Negative Impact of PTA Taxes on Pakistani Mobile Phone Market Dynamics

The Pakistani mobile phone market is huge and has a tremendous user base. There are many smartphone companies operating in Pakistan targeting different segments. However, you must be aware that the final prices of mobile phones in the Pakistani market aren’t just comprised of the costs of manufacturing and selling, but also include the PTA taxes. These taxes are set by the Federal Board of Revenue (FBR) and include custom duties, sales taxes, and direct levies. These taxes play a significant role in shaping the dynamics of the Pakistan mobile phone market. So, let’s explore how PTA taxation affects various market aspects.

Increased Cost to Consumers:

PTA taxation directly affects consumers by pushing up the retail prices of mobile phones. The import duties and sales taxes imposed on semi-knocked-down (SKDs) and completely knocked-down (CKDs) units also contribute to higher production costs. The manufacturers ultimately pass on these costs to already burdened consumers. If we scrutinize the latest taxes, we see that PTA taxation can inflate the retail price of mobile phones by around 45% as in the case of iPhone 15. This huge increase in price affects consumer purchasing behavior, particularly for low and middle-income groups of the society.

Market Entry Barriers:

High taxes on mobile phones create barriers for new manufacturers and brands trying to enter the Pakistani market. Therefore, compliance with taxation regulations and high import duties pose financial challenges for new entrants. As a result, the mobile phone market in Pakistan could become monopolized by a few dominant brands, limiting competition and innovation. Different industry stakeholders have highlighted the detrimental effects of high taxation rates on market diversity and consumer choice.

Impact on Market Structure:

PTA taxation also impacts the overall structure of the mobile phone market in Pakistan. High taxation rates lead to market concentration, where a few established players hold significant market share. On the other hand, markets with lower taxation rates tend to have more diverse products and higher levels of competition among manufacturers. A study conducted by the Pakistan Institute of Development Economics (PIDE) found out how high taxation reduces economic growth with international evidence.

Bypassing PTA taxes through other channels:

Owing to the high PTA taxes, users in Pakistan resort to other ways to bypass PTA taxes. People use different techniques like JV phone, IMEI patch, using a secondary phone, and using Bluetooth sim device. We also have a detailed guide on why people in Pakistan are not willing to pay PTA taxes.

https://www.phoneworld.com.pk/why-mobile-users-arent-willing-to-pay-pta-taxes-a-case-study/

 

In conclusion, PTA taxation policies set by the Pakistan Telecommunication Authority have a profound impact on the dynamics of the mobile phone market in Pakistan. From increasing costs for consumers to creating barriers to entry for new players and influencing market structure, the effects of PTA taxation are significant.