The government’s recent proposal to introduce an 18% tax on mobile phones has sparked significant concern among various stakeholders in Pakistan. The goal is to increase revenue, but many are worried about its potential impact on mobile phone affordability and the broader industry.

Impact on Affordability

Industry experts warn that this tax will make mobile phones more expensive, disproportionately affecting individuals with low incomes. For many Pakistanis, smartphones are crucial tools for their livelihoods. Gig economy workers, like Bykea riders, rely on affordable smartphones to earn a living. The proposed tax could hinder new entrants from purchasing a smartphone, affecting their ability to work and earn income.

Local Assembly and Manufacturing Challenges

Pakistan assembles about 95% of its mobile phones locally due to zero tariffs on SKD (Semi-Knocked Down) and CKD (Completely Knocked Down) units. This local assembly helps keep mobile phone prices low. However, high duties on raw materials have already hindered the local mobile components industry’s growth. An 18% tax on SKD and CKD units could worsen these issues, making it harder for local manufacturers to thrive and innovate.

Technological Transition Concerns

The timing of this tax is also concerning as Pakistan is transitioning to higher technologies like 3G and 4G. Despite advancements, around 40% of mobile users still rely on 2G phones. In contrast, developed countries have 70-80% of their populations using 3G, 4G, or 5G phones. The proposed tax could slow down this technological transition by making newer phones less affordable.

Existing Revenue from SIM Card Taxes

The government already collects substantial revenue from taxes on SIM cards. This indicates alternative ways to generate income without additional financial burdens on consumers. Experts suggest exploring these avenues instead of increasing taxes on mobile phones, which are essential for communication and economic participation.

Industry Response

During a recent meeting with the Federal Board of Revenue (FBR), industry representatives urged the government to reconsider the proposed tax. They warned that higher tariffs could disrupt localization plans and harm Pakistan’s mobile phone export targets, vital for economic growth. Mr. Zeeshan Mianoor, spokesman for the Pakistan Mobile Phone Manufacturing Association (PMPMA), emphasized that 95% of mobile phone manufacturing is local. He warned that the new tax could significantly disrupt the manufacturing process and localization efforts.