Taxing cellphones

The imposition of an 18% sales tax on mobile phones is proving to be a self-defeating strategy. October's market numbers show this clearly as local assembly plunged 34% year-on-year to 2.33 million units from 3.53 million, and production was down 23% from September. The message should be unmistakable for policymakers -— when consumer affordability is strangled, industrial progress stalls.

Pakistan has spent years nurturing its local mobile manufacturing sector. The Device Identification, Registration and Blocking System (DIRBS), implemented by PTA, helped curb smuggling and discouraged tax evasion. The result was remarkable, with more than 97% of the phones sold in Pakistan today are locally manufactured, according to government statistics. This shift allowed companies to invest in assembly lines and reduce dollar outflows — exactly the kind of import substitution the government claims it wants. Yet, the new tax has abruptly altered consumer behaviour. Buyers hesitant to absorb higher prices have postponed upgrades, and dealers, holding inventories expanded ahead of the 2025-26 budget, are struggling to move stock. Manufacturers have responded rationally by scaling back production to avoid further accumulation. If this trend persists, cumulative local output may limp to 25.1 million units this year, despite a sector that once looked poised for continued expansion.

The irony is striking and the government must realise that by taxing that ecosystem, the government risks smothering a sector it worked so hard to formalise. The objective of revenue generation should not override industrial stability and consumer access. If mobile phones — the gateway to digital inclusion — become unaffordable, the effects will not be limited to the showroom floor. They will ripple into fintech adoption. The strategy must therefore be rethought before the momentum disappears — and with it, one of Pakistan's few industrial success stories.