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In the Budget 2017-18, the government has deceptively burdened the entire mobile phone industry with massive taxes that will not only help increase the smuggling manifold but also provide an opportunity to some opportunists in the government departments to fill their pockets easier than ever before.

During the budget speech, the Finance Minister Ishaq Dar had announced to provide a small relief to mobile phone importers by bringing down the customs duty from Rs. 1,000 to Rs. 650. His proposal was promptly welcomed by the legitimate importers who were in pain for years due to eroding revenues in business due to rising smuggled mobile phones into the country.

However, the smile on their faces couldn’t last a single night when in the morning more detailed version came out, and the so-called relief surprisingly converted into a severe pain.

Shockingly, the government has put an additional Rs. 250 regulatory duty on every mobile phone that would be imported from July 1st. Moreover, the lower limit duty slabs of Rs. 300 and Rs. 1,000 have been merged into one single slab of Rs. 650. That means it has additionally put Rs. 350 on every feature phone that will be imported into the country.

Following is what government did silently

mobile phone tax2

mobile phone tax

To those whom I sound too vague at this moment in clarifying the situation, let me try to explain the current practice.

At the moment, mobile phones are imported under three different heads. 1) feature phone, the one which is a cheap budget phone with the dialing buttons. The government charges Rs. 300 customs duty on it 2) entry level smartphone, the one that has the Android OS in it but the price range starts from Rs. 4,000. The government imposes Rs. 1,000 customs duty. 3) All the higher end smartphones which are not considered entry-level smartphones. There is a Rs. 1,500 customs duty on each phone. Although there are few more distinctive categorizations on the basis of their specs, however, that is not the scope of this article.

So now, there will be two categories, Rs. 650 and Rs. 1,500. Although an additional duty on higher end smartphone has also been imposed, however, for a consumer of an expensive phone, such a duty is meaningless.

With this new measure, the government has eradicated the lower end categorization and has included in it the category of the smartphone by raising the tax bar on it. Instead of paying Rs. 300 duty, a feature phone will now be taxed as a smartphone.

An approximate duty and tax structure on such phone will now become Rs. 650 + Rs. 250 (RD) + 14% (other taxes) = Rs. 1,150

For a phone that costs around $10 will have another Rs. 1,150 as duty on it that will take its price to Rs. 2,150 – Rs. 2,200.

Up till today in 2017, all the mobile phones that are imported in the country every month, nearly 60% belong to the feature phone category and only 40% fall in the bracket of smartphones. This will increase the price of every phone by an additional Rs. 1,150 but the most impacted category would be the feature phone or the phone of poor people.

A majority can only afford a phone of Rs. 2,000 to 3,000 and that is why a shift from feature phone to smartphone is very gradual. Even if the proportion are reversed in few years time, the feature phone will keep existing unless the newer generation who is more smartphone savvy replaces, the older ones. However, that is not going to happen anytime soon. And this is where the room exists for most of the mobile phone importers and sellers. This huge volume gives them enough reason to keep believing in this market.

On average, more than a million phones imported every month belong to feature phone category.

Impact on the mobile phone industry

  1. To meet the demand and to avoid the duty, for keeping the price low in this competitive market, smuggling will increase by 100%. Today, 45% of the phones are being smuggled.
  2. These phones, unlike the smartphones, can easily have a duplicate IMEI number. This will be a nightmare for security agencies to keep monitoring them. A small shopkeeper can easily erase the IMEI number on such phones which are mostly dual SIM gadgets. It might trigger a national security situation.
  3. Legitimate import will decline sharply and hence the so-called duty and tax incentive for the government.
  5. The winners will be Smugglers, Khapias, Corrupt Officials, Airlines officials who help in this illegal trade and the ones who have hidden interest in this decision

In a TV show on Samaa, the Finance Minister Ishaq Dar was found taking the credit of not taxing the chocolates because a couple of children had appealed him. I think media should raise an appeal on those issues which are not chocolate and similarly Dar sb should take credit for something that is worthy of it.

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