Locally-manufactured mobile phones' sale to retailers: Tarin approached for removal of tax anomaly

ISLAMABAD: The Pakistan Mobile Phone Manufacturers Association (PMPMA) has approached Finance Minister Shaukat Tarin for removal of a tax anomaly on the sale of locally-manufactured mobile phones to retailers.

According to a communication of the association received at the Ministry of Finance, the association has also requested the Finance Ministry and the Federal Board of Revenue (FBR) to exclude locally-manufactured mobile phones from the category of "Electronics" to avoid applicability of 0.5 percent tax at retail stage. Under section 236H of the Income Tax Ordinance, a tax of 0.5 percent is applicable on the sale of "electronics" to retailers. The PMPMA are a representative body of mobile phone manufacturers located across Pakistan.

The association members employ more than 20,000 Pakistani workers, technicians, engineers, and management professionals, and are striving to make Pakistan a hub of mobile phone industry in the region.

As a result of Mobile Device Manufacturing Policy (MDMP) announced by the government in June 2020, several global brands have now started local manufacturing of smart phones in Pakistan.

The MDMP Intended to remove or minimise tax on the complete value chain of locally-manufactured mobile phones and removed the four percent withholding tax applicable on sale of local industry.

However, there is a critical and technical anomaly that needs to be urgently addressed with regard to tax applicable on sale of mobile phones to retailers under section 236H of Income Tax Ordinance 2001. Under section 236H, a tax of 0.5 percent is applicable on the sale of "electronics" to retailers. Since mobile phones are not specifically mentioned in the Schedule of section 236H, they are being treated under the heading of "Electronics" and hence subject to a prohibitive tax of 0.5 percent.

Mobile phones are a new industry.

Smartphones are a high volume product with very low margins of typically one percent to two percent.

Application of 0.5 percent tax under "Electronics" heading under section 236H is unfairly prohibitive and will kill prospects of investment in this industry at this nascent stage. It is requested that locally manufactured mobile phones be specifically excluded from the "Electronics" category u/s 236H to ensure a fair treatment to this new industry in line with the Mobile Device Manufacturing Policy approved by the Federal Cabinet in June 2020, the association added.

Copyright Business Recorder, 2021