Smuggling is hurting the national economy
By Syed M. Aslam
May 01 - 07, 2000
The government's resolve to deal with the menace of smuggling with an
iron glove this time around highlights the importance it attaches to control a trade which
is critically hurting the economy of the country. Just how badly smuggling is hurting the
national economy can well be illustrated by the thriving black market of cellular phones
in the country.
The illegal trade of mobile phones is not only depriving the government
millions in lost revenue but is also hampering the growth of the market due to loss of
customer trust. The absence of customer trust is fuelled by the rampant unethical
practices in the market, the majority of which is fed by the smuggled mobile sets, the
most common being sales of stolen or used sets as new and fake accessories such as
batteries and chargers.
Talking to PAGE, country manager of Axiom Telecom, Imran Owais
Kazmi said that the high landed costs are severely discouraging the use of legally
imported sets leaving the market wide open for the smuggled counterparts. The withdrawal
of duty and taxes on the import of mobile sets last year has been neutralised by the
imposition of GST at present to render the imports extremely incompetitive to smuggled
products, he added.
The landed cost of imported mobile phones, he said, is as much as 25
per cent higher than the sets which find their way into the country illegally. For
instance, the landed cost of a bulk shipment of high-priced GSM sets works out a high
30-40 per cent including freight. In a price driven market like Pakistan who would like to
pay 25 per cent more for a legally imported set when the similar products are easily
available in market at a much lower price.
The flourishing of the illegal trade is also encouraged as it works in
the benefit of the customer who can buy the smuggled sets at much lower prices than its
legally imported counterparts. The illegal trade far outnumbers the legal trade as it
enjoys a big edge over the later which is subjected to 30 per cent plus duties and levies
compared to 5 per cent costs for the former.
Last year the duty and taxes on the import of mobile phones were
abolished to enable the legally imported sets competitive edge against the smuggled
counterparts. The edge, however, has almost been blunted with the imposition of the GST at
present reversing the situation back to the pre Statutory Regulatory Order 511 abolishing
the import tariff.
The problem is further aggravated as the imports of mobile sets and
accessories can only be exercised through the three cellular operators in Pakistan
Mobilink, Instaphone and Paktel. Besides the GST which renders the imports incompetitive
compared to the massive volume of contrabands available in the country the mobile
telephone subscribers have to pay fixed amount of Rs 1,250 connection fee to the
government which is the government's way of ensuring revenue generation from every new
mobile phone connection whether the set is legally imported into the country or otherwise.
Imran also blamed the lack of growth of the cellular market, which has
remained stagnant at 300,000 subscribers since early 1990s in Pakistan, on the easy
availability of sets which finds their way at the shops across the country. The variable
pricing based on 'catch the customer' philosophy, rampant sales of stolen and used sets,
non-genuine accessories has demoralised the potential buyers from freely shopping around.
This in turn has resulted in an overall decreased rate of mobile connections and sales of
sets and accessories.
Imran suggested that the impact of the black market can be lessened if
the government impose a fixed 5 per cent tax on the purchase price internationally.
Furthermore, expanding the import permission to the set manufacturers, or their agents,
will also help encourage the legal imports, he added. As is, the electronic markets across
the country are stacked with mobile sets of all makes and price ranges which find their
way into the country illegally. While the legal imports can only be exercised through the
three mobile operators Mobilink, Instaphone and Paktel the bulk of the new
customers prefer to buy their own sets from the markets which primarily markets the
So what could be done to lessen the impact of the black market? Imran
suggested that replacing the GST with the imposition of a fixed tax of 5 per cent of the
international retail price of mobile sets can help fetch government a sizeable revenue. By
replacing the GST with the fixed tax the government will be able to earn the revenue which
it is currently deprived of due to prevalent preference to buy smuggled sets which are
easily available across the country.
Imran said that all mobile manufacturers, or their agents, should be
allowed to import hand sets into country. Rejecting the notion that allowing the
manufacturers to import the sets would limit competition, he said, that "with a low
per capita income no manufacturer will be foolish enough to charge exorbitant margins
which would eventually result in a new face of the black market." In fact, expanding
the import facility to the manufacturers will result in better customer service and
availability of guaranteed genuine sets and accessories to boost the rate of connectivity
which remains stagnant due to these impediments at present, he added.