Pakistan’s recent tax hike has seen a sharp fall in imports of both network equipment and handsets.
The country’s government has imposed a new tax on the telecoms sector for the fiscal year 2015-16, which has seen a rise of up to 100% on certain items. In particular, a new GST on handsets has seen prices double to around PKR300-1,000 per unit ($2.85-$9.50).
In the month of August, imports of handsets dropped by 10% to PKR6.1 billion ($60 million) while imports of network equipment shrank 36% on the same period last year to PKR5.6 billion. Between July and August 2014, imports of telecom equipment fell by 46% to PKR8.9 billion.
Since the taxes are collected at entry point, importers were left with no choice but to pass the increased rates on to consumers. They have also had the negative effect of discouraging imports at a time when foreign companies are increasingly looking to move in to the Pakistani market.
For the fiscal year 2014-15, the government had already doubled custom duty on telecommunications equipment from 5% to 10% - a blow to operators preparing to upgrade their networks to offer 4G services. The situation has been exacerbated by the failure of provincial governments to follow up on their promise to abolish the 19.5% tax that they charge for 3G and 4G services, as well as the depreciation of the rupee against the dollar.