Mohsin Siddiqui (Chief Reporter)
In the upcoming budget for the fiscal year 2024-25, the government is expected to raise duties and taxes on the commercial import of mobile phones in CKD (completely knocked down) and SKD (semi-knocked down) conditions. This move aims to distinguish between imported and locally manufactured mobile phones to foster local production. the government may abolish the sales tax zero-rating on mobile phone packaging under the proposed changes in the mobile device manufacturing policy.
Currently, sales tax is applicable on complete built units (CBUs) of mobile phones at the time of import or registration (IMEI number by CMOs). Sales tax also applies to the import of mobile phones in CKD/SKD conditions and the supply of locally manufactured mobile phones in CBU condition. The proposed changes will further differentiate between imported and locally produced devices, encouraging local manufacturing.
The Overseas Investors Chamber of Commerce and Industry (OICCI) has submitted a budget proposal to the Federal Board of Revenue (FBR), suggesting that the government should completely abolish the advance tax rate on telecom subscribers. According to OICCI, the majority of the subscriber base falls below the taxable limit, and this tax hampers the affordability of mobile services, which are essential for the entire population.
The Finance Act of 2021 reduced the advance tax on telecom services from 12.5% to 10% for the fiscal year 2021 and planned to further reduce it to 8% in future years. However, the Finance (Supplementary) Act of 2021 increased the withholding tax rate from 10% to 15%. This increase has significantly affected the affordability of mobile services, especially given that over 70% of Pakistan’s population lives below the poverty line. Mobile services are crucial not only for communication but also for the economic growth of the country.
The OICCI has also recommended revamping the withholding tax regime to make tax claims and verification mechanisms more transparent and less operationally burdensome. By streamlining the tax regime, the government can improve compliance and reduce the administrative load on both taxpayers and the tax authority.
One of the significant aims of the proposed tax changes is to boost local production of mobile phones. By creating a distinction between imported and locally manufactured devices, the government intends to incentivize local manufacturing. This policy could lead to job creation, technology transfer, and overall economic growth. Abolishing the sales tax zero-rating on the packaging of mobile phones is another step in this direction, as it will make local production more competitive compared to imports.
The proposed increase in duties and taxes on mobile phone imports is part of a broader strategy to balance the trade deficit and encourage local production. However, it is crucial to consider the affordability of mobile services for the general population. Mobile phones are not just communication tools but also essential for accessing various services, including education, healthcare, and financial services. Therefore, any tax policy must balance revenue generation with the need to keep mobile services affordable for the majority of the population.
