Is the Government Increasing Mobile Phone Taxes?
In the upcoming budget for 2024–25, the government of Pakistan is anticipated to increase duties and taxes on mobile phone imports in CKD (Completely Knocked Down) and SKD (Semi Knocked Down) conditions. This move aims to boost local manufacturing by creating a disparity between imported and locally produced mobile phones. The suggested changes may also negate the sales tax-zero rating on the packaging of mobile phones as part of the revised mobile device manufacturing policy.
Presently, sales tax is imposed on Completely Built Units (CBUs) at the time of import or registration (IMEI number by CMOs). Moreover, sales tax is also applicable to imports in CKD/SKD conditions and the supply of locally manufactured mobile phones in CBU conditions. The government’s purpose in increasing PTA mobile phone taxes is to facilitate local production and reduce dependence on imported mobile devices.
Pakistani Government Aims To Promote Local Mobile Manufacturing By Increasing Taxes On Mobile Phone Imports
The Federal Board of Revenue (FBR) has received a budget proposal from the Overseas Investors Chamber of Commerce and Industry (OICCI). The proposal recommends the complete abolition of the advance tax rate on telecom subscribers. Moreover, the OICCI claims that the majority of telecom subscribers fall below the taxable limit, and the current advance tax rate is hampering the affordability of mobile services. In its taxation proposals for the 2024–25 budget, the OICCI also proposed overhauling the withholding tax regime to improve transparency and minimize operational difficulties in tax claims and verification processes.
The chamber underscored that the advance tax on telecom services was actually reduced by the Finance Act, 2021, from 12.5% to 10% for the fiscal year 2021 and further to 8% for subsequent years. However, the Finance (Supplementary) Act, 2021, later increased the withholding tax rate from 10% to 15%. The OICCI argues that this increase in tax hinders the affordability of mobile services, which are necessary for the entire population. With over 70% of Pakistan’s population living below the poverty line, affordable telecom services are crucial for connectivity and economic growth.
The suggested changes in PTA mobile phone taxes aim to balance the need for revenue generation with the promotion of local manufacturing and the affordability of basic telecom services. By increasing duties on imported mobile phones in CKD/SKD conditions, the government expects to boost local production, which could lead to job creation and economic development. However, the abolishment of sales tax zero-rating on mobile phone packaging might affect the cost structure of locally manufactured phones.
Overall, the government’s approach suggests a multifaceted strategy aimed at stimulating economic growth, enhancing local production capabilities, and ensuring affordable access to fundamental services for the population. Anyhow, the upcoming budget will show the extent to which these proposals are adopted and the potential impact on the mobile phone and telecom sectors in Pakistan.
