The government is all set to announce Pakistan’s first Mobile Phone Policy next month envisaging incentives for local manufacturing/assembly of mobile devices.
This was revealed by Prime Minister’s Advisor on Commerce, Textile, Industries and Production and Investment, Abdul Razak Dawood, while presiding over a meeting on draft Mobile Device Manufacturing Policy prepared by Engineering Development Board (EDB).
The policy plans to provide incentives for local manufacturing and assembly of mobile devices which will expectedly shift the focus from import of mobiles in completely built condition to semi-knocked down (SKD) and completely knocked down (CKD) condition.
The policy is mainly focusing on employment generation, import substitution and technology transfer. The revenue collection through imports will be substituted by the import of CKD kits at subsidized duty structure and enhancement of duty on CBU imports, thus making local assembly and manufacturing more feasible.
Pakistan’s Mobile Phone Industry
The mobile phone industry has grown to become one of the biggest manufacturing sectors in the world. Pakistani mobile phone market is estimated at 53 million units annually. This makes Pakistan one of the top 10 global markets for feature phones and smartphones. The sales value of Mobile Phones in Pakistan was estimated at Rs 366 billion in 2019. This makes the industry bigger than the automobile sector, with sales of Rs 360 billion in 2018.
The mobile phone manufacturing industry is now moving out of China as governments around the world are incentivizing local manufacturing through tariff measures that encourage the transition from CBU imports to SKD assembly followed by CKD assembly and ultimately targeting mobile phone exports from respective countries.
Vietnam, India, Indonesia and Bangladesh are leading this transition since 2017 as a large number of local and global assemblers have sprung up, replacing CBU imports and creating an ecosystem for CKD manufacturing and localization.
Pakistan, based on the size of its domestic market, is ideally placed to leapfrog into the high tech field of Electronics and ICT industry. After the successful implementation of the DIRBS (IMEI registration system) by PTA in 2019, the possibilities of illegal CBU imports have been eliminated making it possible for FBR to alter customs duties without any fear of escalation in smuggling of CBU mobile phones.
However, unfortunately, the current tariff regime is unfavorable towards local manufacturing. As per the Customs Tariff 2019-20, it is more feasible to import a CBU mobile phone as compared to assembling it in Pakistan.
Currently, there are 26 companies that have been awarded manufacturing licenses by the PTA. Almost all of these companies have set up facilities for basic feature phones in Mirpur Azad Kashmir, which provides an unfair exemption of 17 percent sales tax under notification No 1145-1245/95 issued on February 08, 1995. Ironically, after a drastic reduction in duties/taxes on CBU import of feature phones through the Budget 2019-20, even these plants are unable to compete with imported feature phones.
M/s Tecno has set up the first smartphone manufacturing facility in Pakistan under 60:40 joint venture with Transsion China. The plant has been set up in Karachi with a local investment of $ 0.7 million with an initial capacity to produce 1.9 million mobile per year. However, due to unfavorable tariffs, the JV is currently producing less than 5,000 Smartphones per month.
Transsion China is one of the biggest mobile manufacturers in China with global sales of 124 million units in 2018. Transsion operates overseas assembly plants in India, Bangladesh and Africa under the brand names of Infinix, Tecno & Itel.
The JV intends to expand this initial investment to enter into PC manufacturing through CKD assembly within a period of three years with an investment of over $6.5 million. However, the JV wants support in the form of reasonable tariff differential of 15 percent- 20 percent on imports of CBU phones vs SKD kits.