The country's first mobile device manufacturing policy is all set to be considered by the Economic Coordination Committee (ECC) of the Cabinet Wednesday (May 13).
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 subscription has reached 164 million. Pakistan is seventh largest importer of mobile phones with annual market size of more than 40 million. The 2-G non android phones are being phased out gradually vis-à-vis growth in 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 also.
However, during CY 2019, ie, after introduction of DIRBS the imports exhibited an increase of 11 million units versus 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 are absence of policy resulting in 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 sources said, various countries including China, Vietnam, Indonesia, India and Bangladesh have promoted local manufacturing of mobile phones. China is the leading exporter of mobile phones having 49 percent market share. Vietnam is the second largest exporter in the world with Samsung having major investment in their market. Recently, Bangladesh has started exporting mobile phones to foreign markets including USA. Bangladesh has provided 22% tariff advantage to local assembly/manufacturing over CBUs.
The EDB/MoI&P has been prepared with objectives of technology acquisition and localization of mobile devices through local investment, Joint Ventures, Foreign Direct Investment etc, creation of 200,000 direct and indirect jobs, price reduction for consumers, increase in digitization through supporting 4G/5G technologies, development of efficient manufacturing eco-system, exports of competitively manufactured handsets and achievement of security objectives.
The major recommendations of the policy are as follows: (i) removal of Regulatory Duty for CKD/SKD manufacturing by PTA for approved manufactures under Input/Output Co-Efficient Organisation (IOCO) approved quota;(ii) removal of fixed income tax on CKD/SKD manufacturing of mobile devices up to $ 350 category;(iii) increase in fixed income tax on $ 351-500 category by Rs 2000 and $ 500 by Rs 6300 on CKD/SKD manufacturing; (iv) removal of fixed sales tax on CKD/SKD manufacturing of mobile devices;(v) 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; (vi) in up to $ 30 category, words “except smart phones" to be inserted for CBU imports under 8517.1219 to avoid misdeclaration; (vii) R&D allowance of 3% to be given to local manufacturers for exports of mobile phones;(viii) mobile phones to be added to Appendix-C of Import Policy Order2016 to restrict their commercial import in used condition; (ix) Government to commit to ensure maintaining tariff differential between CBU and CKD/SKD; (x) local industry to ensure localization of parts and components as per roadmap; (xi) EDB to act as Secretariat of Mobile Phone Manufacturing Policy and ensure development of allied parts, components and devices.
Insiders claim mobile phones as engineering industry is the domain of EDB which can successfully implement the mobile policy like the Auto Development Policy (ADP), however, Ministry of Information Technology and Telecommunication and PTA have also drafted their own mobile manufacturing policy.
Minister for Industries and Production, sources said, was of the view that difference of duty between local and imported phones should be 20-22 per cent, whereas import of used mobile should not be touched at this time.
PTA is of the view that stage-wise local value addition proposed within the draft is not captured in the recommendations being submitted to ECC. The PTA has proposed that this should be mandatory requirement to be fulfilled by all mobile manufacturing industries licence holders in Pakistan. Furthermore, it should be ensured that a gradual transition towards a full fledged manufacturing should be specified as part of policy.
A special incentive of 5 per cent on income/profits for brands, who manufacture 3G, 4G, 5G devices with localized content, local language features, localized operating system, etc, is proposed. Mobile manufacturing sectors should be allowed to avail the same privileges and tax holidays as are available to SEZs. This will incentivise the domestic mobile phone production and promote investment/job creation. All mobile manufacturing licence holders to obtain minimum of ISO 9001 certification within 1 year of issuance of licence and this should be made a mandatory requirement.
“There are chances of a clash between the MoI&P and MoIT&T on the policy in the meeting of ECC and a committee will be constituted to prepare a joint policy within one or two weeks," the insiders said, adding it is also possible a consensus is evolved in the ECC meeting.