Smartphone imports and digital Pakistan

While the contours of the government’s Digital Pakistan Initiative aren’t exactly known despite much fanfare about the initiative, it appears that the government is going about its digital drive in a rather haphazard manner. Last week, the Federal Board of Revenue issued a clarification that “Sales Tax and Income Tax at import stage has been drastically reduced in case of smartphones of Rs15000 or below”.

It is a good idea to bring down the imported price-tag for budget smartphones. It is, however, unclear as to how much reduction has taken place under the two tax heads. The FBR is typically averse to reducing any tax, but in this case it appears that the higher tax receipts accompanying the exploding mobile phone imports this fiscal have given the tax-body some room to accommodate industry stakeholders.

As per the Pakistan Bureau of Statistics, mobile-phone imports (HS Code: 8517.1219) had reached $498 million in the Jul-Nov period – a growth of 64 percent year-on-year, or in absolute terms, an additional import of more than $100 million! At this pace, full-year imports will reach close to $1.2 billion. That would be an additional $500 million spent on handset imports compared to what was sent abroad in FY19.

In recent years, Pakistan has been importing, on average, about 11 million mobile phones every year. That is a good enough market for import-substitution to take place. In the ongoing fiscal, this quantum may end up exceeding that average. Regulatory crackdown on smuggled phones as well as withdrawal of duty-free import of phones under baggage rules are going to reflect most of the actual imports in official data.

If smartphones are indeed the pivot around which the country’s digital economy and its digital society are to develop over time, the government’s digital drive may have to contend with two competing priorities. On one hand, the cost of imported smartphones has to be brought down to a level where it becomes more affordable for low-income customer segments. On the other hand, the price for a viable local smartphone manufacturing will have to be paid through import-related protections to interested parties.

Assuming there is a billion-dollar local market for a couple of viable smartphone manufacturing entities to grow business in Pakistan, the onus is on the industrial policy czars to start capitalizing, sooner rather than later, on this potential industrialization opportunity by offering both fiscal and non-fiscal incentives. In that context, whatever became of the much-awaited “Mobile Device Manufacturing Policy” that was to be released by the Ministry of Industries?