The “Make in Pakistan” mobile phones dream seems to have fallen flat, despite tax benefits of over Rs46 billion given in the last fiscal year, as the government has failed to ensure localisation of mobile handsets manufacturing in violation of a state policy.
The criminal negligence on part of the Engineering Development Board (EDB) and the Ministry of Industries has also led to giving illegal tax benefits beyond June 2022 on packaging materials, in addition to creating another preferential businessmen-class after the car assemblers.
Sources told The Express Tribune that the EDB and Ministry of Industries have failed to ensure the one year to two years localisation plan of the devices and the material used in the manufacturing of the mobile phones.
Three years ago, the previous government had approved the mobile device manufacturing policy to promote locally manufactured mobile handsets. It also gave incentives in the shape of reducing or waiving off duties, sales tax and income tax rates aimed at encouraging the manufacturers to make the parts locally.
The Tax Expenditure report of 2021-22 of the Federal Board of Revenue (FBR) showed that the country sustained Rs46.2 billion revenue losses on account of reduced duties and taxes being charged from manufacturers.
Despite availing these incentives, however, the mobile phone manufacturers could not even ensure the localisation of packaging material by the June 2022 due date, the easiest thing to be done in the value chain. According to the sources, there was also no progress in achieving the deadline of June 2023 for the localisation of chargers, Bluetooth headphones, motherboards, plastic parts, display and batteries.
It seems the EDB was complacent once again, the same way it was in the case of car assemblers who have failed to achieve the localisation of cars. As a result, car prices are exorbitant and consumers are being forced to bear the brunt of exchange rate fluctuations. While, some companies have hiked prices by four times in a single month and yet have failed to ensure timely deliveries due to restrictions on imports.
The concerned EDB official was not available for comments.
The manufacturers of mobiles phones are required to approach the directorate general of the Input Output Coefficient Organisation (IOCO) under the FBR for quota allocation wherein, imports in kit form are authorised to these companies after necessary verification from the IOCO. Pakistan Telecommunication Authority (PTA) approved manufacturers, however, are also allowed to import the parts for assembly and manufacturing of mobile phones. Under the localisation plan, packaging material had to be removed from the IOCO beneficiary list, which has not been done till date.
The industries ministry sources said that it was the EDB’s fault that it did not implement the packaging material localisation plan in a timely manner. The EDB raised the issue only in the first week of January this year, while the packaging material factories should have been operational in May of last year.
The Ministry of Industries convened a meeting last week to discuss the removal of packaging material from the IOCO quota allocation. The meeting, however, could not take place. The EDB and the PTA did not provide an aging list of local mobile manufacturers to the ministry that had to start using the local packaging material.
While import restrictions did force manufacturers to cut production to 35% of capacity, in two years they have been unable to achieve even 10% localisation. As per the plan, the total potential for the local value addition was 49%, including 2% from the packaging material.
After the government enforced the quota requirements, some big players received undue shares at the expense of relatively small mobile phone manufacturers, said the sources. According to the policy, in two to three years, local production can reach up to 80% of the total Pakistan handset market if an attractive tariff plan is given to the industry. This could have resulted in the creation of at least 40,000 high-skill direct jobs in electronics and information technology, and up to 300,000 indirect jobs in ancillary sectors. The annual mobile phones import bill before restrictions was $2 billion and a majority of it can be diverted to the local market, except for hi-tech iPhones.
According to the indicative list, local value addition of 49% had been envisaged to be achieved by June 30, 2023. By the end of June 30, 2022, the allocation of packing material was being discontinued from CKD/ SKD under IOCO import authorisation.
From July 2023, the packaging materials should have attracted the duty structure currently prevailing, if imported by the manufacturer. This, however, did not happen.
The FBR’s tax expenditure report showed that sales tax exemption of Rs45.9 billion was given on the sales of locally assembled mobile phones. The profits and gains derived from mobile phone manufacturers cost another Rs1.3 million.
The import of plant, machinery and production line equipment, used for the manufacturing of local mobile phones, was Rs226 million in the previous fiscal year. If packaging material is not immediately removed from the IOCO list, it could delay localisation of chargers and batteries significantly on flimsy excuses.
Published in The Express Tribune, March 18th, 2023.
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