufacturing Policy prepared by Engineering Development Board (EDB).
The policy envisages incentives for local manufacturing/assembly of mobile devices which will expectedly shift the focus from import of mobiles in completely built condition to semi-knocked down (SKD) and completely knocked down (CKD) condition. Policy is mainly focusing on employment generation, import substitution and technology transfer. The revenue collection through imports will be substituted by import of CKD kits at subsidized duty structure and enhancement of duty on CBU imports, thus making local assembly/manufacturing feasible vis-à-vis imports CBU condition.
The mobile phone industry has grown to become one of the biggest manufacturing sectors in the world. The Pakistan mobile phone market is estimated at 53 million units annually. This makes Pakistan one of the top 10 global markets for feature phones and smartphones. Sales value of mobile phones in Pakistan was estimated at Rs 366 billion in 2019. This makes the industry bigger than automobile sector, with sales of Rs 360 billion in 2018.
Mobile phone manufacturing industry is now moving out of China as governments around the world are incentivizing local manufacturing through tariff measures that encourage transition from CBU imports to SKD assembly followed by CKD assembly and ultimately targeting mobile phone exports from respective countries.
Vietnam, India, Indonesia and Bangladesh are leading this transition since 2017 as a large number of local and global assemblers have sprung up, replacing CBU imports and creating an ECO system for CKD manufacturing and localization.
Pakistan, based on the size of its domestic market, is ideally placed to leapfrog into the high tech area of Electronics and ICT industry. After successful implementation of the DIRBS (IMEI registration system) by PTA in 2019, the possibilities of illegal CBU imports have been eliminated making it possible for FBR to alter customs duties without any fear of escalation in smuggling of CBU mobile phones.
However, unfortunately, the current tariff regime is unfavourable towards local manufacturing. As per the Custom Tariff 2019-20, it is more feasible to import a CBU mobile phone as compared to assembling it in Pakistan.
Currently, there are 26 companies which have been awarded manufacturing licences by the PTA. Almost all of these companies have set up facilities for basic feature phones in Mirpur Azad Kashmir, which provides an unfair exemption of 17 percent sales tax under notification No 1145-1245/95 issued on February 08, 1995. Ironically, after drastic reduction in duties/taxes on CBU import of feature phones through the Budget 2019-20, even these plants are unable to compete with the feature phones.
M/s Techno has set up the first smart phone manufacturing facility in Pakistan under 60:40 joint venture with Transsion China. The plant has been set up in Karachi with a local investment of $ 0.7 million with initial capacity to produce 1.9 million mobile per year. However, due to unfavourable tariffs, the JV is currently producing less than 5,000 smart phones per month.
Transsion China is one of the biggest mobile manufacturers in China with global sales of 124 million units in 2018. Transsion operates overseas assembly plants in India, Bangladesh and Africa under the brand names of infinix Techo & Itel.
The JV intends to expand this initial investment to enter into PC manufacturing through CKD assembly within a period of three years with an investment of over $ 6.5 million. However, the JV wants support in the form of reasonable tariff differential of 15 per cent- 20 percent on imports of CBU phones vs SKD kits.