In a recent move aimed at generating additional revenue, the Federal Board of Revenue (FBR) has announced a significant increase in sales tax on the import of premium mobile phones. Effective immediately, mobile phones imported in Completely Built Up (CBU) condition with a value exceeding $500 per set will now be subjected to a 25% sales tax.
This policy update was detailed in the newly issued Sales Tax Act of 1990, dated July 25, 2024. According to the updated Act, imported CBU phones valued at $500 or less will incur an 18% sales tax. Moreover, locally manufactured mobile phones in CBU condition will also face an 18% sales tax, mirroring the tax imposed on imports in CKD/SKD (Completely Knocked Down/Semi Knocked Down) condition.
The primary objective of this new tax regime is to augment the government’s revenue streams by targeting high-end smartphone imports. Industry analysts predict that this move will likely result in a surge in prices for premium mobile devices within the Pakistani market, potentially affecting consumer purchasing behavior.
The FBR has also broadened the definition of “tax fraud” within the updated Sales Tax Act. This new definition includes intentional actions such as understating or underpaying tax liabilities, as well as overstating entitlements to tax credits or refunds, all in violation of the Act’s prescribed duties and obligations.
This development is part of the government’s ongoing efforts to overhaul the country’s tax system and strengthen its fiscal position amid prevailing economic challenges. The impact of this new mobile phone tax on consumer demand and the broader technology sector will become clearer in the coming months.
Additional Context
The FBR’s decision to increase taxes on premium mobile phones follows similar measures aimed at bolstering government revenue through the technology sector. For instance, the government had previously raised taxes on imported mobile phones in the budget for 2022-23 and introduced temporary phone registration facilities for expatriates. Moreover, there have been proposals to hike withholding tax on mobile phone calls by 10% to 15%.
The implications of these tax policies on the local market are multifaceted. On one hand, they are expected to contribute significantly to the national exchequer. On the other hand, they may pose challenges to the technology sector by increasing the cost of high-end devices for consumers. This balance between revenue generation and market stability will be a key area of focus as the new tax policies are implemented.
