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Cell phone operators demand cut in handset tax

Updated March 07, 2019

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At present, only 23.2 million out of 155m mobile phone subscribers in the country are using 4G data services.— AFP/File
At present, only 23.2 million out of 155m mobile phone subscribers in the country are using 4G data services.— AFP/File

LAHORE: The mobile phone operators fear that the exorbitant taxes and regulatory duty imposed on new handset purchases will retard growth in the number of users of their 4G data services, affect future investment in network expansion and hurt revenues.

Talking to Dawn on Wednesday, a senior executive of a mobile company demanded the government revoke its decision or at least significantly reduce the amount of handset taxes in the larger interest of the mobile telecom industry and growth of the more advanced data services.

At present, only 14.9 per cent or 23.2 million out of 155 million mobile phone subscribers in the country are using 4G data services. The number of users of 3G services, according to the Pakistan Telecommunication Authority (PTA), is 25.5pc or 39.6 million.

“The present market penetration of 4G/3G data services is economically not feasible; the market penetration rate has to be above 60pc of the existing customer base to be viable for the operators,” the executive said, requesting anonymity.

The government will be collecting four taxes – income tax, sales tax, federal excise duty and customs duty – on handsets at the import stage. Additionally, it has imposed 10pc regulatory duty (RD) on the import value of the mobile phones worth $101 to $130 and 20pc above $130, a step implemented to cut the import bill in view of the country’s growing current account deficit and depleting foreign exchange reserves. The handsets worth up to $100 will attract a fixed regulatory duty of Rs250.

According to a Federal Board of Revenue (FBR) official, there are various tax slabs for mobile phones according to their prices. The lowest category of phones worth up to $30 attracts Rs470 in taxes. The tax charged for handsets valued between $31 and $100 will be Rs980; for phones worth $101 to $200 the tax is Rs3,550; phones priced at $201 to $350 will be taxed R4,650; for handsets worth $351 to $500 the tax is Rs12,750; and for those above $500 it is Rs22,750.

“With the rupee losing 30pc of its value (since December 2017), the new, massive taxation and RD has increased the prices sharply. The slowdown in the handset sales will impede growth in number of our data service customers,” the executive said. He said the mobile phone operators wanted the government to reduce the taxes and give incentives to manufacturers to bring their assembly facility to Pakistan.

In 2017-18, the country imported mobile phones worth $847.6 million, up by 19pc from the previous year. The mobile phones priced at $101 to $250 formed 51pc of the total market followed by 22pc share for the handsets worth $251 to $400 and 19pc for those in the price range of $51-100. Interestingly, the cheaper handsets valued at less than $50 had a market share of just 2pc and those above $400 the remaining 6pc.

“If the 4G market growth slows down, the operator will have to rethink their investments in network expansion going forward,” warned the executive. He said the three operators offering 4G services had invested heavily in their networks since 2016 with the number of 4G towers growing to around 20,000 around the country. “This will also delay the launch of 5G services in the country, which will prove detrimental to economic growth.”

The four operators invested $583 million in their operations during the last financial year. The country had attracted foreign direct investment of $288.5 million the same year.

Published in Dawn, March 7th, 2019