Local assembling of mobile phones inflicts Rs7.6bn loss in 13 months

--19 assemblers authorised by PTA are allegedly involved in tax evasion, says report

ISLAMABAD: The assembling of mobile phone sets in the country has caused approximately Rs7.6 billion loss to the national exchequer in the last 13 months or so as local assemblers have allegedly been found involved in tax evasion, official documents reveal.

Local assemblers evaded duty/taxes on the import of mobile phones during the period under review, documents available with Pakistan Today said.

The data obtained from the Pakistan Telecommunication Authority (PTA) too confirms huge evasion of duty/taxes by way of misclassification as components/parts of mobile phones had been imported under PCT head 8517.700 (parts), instead of classifying the same in the correct PCT head 8517.1211 (SKD), which was specifically created by the government for local assemblers to classify mobile phones imported in CKD/SKD conditions.

Against the duty/tax structure of Rs905 per mobile set (payable from May 24, 2018 to Jan 23, 2019) and Rs377 per mobile set (payable from Jan 24, 2019 to June 30, 2019; local assemblers actually paid Rs60-70 per mobile set, which reflects the quantum of tax evasion, the documents further say.

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So far 27 local assemblers have been authorised by PTA to run local plants for assembling mobile phone sets after importing component/parts. They (the assemblers) have paid only Rs370 million instead of paying around Rs7.6 billion as only Rs60-70 per mobile set had been paid instead of Rs905 per mobile set during the period under review.

According to documents, up to 20.27 million mobile sets were imported and sold out from May 2018 to June 2019, but the Customs department was told about the import of 331,101 of sets.

Nineteen assemblers evaded taxes and caused irreparable loss to the national exchequer under various heads like use of old IMEI, features smartphone etc.

The Directorate General, Intelligence & Investigation (Customs) Karachi- in a report titled as ‘Report on misdeclaration and evasion of duty/taxes on the import of mobile phones in CKD/SKD conditions’ to the DG I&I (Customs) Islamabad- has requested for necessary guidelines, and revision in policy so that evaded duty/taxes could be recovered from the local assemblers.

It is also learnt from the report of the DG I&I (Customs) Karachi that mobile phone importers/assemblers have declared suppressed value of imports at $1-3 per mobile set, while its actual value was $6-8. “Thus local assemblers massively undervalued their imports and transferred under-invoiced amounts through money laundering besides transferring huge foreign exchange by using unfair means, which needs to be investigated,” read the report.

The cellular mobile phones in CKD/SKD condition are importable at zero rate of duty in terms of Sr No 101 of Part-III of the fifth schedule to the Customs Act, I969, subject to the conditions stipulated there against. It, however, has been observed that local assemblers/manufacturers of cellular mobile phones are importing various parts of mobile phones through third party/contract assemblers rather than availing the said serial number of the fifth schedule.

And, this method is being adopted to avoid levy of regulatory duty and sales tax as per the ninth schedule to the Sales Tax Act, I990. Since most of these parts are being Imported from China FTA, as against 11pc stated tariff and paying sale tax @ 17pc on value of such parts instead of rates prescribed vide the ninth schedule, still sums up as duty/tax saving option for such importers, besides regulatory requirements of IOCO is also by passed.

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Ahmad Ahmadani
The author is a an investigative journalist at Profit. He can be reached at [email protected]
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