Yesterday, the government finalized the tax structure for mobile phones being brought to Pakistan. While these taxes had been made law a while ago, the PTI government has decided to implement it.
The tax starts at Rs. 4.5k for phones valued at $50 and goes all the way up to Rs. 83k for phones worth $1500. Not only that, but the government has also introduced a limit of 5 phones per person per year.
As expected, the move has resulted in widespread outrage.
It’s completely understandable to tax mobile phones and formalize a tariff structure to curb unchecked import of smartphones. However, the value of these taxes is too high. Instead of increasing collected tax amount, the government is going to end up completely killing this method of bringing in smartphones to Pakistan.
Even leaving the value of the taxes aside, taxing smartphones is a bad idea. Here’s why.
Internet and Smartphone Penetration’s Effect on Economic Growth
According to a landmark study by the GSM Association:
- Doubling the amount of mobile data used per 3G connection increases the GDP per capita growth by 0.5%.
- A 10% increase in mobile penetration increases a country’s Total Factor Productivity (a measure of economic productivity that reflects a country’s long-term technological dynamism) by 4.2% in the long run.
- Every 10% substitution of 2G for 3G increases the GDP per capita growth by 0.15%.
The positive effects aren’t only limited to the economy. Studies have consistently shown that as people switch from 2G to 3G and 3G to 4G, the employment growth grows. According to research by PEW, there is a strong correlation between country wealth and smartphone ownership.
So why is this seemingly clear link being ignored by the government?
Anyone who is capable of a Google search knows that mobile and smartphone penetration help a country’s economy, increase financial inclusion and aid in reducing income inequality and poverty. And Pakistan, as a developing country, needs all the help it can get to tackle these challenges.
We need more smartphones, higher internet penetration and more data usage and any rules and regulations that negatively impact these things are a step backward.
If the government is desperate to increase tax collection, it needs to look at the top of the pyramid where amnesty schemes allow the ultra-rich to launder billions of rupees for peanuts. If our politicians and lawmakers are going to ignore logic and insist on being inept, the least they can do is not be active roadblocks to common people empowering themselves.
Why is the Government Taxing Gifts?
Gifts are free everywhere in the world and taxing them makes zero sense. In fact, gifts aren’t taxed even in Pakistan but mobile phones are a curious exception.
If the government wants to tax gifts, it needs to do it properly by introducing a tax policy for them. They simply cannot bundle them with imported phones and think they’ve done a good job.
Taxes Are Good But They Should Make Sense
As we mentioned before, we aren’t opposed to a rational tax scheme.
If this process had any semblance of intelligent thought, the lower brackets of smartphones would have been completely tax-exempt. That’s because the lower and middle segment of Pakistan’s society is the most price conscious. Not only that, they are the segment most in need of smartphones and internet connectivity as well.
Just two numbers illustrate the dismal situation in the country: 50% of mobile phone users in Pakistan don’t know what the internet is and 20% are aware of the term but do not know how to use it.
There’s a huge disconnect where on one hand, the government is going full steam ahead on “the 4th industrial revolution”, training freelancers and AI initiatives while on the other hand, it’s making it impossible for the lower and middle segment to even own smartphones and access the internet.
The digital divide in Pakistan is already quite stark and these taxes will end up doubling the prices of entry-level phones. The government needs to sit down and decide whether it’s interested in addressing it or if they are content with launching projects just to pat themselves on the back. Pakistan’s potential can only be harnessed if there’s a coherent strategy to empower all segments of society.
Right now, we just aren’t seeing it and this latest tax is more proof of that.
We Need a “Made in Pakistan” Smartphone Policy
The most natural consequence of high taxes on mobile phones is that people are going to stop bringing any devices with them to Pakistan.
If the government is going to insist on the ridiculous tariffs for taxes, it needs to introduce a “Made in Pakistan” initiative to promote the local manufacturing and assembling of smartphones. Otherwise, people are just going to end up with no options as Pakistan has no locally manufactured smartphones. Even QMobile is an importer.
For inspiration, just look across the border.
The “Made in India” campaign, which was launched in 2014, was designed to make India a global leader in manufacturing and design. It made their government an enabler and business partner instead of a stern authority. The country clearly defined “manufacturing” and unleased policies to attract Foreign Direct Investment.
The results are clear to see. India has surpassed the United States as the second largest smartphone manufacturer in the world. Four years ago, India had 2 mobile factories. The number now is 120 and they have created over 400,000 jobs according to PM Modi. By 2020, the GDP share of the mobile industry in India’s economy is going to hit 8.2%.
Foxconn, Samsung, Apple, Xiaomi and Oppo among others have started manufacturing in India. If they can do it, why not us?