Pakistan Approves its First Ever Mobile Phone Manufacturing Policy

The Economic Coordination Committee (ECC) of the Cabinet has approved the Mobile Device Manufacturing Policy in-principle with instructions to the Ministry of Industries and Production to further fine-tune its various features and incentives for promoting localization and research and development, leading to the export of mobile phones.

Adviser to Prime Minister on Finance and Revenue Dr. Hafeez Sheikh chaired the meeting of the ECC and discussed the Mobile Device Manufacturing Policy as proposed by the Ministry of Industries and Production.

The objectives of the policy are:

• Technology acquisition and localization of mobile devices through local investment.
• Joint ventures.
• Foreign direct investment.
• Creation of 200,000 direct and indirect jobs.
• Price reduction for consumers.
• Increase in digitization through supporting 4G/5G technologies.
• Development of an efficient manufacturing eco-system.
• Exports of competitively manufactured handsets.
• Achievement of security objectives.

Ministry of Industries and Production initiated Mobile Device Manufacturing Policy in January 2019 by designating Engineering Development Board (EDB) as a secretariat for policy formulation through consultation with public and private sector stakeholders.

According to Pakistan Telecommunication Authority (PTA), mobile subscriptions have reached 164 million. Pakistan is the seventh-largest importer of mobile phones with annual market size of more than 40 million. 2G feature phones are being phased out gradually vis-à-vis growth in the market share of 4G Android phones.

The local manufacturing of mobile phones remained suppressed due to imports through grey channels. The introduction of Device Identification, Registration, and Blocking System (DIRBS) by PTA curbed illegal imports of mobile phones and it was instrumental in security enhancement as well.

However, during CY 2019, i.e. after the introduction of DIRBS, the imports exhibited an increase of 11 million units versus the increase in local manufacturing to the tune of 7.64 million over the previous year.

According to the Ministry of Industries and Production, the major reasons behind slow growth of local manufacturing of mobile phones is the absence of a policy resulting in the unpredictable business environment, no correlation between local assembly and imports in Completely Knocked Down (CKD) Kits and insufficient tariff differential between local assembly and import of Completely Built Units (CBUs).

The major recommendations of the policy are as follows:

1. Removal of Regulatory Duty for CKD/SKD manufacturing by PTA for approved manufactures under Input/Output Co-Efficient Organisation (IOCO) approved quota.
2. Removal of fixed income tax on CKD/SKD manufacturing of mobile devices up to $350 category.
3. Increase in fixed income tax on $351-500 category by Rs. 2000 and $500+ by Rs. 6300 on CKD/SKD manufacturing.
4. Removal of fixed sales tax on CKD/SKD manufacturing of mobile devices.
5. PTA activation may be restricted to locally manufactured handsets imported formally as CKD/SKD kit (8517.1211) under IOCO quota and not under HS Code 8517.7000, ie, parts.
6. In up to $30 category, words except “smartphones” to be inserted for CBU imports under 8517.1219 to avoid misdeclaration.
7. R&D allowance of 3% to be given to local manufacturers for exports of mobile phones.
8. Mobile phones to be added to Appendix-C of Import Policy Order 2016 to restrict their commercial import in used condition.
9. Government to commit to ensuring maintaining tariff differential between CBU and CKD/SKD.
10. Local industry to ensure localization of parts and components as per roadmap.
11. EDB to act as Secretariat of Mobile Phone Manufacturing Policy and ensure the development of allied parts, components, and devices.