FBR has clarified that no new tax has been imposed on cell phones as is wrongly being portrayed by some quarters. The fixed amount of sales tax on activation stage was first introduced through SRO 390(I)/2001 dated 18th June, 2001, with a rate of Rs. 2000 per cell phone. However, on the request of cellular company operators to encourage the sector, the rate was reduced from time to time. Under SRO 542(I)/2008 dated 11th June, 2008 the fixed rate was Rs. 500 per mobile phone, which was subsequently reduced Rs. 250 per mobile phone.
The collection mechanism in all these notifications was based on the old CDMA technology, which required activation/energization of mobile phones by the cellular company operators before they could be operated. However, CDMA technology is no longer prevalent on any mobile network in Pakistan as all mobile networks in the country are presently operating on GSM technology. Under GSM technology only a SIM Card is inserted in mobile phones which are ready for usage. These GSM technology-based mobile phones do not require activation/energization by the cellular mobile network. Due to this technology change from CDMA to GSM, SRO 542(I)/2008 dated 11th June, 2008 had become redundant and the Government exchequer was not getting the proper revenue from this sector as pre-activated cell phones were being imported resulting in a steep fall in revenue despite tremendous increase in volume of import. SRO 280(I)/2013 dated 04-04-2013 recently issued by the Government does not impose any new tax. It only aligns the law with the latest technology.
This notification was necessitated to remove the anomalies occurring due to change in technology. It has shifted the time and mode of payment of tax from activation stage to import stage.The standard rate of sales tax under the Sales Tax Act, 1990 is 16% and prices of new mobile phones go as high as around Rs. 80,000/- or more. At the standard rate of sales tax, the amount of sales tax payable on a mobile phone costing Rs. 50,000/- would be Rs. 8,000/-, but under SRO 280(I)/2013 the fixed sales tax is only Rs. 1000/- which comes to around 2%. Thus the fixed rate of sales tax under SRO 280(I)/2013 dated 04-04-2013 is still much lower than the standard rate of 16% chargeable on all other goods. This reduced fixed rate of Sales Tax has been retained on the request of cell phone operating companies to help and encourage the sector.
The impression being created by certain vested interests that the Government has levied a new tax on cell phone is baseless and devoid of fact. The views being presented that imposition of sales tax under SRO 280(I)/2013 will ruin the businesses or lead to smuggling of mobile phones is also not correct as the present notification only brings the tax structure in line with the current cellular technology and it is aimed at safeguarding the interests of the exchequer which were being hurt due to the existence of a notification based on an obsolete technology. Even under the new notification fixed tax rate at a minimal level has been retained on mobile phones to save the industry from any possibility of smuggling. The rate of Rs. 1000/- is only for smart phones and satellite phones (which are admittedly costly phones). The fixed rate of sales tax on ordinary cellular mobile phones (other than Smart Phones and Satellite Phones) is only Rs. 500/- per mobile phone.
This minimal rate of fixed tax shows the pro-industry policy of the Federal Government. It also shows that all tax policy changes are well-thought out by the Federal Government and no such policy is implemented which would create problems for the industry.