Laws and Taxes

Government Reduces Taxes on Imported Phones to a Lukewarm Reception

Jan 07, 2020

In a rather surprising move, the government has decided to decrease the withholding and sales taxes on imported smartphones. While this move looks favorable to the consumers on surface, the response from the mobile manufacturing industry has largely been unenthusiastic.

According to the presidential ordinance, the government has slashed withholding and sales taxes on imported phones ranging between $30 and $100, with immediate effect. According to the chairman FBR, Shabbar Zaidi, “This reduction in duty/tax is expected to increase import volume of mobiles in Pakistan”.

It is pertinent to note that taxes and duties were also reduced in the last budget presented by the PTI government. The focal point of this move is the common man – who the government wants to provide relief to. Moreover, the government also plans to incentivize used clothes and polyester fiber.

 

Sources close to FBR state that a summary is in pipeline to remove the RD imposed on old, used and worn out clothes. The logic here is that such garments will aid people from underprivileged classes. Currently, used garments are subject 10pc RD. Here is the proposed RD:

 

An Unenthusiastic Response

Meanwhile, the response from the mobile manufacturers has been underwhelming. They are of the opinion that such a drastic measure would cause unemployment and lead to businesses shutting down. Transsion Tecno Electric, which is the holding company for popular Chinese smartphone company Infinix, has serious reservations against the ordnance.

Earlier this year, FBR directed PTA to ask consumers to register their phones in accordance with the telecommunication standards in Pakistan, in a bid to eliminate the crime of smuggling. This ordnance however has been enacted to facilitate information between FBR and Financial Monitoring Unit (FMU) to bring transparency and raise compliance standards.

The excerpts from the ordnance released by the Federal Bureau of Revenue reflect that before the issuance of Tax Law Ordnance, the rate of withholding income tax on the import of a cellphone that ranged between $30 and $100 was Rp.730.  After this ordnance, the taxes have been slashed from Rp. 730 all the way down to Rp.100.

Short and Long-Term Implications

For the short term, consumers with low to mid-level income will welcome the decision, as the prices will be reduced. However, in the longer run, the ordnance will certainly have negative implications on the local industry, which did not foresee such a step by the FBR. Moreover, the government should have rather slashed taxes on fuel, which people from all walks of life purchase on a daily basis to commute; rather than cellphones, which is a one-time purchase. It remains to be seen if this ordnance helps people in the long-term future or comes back to bite the government.

Join our newsletter today!