Mobile phone: Manufacturing plan faces hurdles

Govt drops key incentive by withdrawing exemption from regulatory duty

ISLAMABAD: The plan to attract mobile phone manufacturers for setting up plants in Pakistan may hit a snag as the government has withdrawn exemption from regulatory duty on cellphone manufacturing in the federal budget for 2020-21.

Owing to high import tariffs in the US on Chinese goods, the relocation of some of the Chinese mobile phone manufacturing units to India, Vietnam, Indonesia and Bangladesh has taken place. Pakistan can also cash in on the opportunity and attract investment in mobile manufacturing plants.

However, the recent move by the federal government that has dropped a key incentive in the budget may hamper its plan to attract mobile manufacturers from around the world for establishing plants in Pakistan.

Sources told The Express Tribune that the Economic Coordination Committee (ECC) had approved the removal of regulatory duty on completely knocked down (CKD) kits and completely built units (CBUs) manufacturing by Pakistan Telecommunication Authority (PTA)-approved manufacturers under the Input Output Co-Efficient Organisation (IOCO)-authorised imports.

It was a key proposal in the first mobile device manufacturing policy of Pakistan. The proposal was later approved by the cabinet in a meeting held on June 2, 2020. However, the incentive was not included in the Finance Bill 2020.

Sources said the finance bill required an amendment through a Statutory Regulatory Order (SRO) or supplementary finance bill to add this sentence - "imported by mobile phone manufacturers/assemblers certified by PTA under IOCO-approved import authoristion".

The cabinet had also approved the removal of fixed income tax on CKD/semi-knocked down (SKD) manufacturing of mobile devices up to $350 price category and an increase in fixed income tax on the $351-500 price category by Rs2,000 and on above $500 price category by Rs6,300 on CKD/SKD manufacturing. This has been incorporated into the Finance Bill 2020.

According to PTA, mobile phone service subscription in Pakistan has reached 164 million. Pakistan is the seventh largest importer of mobile phones with market size of more than 40 million.

Second generation (2G) non-Android phones are being phased out gradually in the face of growth in market share of 4G Android phones. However, local manufacturing of mobile phones has remained unattractive due to imports through grey channels.

The introduction of Device Identification Registration and Blocking System (DIRBS) by PTA curbed illegal imports of mobile phones and it was also instrumental in addressing security challenges.

In 2019, after the introduction of DIRBS, imports recorded an increase of 11 million units versus increase in domestic manufacturing to the tune of 7.64 million units over the previous year.

A major reason behind the slow growth in domestic mobile phone manufacturing has been the absence of a relevant policy, resulting in an unpredictable business environment, no correlation between local assembly and imports of CKD kits and insufficient tariff differential between local assembly and imports of CBUs.

The mobile broadband internet connectivity is the foremost and essential element of Digital Pakistan vision. However, the high cost of internet-enabled mobile handsets and mobile internet devices is a major barrier.

The mobile handset and device manufacturing industry is one of the leading industries worldwide with global smartphone sales valuing at $522 billion in 2018.

Owing to a clear nexus between handset manufacturing, economic growth and internet broadband penetration, regional countries have been seriously focusing on mobile handset manufacturing.

China, with major brands like Huawei, Oppo, Vivo and Xiaomi, leads the global market with exports worth $141 billion facilitated through local manufacturing of semi-conductors, integrated circuit design, testing and packaging.

Pakistan faces a serious security threat due to Indian-manufactured smartphones using other countries' Type Allocation Code in the initial eight digits of the 15-digit International Mobile Equipment Identity (IMEI) used to uniquely identify wireless devices.

The local manufacturing of smartphones will attract foreign investment, save foreign exchange on mobile phone imports, earn foreign exchange via exports and create job opportunities for local people.

Published in The Express Tribune, June 20^th, 2020.

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