ECC Approves Sales Tax Exemption on Locally Produced Mobile Phones

The government has proposed to amend the ninth schedule of the Sales Tax Act in line with Mobile Manufacturing Policy approved by the Economic Coordination Committee of the Cabinet (ECC) in the budget 2020-21, aimed at incentivizing local manufacturing of mobile phones.

The government has proposed a sales tax exemption to companies manufacturing mobile phones locally under the new policy.

According to the Finance Bill the rate of advance tax will be as follows, provided that the rate of tax on the value of import of mobile phone by any person shall be as set out below:

• If the C & F Value of mobile phone (in US Dollar) up to $30 except smartphones, there will be Rs. 70 tax in CBU condition and no tax in CKD/SKD condition,
• Rs. 100 tax if exceeding $30 and up to $100 and smartphones up to $100 in CBU condition and no tax in CKD/SKD condition,
• Rs. 930 tax if exceeding $100 and up to $200 in CBU condition and no tax in CKD/SKD condition,
• Rs. 970 tax if exceeding $200 and up to $350 in CBU condition and no tax in CKD/SKD condition,
• Rs. 3000 tax if exceeding $350 and up to $500 in CBU condition and Rs. 5000 tax in CKD/SKD condition,
• Rs. 5,200 if exceeding $500 in CBU condition and Rs. 11,500 tax in CKD/SKD condition.

ECC has approved the removal of regulatory duty for the CKD/SKD manufacturing by the Pakistan Telecommunication Authority (PTA) approved manufacturers under input/output Co-Efficient Organization (IOCO) approved import authorization.

The committee has also approved the removal of fixed income tax on CKD/SKD manufacturing of mobile devices up to $350 category and increase in fixed income tax on $351-500 category by Rs. 2,000 and $500 by Rs. 6,300 on CKD/SKD manufacturing only and removal of fixed sales tax on CKD/SKD manufacturing of mobile devices.

ECC has also approved a proposal that the PTA will allow activation of handsets manufacturing in the country under import authorization of inputs by the IOCO in the CKS/SKD kit (8517.1211) and not under HS Code 8517.7000 i.e. parts after the meeting was informed that this will eliminate misdeclaration in parts category at the import stage.

The ECC also approved as part of the policy that is up to $30 category, words “except smartphones” to be inserted for CBU imports under 8517.1219 to avoid mis-declaration and R&D allowance of three percent to be given to local manufacturers for exports of mobile phones, and locally assembled/manufactured phones to be exempted from four percent of withholding tax on domestic sales.

The ECC approved proposed recommendations that the government to commit maintaining tariff differential between CBU imports and CKS/SKD manufacturing till the expiry of the policy as well as that local industry to ensure localization of parts and components as per roadmap included in the draft policy and the Engineering Development Board (EDB) will act as Secretariat of Mobile Phone Manufacturing Policy and ensure the development of allied parts, components, and devices.