The Federal Board of Revenue (FBR) is said to have shattered Ministry of Industries and Production's dream of domestic mobile handsets manufacturing policy by reducing duty on imported mobile phones without taking the stakeholders on board, well-informed sources in Ministry of Industries and Production told Business Recorder.
"This is still a mystery who moved the summary to reduce duty on imported mobile phones. None of the Ministry of IT & Telecom, Ministry of Commerce and Ministry of Industries Ministry is aware," the sources added.
Local mobile phone assemblers are of the view that with the decision, their facilities will be shut down and engineers and other young workers will lose their jobs. Pakistan will keep importing from China, Vietnam and Bangladesh, etc.
Mobile handset manufacturing industry is one of the top five industries worldwide having sales revenue of $522 billion approximately and sales of over six billion devices. China has been the global hub of handsets manufacturing since 2010 having exports of over $ 150 billion per year. Mobile handset production is moving out of China due to increasing labour cost in China and trade war with the USA.
Owing to significant size of population and continuous growth in mobile connectivity, Pakistan is world's seventh largest handset importer in the world. This makes Pakistan market as an attractive destination for global brands. But currently, the market is largely dependent on imports as local manufacturing regime remained unattractive over the years.
According to Pakistan Telecommunication Authority (PTA), Pakistan's total annual market size (2G /3G /4G) is estimated at 34 million units out of which 20 million are 2G and 14 million units are 3G & 4G collectively. It has been observed that 4G devices have seen a growth from 16 percent (Jan 2018) to 29 percent (Aug 2019) whereas 3G devices have witnessed a drop from 19 percent to 16 percent during the same period. In addition, 2G devices have witnessed drop from 64 percent (Jan 2018) to 57 percent (Aug 2019) whereas growth in 4G devices from 16 percent (Jan 2018) to 29 percent (Aug 2019) has been observed. The statistics reveal that local market is shifting gradually to the latest technology. Device Identification, Registration and Blocking System (DIRBS) project of PTA has been instrumental to control smuggling of mobile phone devices and has provided safeguard against the security hazards. International Mobile Equipment Identity (IMEI) registration requirement under DIRBS has resulted in growth of both; local manufacturing and imports through legal channels.
The sources said it has been observed that during the first half of current fiscal year, mobile imports increased by 69 percent from $ 364 million to $ 615.7 million. The local assembly has also exhibited growth trend during the current calendar year.
Pakistan Telecommunication Authority (PTA) granted permission to 26 local companies for manufacturing out of which 15 are operational. For manufacturing of mobile phones, quota from Directorate General Input Output Coefficient Organization (IOCO) under Federal Board of Revenue (FBR) is required. However, the PTA approved that manufacturers can import the parts for assembly/manufacturing of mobile phones and are registered on network by PTA. CKD/SKD operations are limited due to several reasons in addition to insufficient tariff protection; (i) two parallel manufacturing regimes are in place, (ii) PTA type approved manufacturers import SKD/CKD via quota issued by IOCO; (iii) PTA Type approved manufacturers mostly import kits in part form for assembly and, (iv) absence of policy resulting in unpredictable business environment.
Following are the benefits of local manufacturing of mobile devices in comparison with imports in completely built form.
According to the Ministry of Industries and Production, the benefits of local manufacturing will be as follows: (i) transfer of technology for manufacturing 3G/4G/5G smart phones in Pakistan; (ii) foreign/local investment of more than $200 million is expected; (iii) establishment of joint ventures between global brands and Pakistani companies to set up manufacturing plants in Pakistan; (iv) due to attractive local manufacturing policy, Samsung alone has invested over $ 3 billion to set up mobile phone factories in Vietnam, Indonesia and India. Pakistan can be the next destination for such investment in near future; (v) incentives for local manufacturing can attract big investments from other global mobile phone manufacturers like Nokia, Huwaei, Oppo and others. Currently one Chinese joint venture has been established to manufacture 3G/4G mobile phones in Karachi and few companies have set up their manufacturing facilities in collaboration with Chinese Principals; (vi) over the next 2-3 years local production can reach up to 80 percent of total Pakistan handset market if attractive tariff plan is given to the industry; (vii) creation of up to 100,000 hi-skill direct jobs in electronics & information technology industry & up to 400,000 in-direct jobs in ancillary sectors; (viii) a typical smart phone constitutes more than 60 parts and its assembly is a labor intensive. Pakistan can benefit from its low labor cost; (ix) China exports US $150 billion worth of smart phones every year and Chinese investors are looking for alternate manufacturing base in view of trade war with USA. Pakistan can become a hub for Chinese manufacturers in case an attractive policy and predictability is ensured to the industry for at-least five years and ;(x) local assembly will help create an echo system for development of local mobile software, applications and R&D centers in Pakistan.
"We are expecting 2,000 jobs if the local mobile sets policy is approved by the federal government," the sources added.