Friday, June 11, 2004

2004-2005 Budget

There is now a 5 percent tax on computer parts. According to the govt. since computers are 'manufactured' here this will provide relief to the local computer manufacturers. Well, if they can call most of the local car assemblers manufacturers, and I presume bolting together a pc with 100% imported parts is also manufacturing. Impressively enough, the entire budget is online. I'm not sure if they also taxed software imports also.


The new budget is due tomorrow - how will it effect the IT sector? I hear they are going to be putting sales tax on computer parts. Does anyone have more information on this?

As it is, computer parts are already double and sometimes triple the US and Far East prices. T>o be fair, the Western market is massive, but we're located pretty close to China and Taiwan where most of the world's computer parts are made.

Update: The Business Recorder says that the new budget will tax the IT industry. I would link to the exact article but their website is impossible to navigate.

7 comments:

Zunaira said...

I attended an FPCCI-IT committee meeting last month where members from PASHA, CSP, Intel, and a few software houses discussed implications about taxes on hardware/software.

Conflicting reports from government on this front.

PSEB's Amir Matin had sent two emails to two different members saying "no there are no taxes" and "yes Ive heard about this and will look into it".

The members decided to 'plead' their case to the Finance Ministry and Chairman CBR--who was due in town. I'm not sure what came of it. Will update you folks.

Meanwhile here's the press release the members released.

---start----
www.fpcci.com.pk
GST BEING IMPOSED ON THE IT INDUSTRY
May 21, 2004
An emergency meeting of the Standing Committee on Information Technology was called at Federation House, Karachi to discuss the ‘GST BEING IMPOSED ON THE IT INDUSTRY’. The Standing Committee consisting of the heads of all major IT Industry Organizations, including CSP, P@SHA, ISPAK, and the newly formed Call Center Association, as well as Major Multinationals such as Intel, NCR, Oracle, and Microsoft unanimously rejected the idea of GST on the Pakistani Industry as being deterimental to the future growth of the Information Technology Sector in Pakistan.

In an unprecedented show of unity, the Committee members agreed to join forces in its opposition to this tax citing the following effects of the GST if imposed.

• GST Imposition to create major Investment problems

– INCREASED COST TO END USERS ESPECIALLY TO GOVERNMENT AND FOREIGN INVESTORS
– CONTRADICTION IN GOVT POLICIES
– LESS COMPETITIVE INDUSTRY

• GST IMPOSITION IMPACT ON EMPLOYMENT
– LESS BUSINESS
– LESS INVESTMENT
– LESS EMPLOYMENT
• GST IMPOSITION IMPACT ON IT PROPAGATION BY GOVERNMENT

– 15% ADDITIONAL EXPENDITURE
Almost all public and private sector organizations have massive plans to invest in IT and improve the infrastructure and processes. The additional cost will severely impact these investment plans.

• GST IMPOSITION IMPACT ON INTELLECTUAL PROPERTY

– GOVERNMENT DETERMINED TO ELIMINATE PIRACY
– INCREASED COST OF SOFTWARE TO ENCOURAGE PIRACY
• IMPACT OF GST IMPOSITION ON INTERNATIONAL TRADE
– NEGATIVE IMPACT ON TEFA/FTA WITH USA
– BIG HURDLE ON ENTRY OF MULTINATIONAL PLAYERS IN PAKISTAN MARKET BECAUSE OF PIRACY AND IP PROTECTION PROBLEMS

Call Center out-sourcing opportunities are beginning to come to Pakistan.
Companies like NCR, IBM, Oracle, and Microsoft have either set up regional centers or have announced plans to do so.
---END--

Zunaira said...

What section can I look under for this news on BRecorder. Quite a banner bazaar they've got going on there.

KO said...

It's on the back page of Friday's paper. I tried looking it up on the site, but it would take hours to locate anything in that maze!

Ejaz Asi said...

So, what's the whole point of this entry, KO? I mean is 5% tax too much? Do our computer shops really sell things twice and tripe the price of what you get else where in the world?
Zunaira, Shaukat Aziz didn't mean some Asian version of Dell and Compaq here. Manufacturing could also mean manufacturing of different small components. Monitors are one such thing too. Motherboards, for example, have been heard to be produced in Karachi. Whether manufactured anything here or not. What possible backlash this 5% could generate? Kick off the Philips, Samsung and other companies from Pakistan, then. Shaukat Aziz already said that from previous years' comments put up in post-budget conferences, most of the comments were negative and highly criticising. It really seems no one in Pakistan wants to appreciate whatever any government does. I see no sane reason to comment/debate negatively on a such a tiny tax. If the local shops make them even higher, firstly, it's not Shaukat Aziz's fault and secondly, it's us morons who can't do anything about it. In last 4 years, whatever I have purchased for myself and others in this field has been reasonable enough and almost the same price it would have been elsewhere. Enlighten me with your wisdom, if you may.

Zunaira said...

I can enlighten you with my point of view if I understood it clearly.

Perhaps you could try again?

Salman Siddiqui said...

Is 5% too little? I just bought a combo drive for about 3200 rupees; so this means that 160 rupees went into supporting our local 'manufacturing' industry? Should I consider that negligible? Also to my knowledge there's never been a motherboard 'producing' facility in Karachi. But now with the announcement of the budget, out of the 13900 that costs for a P4 3 GHz. 700 rupees would go into supporting our 'hardware industry'. Isn't that donation a bit too generous for a buisness that in reality does only assembling and no manufacturing of the products. I dont see any reason why there should be even a 1% tax for the benefit of computer assemblers here.

KO said...

Ejaz, I didn't quite follow all you posted, but I'll try to reply nonetheless:

Already, most of the computer parts I've bought for myself, and for my office are SMUGGLED. This is despite their being no duty on them before. The reason for this is that most small computer shops try to live as tax free an existence as possible. They might not have been paying duties on motherboards, processors etc. but they want to avoid all the other taxes which are part and parcel of any income generating business. These people (I personally know a number of them myself) smuggle and or import in bulk. We're talking really large figures here, so 5 percent becomes a huge number.

The other problem with duties is that customs always tries to charge it at the rate they deem appropriate. That rate is usually far higher than the actual cost - this is especially true for computer parts where there are massive sales for older hardware.

About prices: They're higher in this country. It's a fact, not something to be argued about. There's this wonderfull thing called the internet which will in the blink of a eye till you the western prices for anything imaginable. For Pakistani prices, check any local deal, or just go to uniplaza. Generally speaking, local prices are ALWAYS higher than western retail prices, and can be upto 5-6 times higher.