Mobile phone market in grip of uncertainty

KARACHI - For the last two weeks, the mobile phone market is in grip of uncertainty as the customs clearing agents are spreading the speculations regarding the withdrawal of increase in custom duty of Rs500, which was announced in the budget, sources said.

The imported consignments carrying mobile phones and wireless phone sets are being smuggled and freely entered into the country by showing/labelling those sets refurnished or scraped without bringing into the notice of the high custom authorities.

It seems that the FBR revenue-drive moves to put a damper on imports of non essential and luxury items could not give desired results but it would encourage the hoarding and illegal trade of such types of electronics goods. But, the other side of the coin shows this taxation decision would mitigate the rate of street crime to some extent.

According to the market dealers, the rumour, that FBR may withdraw the raise of customs duty rate on imported mobile phones is creating unrest among the respective dealers as their sales business has badly affected and most of the dealers are seriously thinking over the change of this business.

As far as the consumers are concerned, majority of them use to get emerging and advanced cellular phone technology regardless their purchasing power, therefore, they would suffer further by the restriction of said phones into the country, sources added.

The mobile goods import which is taken place/traded by brokers from Dubai who usually uses small bags having all brands ranging from cheaper or low-priced to expensive are carried to the ports and being asked for paying "carry" amount to the distributors , wholesalers and vendors. After the budget 2008-09 the carry amount has been increased by Rs50 to Rs150 from Rs100 in the last fiscal.

An importer told The Nation that currently, the customs clearing agents were not charging even old duty of Rs150 saying that there would be no duty from the starting of new fiscal to implement the levy of the Rs500 on cell phones import. However, in order to clear consignments, they were demanding handsome amount of money to the importers.

According to telecom market experts, the specific customs duty of Rs500 per mobile handset would not have any major impact on usage telecom services as consumers would shift to cheaper handsets.

Experts see a neutral to negative impact of the budgetary measures on the telecom sector. The increase in taxes on telecommunication services, which include Local Loop (LL) LDI (Long Distance & International), Wireless Local Loop (WLL) etc, will hurt telecom operators. While the increase in excise duty would raise taxes for the government the impact would be neutralize to an extent by a decline in usage by end consumers.

According to the FBR Customs Budgetary Measures for the year 2008-09, the mobile activation charges remained unchanged at Rs500 on new mobile connection in FY08. The last reduction was done from Rs1,000 to Rs500 in Budget FY06.

Excise duty paid on mobile services has been increased by 6% in Budget FY09. As a result the current tax structure now comprise of 21% excise duty and 10% withholding tax which takes the total effective tax payment to 33% as against 26.5% previously in place.

Withholding tax on monthly telephone bills exceeding Rs1,000 is proposed to be collected at 10%.

According to the official report, Pakistan has been enjoying rapid growth in mobile subscriber penetration, which has risen to 52.1% in March 2008 up from 39.9% in June 2007, taking the overall teledensity to 57% in the country. This is more than twice the teledensity of India, which was 25% in Dec 2007. However, low mobile penetration in far flung areas, rising income levels and aggressive expansion plans of major cellular players suggest further upside in the future growth of cellular subscribers albeit at a pace slower than that witnessed in the last 3 years. Hence we expect cellular subscribers to cross the 100mn mark by FY09 and teledensity to reach 75% by FY10.