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New tax imbroglio: Mobile phones sales decline

April 23, 2013

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New HTC smartphones, the HTC One X+, are displayed during a news conference for the launch of the product in Taipei October 16, 2012. - Reuters/File Photo
New HTC smartphones, the HTC One X+, are displayed during a news conference for the launch of the product in Taipei October 16, 2012. - Reuters/File Photo

KARACHI: Government decision of imposing taxes has badly affected sales and import of cellular phones.

Sources said that from April 4, importers and distributors have stopped getting clearance of their cellular phone consignments at the port.

Dealers said that customers are reluctant to pay an additional amount of Rs500 on low-cost mobile pbones which earlier used to cost Rs1,000-1,200.

On smart phones, end-users are made to pay an additional amount of Rs1,000 after the imposition of taxes.

Director Teletec Mobile Azad Lalani said that mobile phones sales have dropped by at least 25-30pc after the government decision. Imports have also slowed down after April 4, he added.

He said 80-85pc people use low-cost phones which are in the price tag of Rs3,000. After the imposition of Rs500 tax, many people are unable to purchase the phones.

Noman Zakariya, Manager Sales, United Mobile, said that 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,” he said.

The figures of Pakistan Bureau of Statistics (PBS) for April would reveal a clear picture of import of cellphones.

Mobile phone imports rose by 4.3pc to $536m in July-March 2012-2013 from $514m in the corresponding period of last fiscal year.

Karachi Electronic Dealers Association (KEDA) Chairman Mohammad Idress claimed a 60pc fall in cellular phones sales during April.

He said a meeting of electronics dealers from all over the country with the Member (IR) Operations, Mustafa Ashraf, on April 19 in the FBR House Islamabad discussed imposition of GST on cellphones.

He said that the Member IR Operations admitted that the SRO 280(I)2013 of April 4 was issued without complete homework or consultation with stakeholders, including importers and traders of cellphones.

The member assured the businessmen that all issues would be addressed after the return of FBR chairman from the United States.

He is visiting the US as part of a Pakistani finance team for a possible bailout package from IMF.

Idrees said he had given a detailed presentation to the Member IR.

Highlighting the previous regime on mobile sets, tax officials were informed that sales tax collection mode on mobile sets was kept distinct and peculiar since 2001 and it was in the hands of cellular companies at the stage of activation / energisation, primarily due to special nature of the mobile industry.

The intention of such a taxation mechanism was to recover tax from an organised and selected sector (cellular companies) instead of taking the risk of losing revenue due to possible misdeclaration or under-declaration by importers, which may promote illegal trade of mobile sets.

Explaining legal weaknesses and operational drawbacks of the new sales tax regime for the mobile phone industry, Adnan Mufti FCA, who assisted Mohammad Idress, informed the FBR officials that importers of mobile phone sets are already heavily taxed under SRO 140(I)/2013 of Feb 26 whereby import of mobile sets has been made liable to withholding tax at 5pc instead of 1pc as previously enjoyed by them.

Further, under SRO 280(I)/2013 of April 4, mode of collection of sales tax has been shifted from cellular companies to importers and sellers of mobile sets.

He also presented data suggesting that the new tax regime was introduced at the behest of GSM operators and Pakistan Telecommunication Authority (PTA) as they were lobbying for withdrawal of activation tax on mobile sets.

Since the activation tax was on the decline, the government imposed sales tax on import and supply of mobile sets to generate incremental revenue.

The industry contended that if SRO 280 is allowed to prevail, it would encourage illegal trade of mobile sets via Afghan Transit Trade or Dubai channel. They also assailed fixation of two tax values (Rs1,000 and Rs500) which, they claimed, would encourage misdeclaration and under-declaration of imports.

The business community demanded that SRO 280(I)/2013 be withdrawn and previous mechanism envisaged under SRO 542(I)/2008 (June 11, 2008) be restored.

Idress said that decline in sales and imports would severely affect government’s revenue.