Taxation, “the levying of tax” by the Government is a fundamental phenomenon that has strong effect on almost every sector. The budget announced on Friday for 2016-17 raised taxes on mobile phones whereas it extended the tax exemption provided to software exports in addition to allocating hefty budget for MoITT. The bad news came for the mobile phone industry is the raised taxes on the import of mobile phones. The industry expert’s sight high taxation as one of the reason that could result in slowing up the industry to achieve exponential growth that the country is capable of that could have profound impact on Pakistan Economy. The tax at the import level increases the cost of entry that has negative impact on the growth specially for bringing in new or high-end customer.
Similarly, Pakistan already suffers from higher usage taxation and is the bracket of countries that have the highest taxation rates. While this year budget also didn’t provide any relaxation to the mobile industry it raised them yet again at the import level.
Also Read about 2015-16 Taxation: Mobile Phone Taxation Misinterpreted: Exemption of Regulatory Duty to offset Taxation
Taxes on Mobile Phones:
The following is the increase in tax on mobile phone that has been announced by the Government in its finance budget of 2016-17.
|S. No.||Category||Sales Tax (Previous)|
|Sales Tax (New)|
|1.||Category 1 (feature Phone)||300||Rs. 300 (unchanged)|
|2.||Category 2 (Mid-Range Smartphone)||500||Rs. 1,000 (Doubled)|
|3.||Category 3 (High End Smartphone)||1000||Rs. 1,500 (50% Increase)|
Source: Budget 2016-17
The present sales tax rates of Rs 500 and Rs 1,000 has been suggested to be doubled and increased up to Rs. 1,000 and Rs. 1,500 for medium and high-end mobile phones, respectively. Whereas as the tax on low category mobiles will remain same (Rs 300).
Increasing duties on the mobile phones will not only slow up the mobile broadband penetration rate but severely impact the business of the existing mobile phone importers. The industry has shown dismay at the Government for suchanti-industry steps and strongly reacted rejecting the proposed hike in duties on import of phones. Talking to the media representatives of the mobile import association in Karachi KEDA said:
“The hike will promote mobile phone smuggling instead of benefiting the exchequer.”
Similarly, Zeeshan Yousuf Director QMobile while talking to media said:
“The mobile phone industry will see a rise in smuggling of smart phones as a result of the General Sales Tax (GST), which has been doubled in the budget 2016-17. The Government was well aware of the smuggling phenomenon, but even then it was continuously imposing taxes on mobile phones on different accounts. It seems the Government wants to promote smuggling.”
Tax Exemption on IT Exports:
The good news in the new budget came for the IT companies especially for those who are in the export business as the Government extended the date for exemption on IT services and products till June, 2019. In this regard, the Government said that:
“IT sector is passing through infancy stage in the country and requires support. Keeping in mind the prevailing situation, the Government proposed that the exemption in taxes may be extended till June, 2019. Furthermore, IT companies — availing the tax exemption — will have to remit 80% of their revenues to Pakistan through banking channels while they can retain 20% of the revenues outside of country for meeting their expenses.”
The previously imposed 8% minimum tax on services provider companies remains same that the Government was expected to reduce to 2%, but has not been considered by the Ministry. The Software industry showed its disappointment on retaining this tax as they believe that this situation is actually forcing IT companies to shift their sales to foreign countries in order to evade tax duties.
Allocation of Budget for MoITT:
The budget 2016-17 has allocated Rs 1109.249 million for 15 development projects of the Information Technology and Telecom Division in the Public Sector Development Programme (PSDP).
|S. No.||Total Amount Allocated by Government||Rs 1109.249 million|
|1.||On-going Projects||Rs 898.24 million|
|2.||New Projects||Rs 211.225 million|
Source: Budget 2016-17
Out of Rs 1109.249 million for 15 development projects Rs 898.24 million will be spent on 12 ongoing projects whereas Rs 211.225 million has been allocated for three new projects. In new projects, a major portion of Rs 151 million has been allocated for the establishment of a technology park in Islamabad Phase-I.
Allocation of Budget for PM’s Special Project for Youth:
In 2016-17 budget, Rs. 20 billion fund has been allocated to Prime Minister’s special projects; which also includes the provision of laptops to the students. The fund has been raised by Rs. 1 billion as last year Rs. 19 billion was allocated.
Source: Budget 2016-17
In a nut shell, it is now clear that taxes are enhanced on Mobile Phones, exemption is extended for IT Services & Computers and MoITT gets more funding. Let’s see how this allocated budget is successfully utilized by the Ministry and what positive changes in the industry we see this year.