Still importing ‘Make in Pakistan’

The dream of ‘Make in Pakistan’ mobile phones Despite more than Rs 46 billion in tax incentives given in the last financial year, the government has failed to ensure the isolation of mobile phone manufacturing in violation of public policy. Criminal negligence on the part of the Engineering Development Board (EDB) and the Ministry of Industry has led to illegal tax breaks on packaging materials after June 2022, and also to the creation of another privileged class of businessmen after car builders. Sources told The Express Tribune that the EDB and the Ministry of Industry have failed to provide a one- to two-year plan to localize the equipment and material used in the manufacture of mobile phones. Three years ago, the previous government had approved a mobile device manufacturing policy to promote locally manufactured mobile phones. It also provided incentives in the form of reduced or waived duty, sales tax and income tax rates aimed at encouraging manufacturers to produce parts locally. The Federal Board of Revenue’s (FBR) Tax Expenditure Report 2021-22 revealed that the country lost Rs 46.2 billion in revenue due to lower duties and taxes on manufacturers. Despite these incentives, mobile phone manufacturers have not been able to ensure localization of packaging materials until June 2022, the easiest thing in the value chain. There is also no progress in meeting the June 2023 deadline for localization of chargers, Bluetooth headsets, motherboards, plastic parts, displays and batteries, sources said. It seems that the EDB has once again become complacent regarding vehicle manufacturers who have failed to achieve car insulation. As a result, the price of cars has increased, and consumers have to bear the burden of exchange rate fluctuations. Some companies quadrupled their prices within a month, but were unable to ensure timely deliveries due to import restrictions. EDB concerned officer was not available for comment. Mobile phone manufacturers are required to apply to Directorate General of Income Coefficient Organization (IOCO) under KVN for allotment of quota, where after necessary verification from IOCO, bulk imports are allowed to these companies. Manufacturers approved by the Pakistan Telecommunication Authority (PTA) are allowed to import parts for assembling and manufacturing mobile phones. According to the isolation plan, the packaging material was supposed to be removed from the list of beneficiaries of IOCO, which has not been done so far. Sources in the Ministry of Industry said that the EADB’s fault was that it did not implement the plan to isolate packaging materials on time. EDB raised this issue only in the first week of January this year, and the factories producing packaging materials were supposed to be operational in May last year. Last week, the Ministry of Industry held a meeting to discuss the exclusion of packaging materials from the IOCO quota allocation. However, the meeting could not be held. EDB and RTA did not provide an outdated list of local mobile phone manufacturers to the ministry, which should have started using local packaging material. Although import restrictions forced manufacturers to cut production to 35% of capacity, they were unable to achieve even 10% localization within two years. According to the plan, the total potential of local added value was 49%, including 2% from packaging material. After the government implemented the quota requirements, some big players took inappropriate shares at the expense of relatively small mobile phone makers, sources said. According to the policy, local manufacturing can reach up to 80% of Pakistan’s total phone market within two to three years if the industry is given an attractive tariff plan. This could lead to the creation of at least 40,000 high-skilled direct jobs in electronics and information technology and 300,000 indirect jobs in ancillary industries. Before the restrictions, the annual mobile phone import bill was $2 billion, and much of that could be diverted to the local market, except for high-tech iPhones. According to the indicative list, by June 30, 2023, an additional 49% was planned to be added to the local value. By the end of June 30, 2022, distribution of CKD/SKD packing materials under IOCO import permit has been stopped. From July 2023, packaging materials, if imported by the manufacturer, will attract the current prevailing duty structure. However, this did not happen. The FBI Tax Expenditure Report revealed tax exemptions of Rs 45.9 billion from the sale of locally manufactured mobile phones. Profits and gains from mobile phone manufacturers accounted for another Rs 1.3 crore. Imports of plant, machinery and production line equipment used to manufacture local mobile phones were Rs 226 crore in the last financial year. If the packaging material is not immediately removed from the IOCO list, it can significantly delay the localization of chargers and batteries for silly reasons. Published in The Express Tribune, March 18, 2023. Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join the conversation.

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