Pakistan Mobile Phone Manufacturers Association has approached Finance Minister Shaukat Tarin for the immediate removal of a major tax anomaly on the sale of locally manufactured mobile phones to retailers.
The association has also requested the Federal Board of Revenue (FBR) to exclude locally manufactured mobile phones from the category of “Electronics” to avoid the applicability of 0.5 percent tax at the retail stage.
Under section 236H of the Income Tax Ordinance, a tax of 0.5 percent is applicable on the sale of “electronics” to retailers.
According to a communication of the association received at the Ministry of Finance on Tuesday, the Pakistan Mobile Phone Manufacturers Association (PMPMA) is a representative body of mobile phone manufacturers located across Pakistan. The association members employ more than 20,000 Pakistani workers, technicians, engineers and management professionals and are striving to make Pakistan a hub of the mobile phone industry in the region.
As a result of the Mobile Device Manufacturing Policy (MDMP) announced by the Government in June 2020, several global brands have now started local manufacturing of smartphones in Pakistan. These include Tecno, Infinex, Itel, Vivo, Oppo and Realme. Furthermore, Nokia & Samsung have announced local manufacturing from Sept-2021 and Dec-2021 respectively.
The MDMP intended to remove or minimize tax on the complete value chain of locally manufactured mobile phones and removed the 4 percent withholding tax applicable on the sale of local industry. However, there is a critical and technical anomaly that needs to be urgently addressed with regard to tax applicable on sale of mobile phones to retailers under section 236H of the Income Tax Ordinance 2001.
Under section 236H, a tax of 0.5 percent is applicable on the sale of “electronics” to retailers. Since mobile phones are not specifically mentioned in the Schedule of section 236H, they are being treated under the heading of ‘Electronics’ and hence subject to a prohibitive tax of 0.5 percent.
Mobile phones are a new industry. Smartphones are a high-volume product with very low margins of typically one percent to 2 percent. Application of a 0.5 percent tax under ‘Electronics’ heading under section 236H is unfairly prohibitive and will kill prospects of investment in this industry at this nascent stage.
It is requested that locally manufactured mobile phones be specifically excluded from the “Electronics” category u/s 236H to ensure fair treatment to this new industry in line with the Mobile Device Manufacturing Policy approved by the Federal Cabinet in June 2020, it added.