ECC Approves Pakistan’s 1st Mobile Device Manufacturing Policy

The Economic Coordination Committee (ECC) of the Cabinet, in its meeting held on 21st May 2002, approved the first ever Mobile Device Manufacturing Policy, in consideration of a summary moved by Ministry of Industries and Production. Pakistan’s first ever mobile device manufacturing policy has been prepared by Engineering Development Board (EDB), a techno-economic arm of Ministry of Industries and Production (MoIP), through extensive consultation with relevant public and private sector stakeholders. The ECC, in its previous meeting held on 13th May 2020, had approved the Mobile Device Manufacturing Policy in principle in case no. ECC174/20/2020 dated 13.05.2020 with the direction to fine tune recommendations of the summary in the light of discussion held in ECC and also in consultation with the stakeholders which were carried out accordingly mainly with Ministry of IT & Telecom and Federal Board of Revenue.

Mr. Muhammad Hammad Azhar, Minister for Industries and Production congratulated Secretary MoIP, Chairman, Board of Management Engineering Development Board (EDB), CEO EDB and Incharge Policy Section of EDB for their efforts in preparation of a comprehensive policy document which is expected to become a launching pad for the entire domestic electronics sector. He also acknowledged the support from Ministry of Commerce, Ministry of IT & Telecom, Pakistan Telecommunication Authority, Ministry of Planning, Federal Board of Revenue (FBR) and consideration of ECC.

In the past, local manufacturers of mobile handsets were unable to capture the market of over 40 million mobile handsets due to availability of grey or smuggled mobile 2 phones in the domestic market. The introduction of Device Identification, Registration and Blocking System (DIRBS) has helped eliminate this phenomenon. Resultantly, local assembly/ manufacturing has picked up and total collection of Rs. 3 million from CKD/ SKD manufacturing during financial year 2018-19 has shot up to Rs. 403 million during the first two quarters of financial year 2019-20. However the import of mobile handsets is still high with revenue collection of approximately Rs 40 billion per annum as the import in complete built unit (CBU) condition was feasible as compared to local assembly. The policy aims to provide cushion to the local assemblers which will provide jobs to local engineers, skilled and semi-skilled educated youth. Pakistan is well poised to capitalize the competitive human resource advantage to attract the investment in the sector from across the globe.

Pakistan’s 1st Mobile Device Manufacturing Policy Approved by ECC

The policy has been prepared keeping in view the success stories of countries like China, Vietnam and Bangladesh who have emerged as leading players in the field of mobile device manufacturing/assembly. These countries have incentivized both local and foreign investment by creating substantial tariff gap between import of CBUs and CKD/SKD kits and the policy document has been drafted to promote local manufacturing and assembly of mobile handsets considering the best international practices adopted by the countries. Policy aims at localization/indigenization of the parts of mobile phone in a phased manner.

The expected outcome of the policy will be start of local manufacturing of mobile handsets and eventual export also. This will have a positive impact on allied industry including packaging and plastic. The expected arrival of high end brands will give local industry an opportunity to become part of the global value chain. In addition, setting up of R&D centers and an ecosystem for software applications is also visualized. Pakistan is a bigger market than Bangladesh, which has started exporting to advanced countries like USA also.

The recommendations in the approved policy are as follows:

1. Removal of Regulatory Duty for CKD/SKD manufacturing by PTA approved manufactures under Input/Output Co-Efficient Organization (IOCO) approved import authorization.
2. Removal of Fixed Income Tax on CKD/SKD manufacturing of mobile devices up to USD 350 category.
3. Increase in Fixed Income Tax on USD 351 -500 USD category by Rs 2000 and > USD 500 by Rs 6300 on CKD/SKD manufacturing only.
4. Removal of Fixed Sales Tax on CKD/SKD manufacturing of mobile devices.
5. PTA shall allow activation of handsets manufactured in the country under import authorization of inputs by IOCO in CKD/SKD kit (8517.1211) and not under HS Code 8517.7000 i.e. parts. This will eliminate misdeclaration in parts category at the import stage. Activation of CBUs imported through notified routes after payment of all levied duties and taxes as fixed by government from time to time shall continue till further amendment.
6. In up to USD 30 category, words “except smartphones” to be inserted for CBU imports under 8517.1219 to avoid misdeclaration.
7. R&D allowance of 3% to be given to local manufacturers for exports of mobile phones.
8. Locally assembled /manufactured phones to be exempted from 4% of withholding tax on domestic sales.
9. Government to commit maintaining tariff differential between CBU and CKD/SKD till the expiry of the policy.
10. Local industry to ensure localization of parts and components as per roadmap included in the draft policy.
11. EDB to act as Secretariat of Mobile Phone Manufacturing Policy and ensure development of allied parts, components and devices.

A total of 16 local companies are manufacturing mobile devices in the country out of which most of the companies are manufacturing feature phones i.e. 2G. The companies are now shifting manufacturing of smartphones as the technology is shifting towards 4G/5G. The local manufacturers have shown satisfaction on approval of mobile phone policy and are of the considered opinion that investment in this sector will start pouring 4 in soon. The local industry also congratulated EDB on the announcement of proactive manufacturing policy.

The Policy is expected to ensure that local manufacturing of allied parts and components such as Bluetooth hands-free, mobile accessories etc. will be attracted through intelligent interventions at par with the international best practices through the involvement of relevant stakeholders. The industry may add tablets to its product line subject to enabling policy environment.