Smartphones, laptops and PCs: Smuggling renders govt’s tactics useless

Dealers retailers feel exemption of sales tax on laptops increase in tax on mobile phone import make little difference

KARACHI: Prices of smartphones and laptops are likely to remain largely unchanged at retail markets despite the government’s move to change their tax regime, as the gadgets available in the country are mostly smuggled, a brief market survey revealed.

Situation with smartphones

The government has increased the rate of sales tax on smartphones by Rs500 with effect from July 1. Accordingly, the rate of the sales tax on medium category smartphones has been increased to Rs1,000 from Rs500. The rate for high-end smartphones has been increased to Rs1,500 from Rs1,000 previously.

Finance Minister Ishaq Dar said the move was meant to compensate for the loss the government bears due to under-invoicing of high-end mobile phones.

But a former official feels there will be no change in prices.

“Almost 60% mobile phones available in retail outlets are smuggled,” said a former office-bearer of the Karachi Electronic Dealers Association (KEDA).

This is the reason for why no change has been seen in the prices of smartphones despite implementation of increased rate of sales tax on the phones with effect from July 1, 2016. “The increased rate of the tax would continue to nurture and stretch grey markets in Pakistan,” he said.

The former office-bearer said Quetta and Peshawar are the two big sources from where the smuggled cell phones travel into other markets of the country. “One can distinguish between imported and smuggled phones by the way warranty is offered by the retailer,” he said.

Idrees Memon, another ex-office bearer of KEDA, said “yes, the rate of sales tax has been revised upwards on smartphones, but the markets continue to be flooded with the phones imported at old rates. Almost no one in my knowledge has taken clearance of smartphones from Customs department since the new rate implemented. That’s why there is seen no change in mobile phone prices as yet.”

Secondly, sales should have ballooned with Eid around the corner, but expectations have not been met.

In recent years, people have indulged in smartphone shopping as a way to celebrate Eid. “The trend did not continue this year. Majority of people also did not buy other electronic items like TV and refrigerators,” he said.

Earlier, dealers had calculated an increase of up to Rs11,000 on smartphones due to the increase in sales tax. They said the rate of other taxes, applied before the sales tax, would have made phones costlier than one can imagine.

Laptops, desktop

In another move, the government granted exemption of sales tax on import of laptops and PCs. The Ministry of Information Technology proposed the exemption with a view to promoting Information & Communication Technology (ICTs). The government hoped the step would promote genuine imports and will render informal and illegal imports as uncompetitive.

However, the brief market survey revealed that prices of laptops and desktops also remained the same despite the government’s move to exempt the gadgets from sales tax.

The price of the systems should have gone down by at least 17% which was the rate of the sales tax on the systems before July 1, 2016.

“Importers have yet not dispatched the new price lists,” said a dealer at Techno City, which is a big market for laptops and desktops in Karachi.

Price lists are issued to them every second or third month or when it is felt necessary due to big changes like appreciation or depreciation in dollar denomination.

Another dealer said the change in tax policy will not affect prices as most of the merchandise is smuggled as well.

He said that illicit trade does not take place without the help of Customs and FIA officials. “Price of computers will not ease down because officials on duty would never clear our hardware without their cut,” he said.

Published in The Express Tribune, July 6^th, 2016.

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