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, and adding duty/taxes are applicable on import of every mobile handset.
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 smart phones. The company 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 smart phones 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 smart watches, 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 smart phone penetration despite opening up their market only 5 years ago, while in Pakistan it stands at below 40 percent at present.
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 The situation is the result of the outdated thinking that the mobile phones are luxury item and should be taxes heavily, the companies said.
The DIRBS and the related taxation regime have significantly increased the handsets prices 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.