PCA Proposes Action Items to Save Pakistan’s ICT Sector

Pakistan Computer Association (PCA) has submitted proposals and a datasheet to the government to save the information technology industry from total collapse, capital flight and tax revenue increases.

The PCA has submitted the proposals and recommendations to the government for incorporating it in the upcoming Federal Budget 2016-2017, making it truly representative and reflective of the demands and aspirations of the IT business community and for the growth of information technology sector in the country.

The Tax policy proposals presented by the PCA focus on withdrawal of multiple taxes and imposition of fixed duties/taxes on IT products. These measures are to encourage legal imports of IT products, and removal of  GST charges, so that the IT industry is provided with a level-playing field.

The PCA has submitted a comprehensive datasheet to supplement its tax proposals, which cover almost all areas of IT products. This sheet shows proposed fixed charges applied on the respective products to give yearly, quarterly and monthly estimate of the cost it will yield in order to discourage smuggling, and promote genuine and documented trade.

The datasheet shows that the fixed duties if applied on each item will net the government a revenue collection of more than Rs 5 billion as compared to the previously low level.  In addition, the cost of the smuggled IT products as against the documented imports in the market show huge anomaly thereby not only hampering the IT business and losses to IT traders but also depriving the FBR of revenue from the sale of genuine IT products.

Apart from the Datasheet, the PCA has also suggested proposals on other important issues hitting the IT industry including the Import Trade Price (ITP), undocumented IT sector, PTA Type proposal, Increase in Limit of GST Registration charges and revision of Valuation of Guidelines for IT Imports as per the following:-

Import Trade Prices on IT Products

The PCA stakeholders believe that there are several lacunas in the current import trade prices on IT products and suggests changes in the applicable tax regime by fixing ITP on lower side at its import stage which will increase number of legitimate importers and discourage undocumented persons in the market and  entice them to join the tax net.

Documented Computer Sector

The existing tax structure on computer IT equipment, including laptops and notebooks, particularly at import stage has created serious distortion between the legal import and informal channels.  The cost of smuggled IT products like laptops and others is much lower as compared to the legal imports which are subjected to heavy taxation and irrational application of taxes. The computer sector is paying a wide range of taxes to ensure documented imports along with payment of taxes at domestic stage. There is a need to tackle the menace of smuggling in the country on priority basis to save the IT industry.

PTA Type Approval

Another issue of concern for PCA stakeholders involves the production of PTA Type Approval certificate by customs officials for clearance of the government on every networking product, which is unnecessary and required only for few wireless products working on restricted frequency band.

Consequently, many of the networking products are now coming by illegal means causing the loss of revenue to the government.  The customs authorities must also stop the entry of those particular products into the country which is banned in Pakistan instead of disallowing a wide range of the product segments leading to loss of precious time of the importers and revenue loss to government.

It is for the FBR and Pakistan Telecommunication Authority to clear the ambiguity about these products and define and specify their features to enable the importers to safely apply for the type approval equipment.  The PCA suggests that PTA’s “Type Approval” should be withdrawn.

Increase of Limit for the GST Registration:

Currently the minimum limit for GST Registration is Rs. 5 million which is too low and is difficult for a vendor to run his business. The profit margins are less than 3% in the laptop, HDD, Memory, USB & Processor business and not more than 5-6% on the rest of the products. For example, this means that one can hardly earn Approx. 200K PKR per annum at the sale of Rs. 5 million per annum. So it is suggested that the limit of 5 million PKR should be increased to PKR 20 million.

Valuation Guidelines

The issue is of implementation of the Valuation Guidelines for IT Imports, which have higher values for clearance of consignments at Karachi Port and cause delay in the clearance of the IT imports as well as loss of precious time and market access. The proposals would have also encouraged the legal imports of IT products as against the “Kepi Mafia” which is causing huge losses to the national exchequer by illegally importing equipment.  Therefore, all IT products should be brought under the full and final import settlement bill as per the submitted datasheet.