FBR Tax Fiasco and Mobile Sales Decline!

“Unprecedented Increase Taxes Badly Affects Sales and Imports of Mobile Phones.” 

The importers and distributors in Pakistan were furious and are in state of shock and confused by unprecedented increase in the taxes by FBR. Most of the importers were not getting their ready shipment made and in most cases clearance of their cellular phone consignments at the port were also not done since, April 04, 2013 because of the sudden increase of import taxes. Dealers complained that while they have not catered for the increased upfront investment but were even more concerned that when these devices hit the market the customers will not be willing to pay an additional amount of Rs. 500 & Rs. 1,000 after the imposition of taxes on mobile phones. Then the FBR added more chaos & confusion by shifting some of the taxes from the importers to the operators. Now, the operators are furious at this unannounced slap on the already stifled industry.

FBR Tax Fiasco and Mobile Sales Decline!

Members of the five Mobile operators community interviewed have equally protested of the new taxation regime sighting that the charge of activation tax inherited lack uniformity while being discriminatory in nature as two handsets, being sold at Rs. 2,000/- and Rs. 100,000/- respectively, are taxed at the same rate of Rs. 250.

The bottom line hardest hit are the consumers with low affordability. This segment of the consumers use basic phone that are below the FoB price range of Rs. 2500 and constitute almost 46% of the phone population. The additional tax burden to be paid by this lower class is anywhere from a whopping 63% to 30% (Rs. 500 Import + Rs. 250 other Taxes) of the Phone price, if the earlier slapped taxes are taken into consideration. The latest tax regime of 31st May have little or no effect.

The apathy of the tax authorities can been seen from the fact that the most elitist class which is 9% of the total phone population only pays 13% to 5% depending on the price of the phone.

In Pakistan mobile phone sales dropped by 25% after the government decision & the imports also slowed down after 4th April. The impact of newly introduced activation taxes will also have a profound negative impact specially on the uptake of the subscribers. This trend is likely to continue if the government does not come to the rescue of the industry. While, previously only importers were crying horse now the operators will also join them. Around 75 pc people use low-cost phones which are in the price tag below Rs 5,000. After the imposition of tax,

many people are unable to purchase the phones due to 25% to 60% increase in prices. The market which already was price sensitive cannot sustain this jump and the worst hit are the lower and middle class consumers.

Director Teletec Mobile Azad Lalani Sales have plunged by more than 50pc due to drop in demand as people belonging to the low income bracket are not accepting the price hike. “Our imports have come down drastically. Noman Zakariya, Manager Sales, United Mobile.

A 60pc fall in cellular phones sales during April, 2013 that has plunged the industry to all time low. Karachi Electronic Dealers Association (KEDA)Chairman Mohammad Idress

A meeting of electronics dealers from all over the country with the FBR in Islamabad and discussed imposition of GST on cellphones. The FBR admitted that the SRO 280(I) 2013 of April 4 was issued without any homework or consultation with stakeholders, including importers and traders of cellphones. The SRO of 30th May came as blow to the Telco industry and especially to the mobile operators-while the consumer still are on the receiving end as before.

This step by government has severely affected the mobile industry and the declining sales and growth are the drawbacks of the new sales tax regime. The industry has warned that if the present taxation regimes are allowed to prevail, it would encourage illegal trade of mobile sets via Afghan Transit Trade or Dubai channel. The business community of Pakistan mobile industry demanded that all the SRO that negatively effects sustainable business growth be withdrawn and business friendly mechanism be envisaged such as the one under SRO 542(I)/2008 (June 11, 2008) be restored.