ISLAMABAD: The federal government is said, to have backed out from extending critical fiscal incentives approved for local mobile device manufacturers in June 2020, well-informed sources told Business Recorder.

A summary for the ECC, signed by the Additional Secretary, Dr. Hamid Ateeq Sarwar, who is on a three-year deputation from Federal Board of Revenue (FBR), Industries and Production Division formulated the Mobile Device Manufacturing Policy designed to promote industrial activity in the country which was approved by Economic Coordination Committee (ECC) of the Cabinet on May 21, 2020.

The decision of the ECC was ratified by the Cabinet in its meeting held on June 02, 2020 which was conveyed to the Revenue Division/Federal Board of Revenue (FBR) vide this Division's letters of June 4, 2020 and June 19, 2020. The decision of the government conveyed to Revenue Division/ FBR was not fully incorporated in the Finance Bill 2020.

The summary says that in order to rectify this situation the following provisions with regard to Mobile Device Manufacturing Policy are again proposed for inclusion in the relevant tax statutes: (i) removal of withholding tax of 4% on manufacturer to retailers of locally manufactured phones; and;(ii) removal of Sales Tax on locally manufactured phones of value more than $ 200. Revenue Division has opposed the MoI&P's proposals.

Minister for Industries and Production, while responding to a question at the post-budget press conference, in June 2020, had clarified that the approved incentives for the mobile manufacturers, would be announced in the budget wind up speech. However, he did not announce the incentives in wind-up budget speech nor did he extend the incentives till now.

In June 2020, the MoI&P in its summary sent by the Secretary Industries, Afzal Latif, had informed the ECC that the expected outcome of the proposed tariff is to promote local manufacturing of mobile handsets and eventual export also. This will have a positive impact on allied industry including packaging and plastic. The expected arrival of high-end brands will give local industry an opportunity to become part of the global value chain. In addition, setting up of R&D centers and an ecosystem for software applications is also visualized.

MoI&P had proposed in the draft policy that the parts of mobile handsets will be used for the entire range of mobile phone handsets produced in Pakistan instead of limited to a particular model.

During the consultation, FBR suggested an increase in RD instead of reducing sales tax and income tax on import of CKD/SKD. MoI&P claimed that the total sales tax collection on import of CKD/SKD comes to Rs. 218 million out of total Rs. 403 million during the first two quarters of Financial Year 2019-20.

MoI&P further argued that from fiscal collection figures it is evident that the government will not have a financial setback but is likely to collect more revenue with the development of mobile phone manufacture industry in the country. Besides, the proposal received from Ministry of Information Technology and Telecom with regard to exemption of locally-assembled mobile phones from 4% of withholding tax on domestic sales had been incorporated in the draft policy.

A couple of weeks ago, representatives of a Chinese company met with the Prime Minister Advisor on Commerce and Investment, Abdul Razak Dawood and conveyed that they not invest in Pakistan if the government withdrew approved incentives.—MUSHTAQ GHUMMAN