ISLAMABAD, May 30: In what appears to be a surprise move, the Federal Board of Revenue (FBR) on Thursday not only revised downward the rate of sales tax on mobile phones, but also changed the mode of collection.

On April 4, the FBR issued a notification that the tax would be deducted at source from importers of mobile phones and would be passed on to the end consumers. The move was initiated to improve recovery of taxes from the sector.

Since then, the importers lobbies were putting pressure on the FBR to reverse the decision and also reduce the rate of sales tax.

Succumbing to the pressure, the FBR has not only introduced three slabs, but also lowered the maximum rate of duty from Rs1,000 on per cellular mobile phone to Rs750, while for low priced mobile phones the duty was lowered by Rs50 per set to Rs450 from earlier Rs500.

The standard rate of sales tax under the Sales Tax Act 1990 is 16 per cent and prices of new mobile phones go as high as around Rs80,000 or more.

At the standard rate of sales tax, the amount of sales tax payable on a mobile phone costing Rs50,000 would be Rs8,000, but under the new SRO the fixed sales tax is only Rs750, which comes to less than two per cent.

A notification SRO460 of sales tax was issued on Thursday to amend the April 4, 2013 notification.

As per the new notification, an amount of Rs150 will be charged at import stage on low priced mobile phones. These phones will have two mega-pixels or less camera, 2.6 inches or less screen and keypad. A standard rate of Rs250 will be collected on supply at the time of sale or activation of SIM Card.

The notification said the sales tax on supplies of cellular mobile phones shall be charged, collected and paid by the cellular company operators on every new sale or activation of SIM card. And no SIM card shall be sold or activated by a cellular company operator without charging and collecting the new sales tax rates.

Earlier, the sales tax collection on such phone was Rs500 per set.

A new category with medium priced mobile phones was introduced to reduce the rate of sales tax to a maximum on those mobiles. These phones will have 2.1 to 10 mega-pixels one or two cameras, between 2.6 inches and 4.2 inches screen size and less than 2 GHZ micro-processor.

The rate of duty now reduced to Rs250 on import stage, while a similar amount will be collected on supply of medium priced mobiles at the time of sale or activation of SIM Card. Such mobiles earlier attract Rs1000 per set which is now reduced to Rs500.

The smart cellular phones or satellite phones will fall in the third category. These phones will have 10 mega-pixels and above one or two cameras, 4.2 inches and above touch screen size, 4 GB or higher basic memory, operating system of the type iOS, Android V2.3, Android Gingerbread or higher, Windows 8 or blackberry RIM and 2 GHZ or higher, dual core or quad core micro-processor.

The rate of sales at import stage of the third category will now be Rs500 in addition of Rs250 on supply of these mobiles at the time of sale or activation of SIM Card.

The fixed amount of sales tax on activation stage was first introduced through SRO 390(I)/2001 issued on June 18, 2001, with a rate of Rs2,000 per mobile phone. Under SRO 542(I)/2008 issued on June 11, 2008 the fixed rate was reduced to Rs500 per mobile phone, which was subsequently cut to Rs250.

Earlier FBR said that the collection mechanism in all the previous notifications was based on the old CDMA technology, which required activation/energisation of mobile phones by the cellular service provider before the mobile phone could be operated. However, CDMA technology is no longer available in Pakistan and all mobile networks are operating on GSM technology.

Under GSM technology, only a Subscriber Identity Module (SIM) card is inserted in mobile phones which are ready for usage. These GSM technology-based mobile phones do not require activation/energisation by the cellular mobile network.

Due to this technology change the government exchequer was not getting the proper revenue from this sector as pre-activated mobile phones were being imported resulting in a steep fall in revenue despite tremendous increase in volume of import.

And the change in mode of collection was made to align the law with the latest technology, which was again reversed to the old technology.