Mobile taxation- a loss to the economy!

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Mobile taxation- a loss to the economy!
Mobile taxation- a loss to the economy!

Mobile taxation- a loss to the economy. Along with smartphone penetration that has dug deep inside the mines of technology, comes the gems like 3G, 4G, mobile banking, exciting apps and what not. You can now connect to anyone you love, the social app is in your hand. Do you want to ride without facing the hustle of wandering on roads in search of it?  Uber or Careem is just a touch away! Getting bore? The internet world is full of entertaining wonders. And all this is compacted in a device known as smart phone.

Smart phones have become accessible and easy to buy due to the affordable rates the industry offers. But the taxation system is likely to create hurdles in the way of its progressive penetration, slowing down the growth of 3G and 4G subscribers as well. The budget 2016-17 has brought along the increased rate of sales tax on import of mobile phones leaving an adverse effect on telecom industry as the growth of 3G and 4G is expected to be slowed down due to this. The budget proposed a two fold increase in the tax rates of medium and high category phones. Rs. 1000 will be charged for the medium level phones while you have to pay a tax of Rs 1500 for the high level phones which were Rs 500 and Rs 1000 previously. Fortunately the low budget phones have been saved from any increase in their rates, it’s the same amount of Rs 300, as proposed by the Finance Minister Ishaq Dar. Fllowed by this decision, Experts predict a decrease in the amount of 3G/4G subscribers. They relate the increased taxation with the decrease in mobile banking which has just started flourishing in pakistan. As the mobile subscription will be lessened, so would the online banking wth the help of which

Banks have so far become successful in opening around 13 million m-wallet accounts in the last two years with the introduction of 3G/4G mobile broadband in 2014. The central bank aims to open 30 million such accounts by 2020.

About 1 million mobile users are subscribing the 3G/4G mobile broadband per month, states the economic survey 2015-16.The Pakistan Telecommunication Authority (PTA) added that the total number of broadband subscribers on mobile internet stood at 28.67 million in April 2016.

But after the implementation of suggested taxes on mobile phones, getting a cell phone would not remain an easy task. As according to Former president of the Karachi Electronics Dealers Association Idrees Memon, the proposed budget would make phones costlier than one would imagine. He gave some approximate figures about the new prices one cell phone would bear. A high rated smart phone like apple will now cost you a huge extra amount of Rs 11000 per phone while Rs 1500 to 3000 will be increased on the medium level phones. It should be noted that before the budget was proposed, vendors were paying Rs8,000 per set on account of taxes on high-end smart phones.

Must Read: Mobile Banking- gateway to the new banking era

Grave consequences have also been predicted from this sudden increase. The new taxation system on mobile phones will result in increased smuggling which is quite evident from the following facts and figures. Have a look!

According to the reports, pakistan gets 1.3 to 1.5 million mobile phones every month, legally imported in the region. The imports include feature phones as well as smartphones belonging to a variety of units. But point to be ponder resides in a sudden drop which legal mobile imports suffered from, as it decreased to about 35% from the monthly number of what industry imported in FY 2014-15.

An official source stated that acquisition of mobile phones and the ratio of smuggled phones are increasing side by side.

 “In 2015 legal import was almost 2 million handset a month which came down due to callous tax PML-N government put into practice in the preceding budget of 2015-16 which cemented the way for smuggled mobile phones that grew progressively every month.”

The raised smuggling in the mobile phone industry is because of the increased taxes which are imposed by the government every year. It was raised last year when the amount of taxes on mobile phone was doubled from PKR 150, PKR 250 and PKR 500 to PKR 300, PKR 500 and PKR 1,000 on lower, middle and high-end phones respectively.

By virtue of whch, mobile phones crowned the list of the most smuggled items of pakistan, as reported by FBI in January 2016, contributing 50% share in the total value with a loss of worth $ 4.4 billion.

regardless of a large piece of legal import getting washed away due the smuggling process, thanks to the mafia who smuggled the phone, mobile phone industry successfully spawned PKR 8.06 billion sales tax in FY 2015-16 for government, while the target line was marked with PKR 8 billion.

The goal wasn’t accomplished because of the amount of mobile phones sold, but due to the overall increase in the prices of mobile phones and more use of smartphones instead of feature phones, experts said. The decreased volume of import didn’t had an evident effect, as the rates of mobile phones have been increased pretty well. For the more smartphone penetration, credit goes to the introduction of 3G/4G services in Pakistan.

As no economical loss to the mobile phone industry was witnessed after the increased taxes per mobile, it motivated the decision makers and they increased the amount of imposed tax in the Fiscal Year 2016-17. The stake holders of the mobile industry have predicted an increase in the amount of smuggled mobile phones this year. But this time, the monetary value of a single phone will fail to compensate the loss mobile industry would suffer due to the fallen volume of imports.

A request has been made by Mobile phone industry owners to the government to downsize the tax administration, which on turn will put in loss the smugglers, while contributing in the progress of this industry.

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