Recent tax incentives by the government have encouraged at least three new mobile phone companies to establish manufacturing plants in Pakistan.
Last year in May, the government announced tax incentives for assembling/manufacturing mobile phones, where the locally assembled and manufactured phones will be exempted from a 4% withholding tax on domestic sales.
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This announcement has sparked interest in Vivo Mobiles, Airlink, and Advance Telecom to set up their plants in Pakistan.
“Three new entrants have submitted applications for the establishment of manufacturing units in the country,” said an official of the Engineering Development Board (EDB), which is an attached department of the Ministry of Industries and Production. “Vivo plans to set up its unit in Faisalabad; Airlink has applied for a unit in Lahore; whereas Advance Telecom wants to establish one in Karachi.”
New incentive appreciated by investors
The Cabinet’s approval for Pakistan’s first-ever mobile device manufacturing policy would benefit the industry. Cheaper mobile sets from foreign countries, especially India, threatened the local market of Pakistan. In a bid to eliminate the threat, the government has abolished withholding tax on locally manufactured mobile sets.
“Now after-tax relaxations, there is a difference of around Rs1,900 per $100 devise between a locally assembled phone and an imported set,” said Amir Allahwala, Chief Executive of a company manufacturing Infinix and Techno mobile sets.
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Originally proposed by EDB, the government’s move for the abolishment of WHT has been praised by investors as imported sets were cheaper than locally assembled sets under the previous tax regime.
According to market sources, although the manufacturing/assembly of mobile phones has already started in the country, new tax incentives and subsequent new entrants in the sector would create healthy competition in the market.
The increased competition will encourage the emergence of new local mobile companies. It will also incentivize the companies to hire local engineers which will increase the rate of employment in Pakistan.
EDB at odds with PTA
The Ministry of Industries and Production (MoIP) being the policymaking authority, would facilitate the new entrants, whereas Pakistan Telecommunication Authority (PTA), being the regulator, would supervise the implementation of the mobile phone manufacturing policy, they added.
PTA has also issued Mobile Device Manufacturing Regulations 2021 where it will be responsible for the regulation and implementation of the policy. According to PTA regulations, manufacturing/assembly plants will be required to provide complete details regarding land finances, the nationality of investors, etc.
However, the EDB has argued that investigation of such details is related to the establishment of a production unit and incidentally, it should be the responsibility of MoIP.
Market sources believe that in case of confusion and clashes between EDB and PTA regarding the regulation and policy on mobile phones, investors may face problems at the approval stage.
It is yet to be seen how mobile companies fare under the new policy regime.