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Despite subdued consumer sentiment, mobile phone imports have been heating up. These purchases surged by over 80 percent year-on-year to reach $1.4 billion in FY20, as per data from the Pakistan Bureau of Statistics. This is at odds with the overall merchandize imports, which declined by nearly 20 percent year-on-year last fiscal to $44.6 billion. The June device imports of $231 million (up 300% YoY!) sets a new record, but the surging trend had been visible since July 2019 (with April 2020 an exception due to the coronavirus lockdowns at home and abroad). Should the proverbial policymaker take notice?

In relative terms, handset imports came in at 3.1 percent of total imports – more than double the 1.5 percent share, on average, seen in the previous five years. In practical terms, Pakistan spent $614 million more on importing the talking machines than previous year. But it appears that burning of this precious forex may not have been all bad, for a major regulatory overhaul is formalizing huge import volumes, with some favorable consequences in terms of doing business and government revenues.

Introduced in late 2018, the PTA’s Device Identification Registration and Blocking System (DIRBS) has helped in curbing the allure of smuggled, illegal and non-declared cellphones by blocking them on local networks unless those devices are registered via formal channels by paying the due taxes and duties. Previously, the prevalence of unregulated devices was cited as a major issue in bringing FDI into this sector.

The latest Economic Survey also identified DIRBS as the reason that “significant numbers of mobile phones imports are now diverted to a formal channel from the grey channel, leading to a surge in official import data”. This measure, in addition to clampdown on misuse of baggage facility, has helped the coffers, too. “FBR collected revenue of over Rs28 billion in 1HFY20 from mobile import taxes, which is expected to cross Rs50 billion by the end of the fiscal year, as against Rs22 billion last year,” the survey noted. Also, at work is the easing of custom duties and abolishment of value-added tax on these imports.

The formal imports were bound to go up when other avenues became infeasible. Consider: cellphone imports averaged about $700 million in the decade until FY19; but something changed in a year and the tally doubled in FY20. The fact that handset imports in FY19 were almost the same as in FY12, despite growing use of mobile broadband and rising tele-density in the years in between, suggests that a viable grey market had existed for these goods. Otherwise, how could it be that the country was “officially” importing more mobile phones (HS Code: 8517.1219) in FY13 (19.7 mn units) than it did in FY19 (9.8 mn)?

Formalization of imports is among the essential ingredients to attract serious global players to make smartphones in Pakistan. This figure may come as shocking, but as per latest PTA Annual Report, 11.7 million mobile devices were assembled in Pakistan and registered via DIRBS in 2019. This figure, which more than doubled in a year, is catching up with commercial device imports, which stood at 16 million that year, based on PTA’s DIRBS figures. However, the locally assembled devices are said to be low-end phones; the dozen or so active assemblers need to up their game to cater to the mid-range market.

It is up to the government to use fiscal and non-fiscal measures to bring in global smartphone assemblers and provide quality devices at affordable price points to make the digital economy more inclusive. The recent approval of the Mobile Device Manufacturing Policy is a welcome step in that regard. But the real prize is not the device assembly, which does not add much value, but high level of localization. That will not only cater to the imported handset demand, but also help turn the country into an exporter of mobile phones.