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ECC approves first-ever mobile phone manufacturing policy, unveils incentives

Business

May 22, 2020

ISLAMABAD: Government approved the country’s first-ever mobile device manufacturing policy on Thursday, outlining a score of tax incentives and allowances to promote making of feature and smart phones in the 40 million handsets market.

The Economic Coordination Committee (ECC) of the cabinet approved the policy to promote local manufacturing and assembly of mobile phone handsets.

Adviser to the Prime Minister on Finance Hafeez Shaikh, chairing the meeting, said the policy is aimed at ensuring localisation and indigenisation of the parts of the mobile phones.

The meeting was told under the policy parts of mobile phone handsets would be used for the entire range of mobile phone handsets produced in Pakistan instead of limited to a particular model. The policy is expected to have a positive impact on allied industry, including packaging.

The ECC discussed various recommendations proposed as part of the policy and approved removal of regulatory duty for complete and semi knocked down (CKD/SKD) manufacturing by Pakistan Telecommunication Authority- (PTA) approved manufactures. Fixed income tax on CKD/SKD manufacturing of mobile devices up to $350 category and fixed sales tax on CKD/SKD manufacturing of mobile devices were removed.

The ECC approved increase in fixed income tax on $351-500 category by Rs2,000 and above $500 category by Rs6,300 on CKD/SKD manufacturing only.

PTA should allow activation of handsets manufacturing in the country under import authorisation of inputs to eliminate misdeclaration in parts category at the import stage. Activation of completely built units (CBU) imported through notified routes after payment of all levied duties and taxes as fixed by government from time to time would continue till further amendment.

In up to $30 category, words “except smart phones” would be inserted for CBU imports to avoid misdeclaration.

Research and development allowance of 3 percent would be given to local manufactures for exports of mobile phones. Locally assembled / manufactured phones would be exempted from 4 percent of withholding tax on domestic sales.

The government decided to commit maintaining tariff differential between CBU imports and CKS / SKD manufacturing till the expiry of the policy. Local industry needs to ensure localisation of parts and components as per the roadmap.

Engineering Development Board (EDB), which prepared the policy, would act as secretariat of mobile phone manufacturing policy and ensure development of allied parts, components and devices.

Asim Ayaz, an EDB official said local manufacturers of mobile handsets were unable to capture the market of over 40 million mobile handsets due to availability of grey or smuggled mobile phones in the domestic market.

The introduction of device identification, registration and blocking system has helped eliminate this phenomenon. Resultantly, local assembly/ manufacturing has picked up and total collection of Rs3 million from CKD / SKD manufacturing during 2018/19 has shot up to Rs403 million during the first half of 2019/20. “However the import of mobile handsets is still high with revenue collection of approximately Rs40 billion per annum as the import in CBU condition was feasible as compared to local assembly,” said Ayaz. “The policy aims to provide cushion to the local assemblers which will provide jobs to local engineers, skilled and semi-skilled educated youth.”

Meanwhile, the ECC also considered a proposal for an intervention price for cotton 2020/21 crop by rationalising earlier proposals after fresh consultation with the stakeholders.

The members of the ECC said an effective and sustained support to the cotton growers is vital and necessary due to the importance of cotton for the local as well as export industry. However, such a support should be extended in the form of direct targeted subsidy to the formers.

ECC further directed the ministry of national food security and research to bring up proposals for promoting research and development and to improve seed quality and yield per acre. The ministry was directed to engage with the provincial governments, particularly Punjab, for introducing some intervention with regard to ensuring better price to the cotton growers, since the matter is not federal in nature.