Taxes on IT products to hit growth

Market terms it detrimental for IT sector’s growth, demands reconsideration

KARACHI:

At a time when the digital ecosystem of Pakistan is beginning to takeoff, the government has taken an adverse step and imposed taxes on mobile phones and laptops through the mini-budget.

Terming it detrimental for the sector, the market has widely criticised the move and urged the leadership to re-evaluate and understand the repercussions of this decision.

The government has introduced a 17% tax on mobile phones, valued at $200 to $500, besides imposing a 17% tax on imported machinery for cellphones manufacturing.

In addition, it has slapped a tax of 5% on laptops, which are in high demand especially after the Covid-19 induced lockdowns.

Speaking to The Express Tribune, Alpha Beta Core CEO Khurram Schehzad termed the move “inconsistency in government’s policies”.

“On one hand, the government wants to promote digitisation and on the other, it is imposing taxes on digitisation tools,” he underlined.

Elaborating on the mechanism, SI Global CEO Noman Ahmed Said mentioned that the digital enterprises and supply networks involved the integration of digital information from many different sources and locations to drive the physical act of manufacturing and distribution.

“This integration of information technology (IT) and operations technology is marked by a shift towards a physical-to-digital-to-physical connection,” he said.

This combines the Internet of Things (IoT) and relevant physical and digital technologies, including analytics, additive manufacturing (AM), robotics, high-performance computing, artificial intelligence (AI) and cognitive technologies to complete that cycle and digitise the business operations, he pointed out.

“By understanding the role and influence of the shift of physical-to-digital-to-physical connection, businesses can create a tax strategy and framework to successfully navigate the new landscape,” Said underlined.

He feared that the growth of the sector, which had picked up over the last one year, might lose its momentum if the government did not reverse the taxes.

He said that imposition of more taxes on technology would not yield any dividends rather, they would hurt the young generation aspiring to be technopreneurs.

“Foreign investors in the manufacturing sector will think twice before investing in technology,” Said projected, adding that the situation could have been avoided if the government had taken the input from relevant stakeholders before implementing the taxes.

“This will also hamper the progress of analytics, AM, robotics, high-performance computing, AI and cognitive technologies, IoT and augmented reality.”

It would have an adverse impact on national growth and economy, “as technology is covering all the facets of businesses”, he added.

Pakistan witnessed a similar situation in the past when the government tried to impose tax on technology exports, he recalled.

“The economy is already going through a challenging time given the increase in interest rates and currency devaluation and this will further discourage the existing and upcoming technopreneurs,” he maintained.

“We may also witness the flight of tech experts from the country,” he said, lamenting that Pakistan had already lost a lot of talent to other countries in the past.

Regarding foreign investments, Said maintained that such inconsistent policies of the government would not give a good signal to the investors.

Citing a World Bank report, he said that the inflation rate in Pakistan was the highest among the South Asian nations.

Talking about the impact on GDP (gross domestic product), he said that taxes “have a significant effect on the economic growth and 1% increase in taxes leads to 0.08% decrease in GDP”.

“GDP is a dependent variable and independent variables are taxes, trade liberalisation, exchange rate and life expectancy,” he said.

The technology sector witnessed a tremendous boom during the Covid-19 induced lockdowns, he said adding that with the incoming wave of Omicron variant “it is crucial to re-evaluate the situation and understand the repercussions in hampering technological access and affordability”.

Published in The Express Tribune, January 9^th, 2022.

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