Is Mobile Phone a Luxury Item

 

If someone asked this question a decade ago, the answer would have been a positive yes. However, today’s scenario is quite different. Before delving deep into the current situation, let’s go back in time.

 

A decade ago, not only were mobile sets so expensive that they could only be afforded by a small niche but at the same time the call rates were also considerably high.

 

Over time, technological advancements, surge in demand and mass production of mobile sets made it possible for the mobile set manufacturing companies to sell their mobile phones at lower prices as they could earn more profits from higher sales volumes. These changes made mobile phone a more affordable commodity for the masses.

 

Massive increase in cellular subscription over time and tougher market competition also made it possible for cellular service providers to offer lower call rates. As a result, the total cost of ownership for mobile phones declined making it possible for the lower strata of the society to enjoy the convenience of communication rendered possible by the technology.

 

Today people from almost all income segments own a mobile phone.  Mobile phone is not just a means of communication for people any more. It has become a smart way of doing business and improving the living standard of the low-income group. A case in point to understand this additional benefit is a study conducted in India about “Impact of Mobile Phones on fishermen of Kerala” by Robert Jensen, an economics professor of Harvard University. According to the findings of the study, as tele-density increased between 1997 and 2000, the fishermen started to call around, while still at sea for the best prices for their catch instead of selling them on shore thus fetching a better price. As more fishermen adopted the same strategy, fish prices stabilized across the coast. On average, the fishermen earned 8% more while consumer prices fell by 4%. This study highlights the power of communication that did not only increase fishermen’s income but also benefited consumers by establishing standardized price. Mr. Jensen concluded that, “Information makes markets work and markets improve welfare”.

 

Although, no such case-study has been conducted in Pakistan, the same benefits are being reaped by our local people by using a mobile phone, many of whom are working in agriculture sector.

 

To provide support to the local farmers, Mobilink launched Mobilink Kisan service to offer produce prices and real-time weather updates to the farmers. If farmers had no mobile phone, they wouldn’t have been able to take advantage of such valuable services.

 

Because communication today greatly facilitates people’s earnings, it has a direct positive impact on a country’s GDP. According to a study conducted by London School of Economics, an increase of 10 mobile phones per 100 people can increase the GDP growth of the country by 0.59% more than a country without mobile phone penetration.

 

Pakistan is one of the fastest growing telecom industries in Asia. With a subscriber base of more than 89.9 million out of the total population of around 160 million, the current cellular density stands at 55.8% (Source: PTA). Mobile penetration in urban areas is almost 100% making rural areas the potential growth segment for mobile set manufacturers as well as cellular service providers.

 

However, there are certain issues that have slowed down the pace of telecom industry’s growth. While the most obvious and less controllable ones are the global economic recession and double digit inflation, the other more harmful and at the same time controllable factors involve increase in taxation and eventually flourishing of black market.

 

Increased taxes have made mobile phones more expensive for the population. A few months back, government of Pakistan classified all mobile phones as luxury items and imposed a flat amount of PKR 750 tax on every handset imported in Pakistan regardless of its price. So whether a phone’s price is PKR 2,500 or PKR 55,000, an additional tax of PKR 750 takes the prices to PKR 3,250 and PKR 55,750 respectively. But percentage wise, a person buying a PKR 3250 handset ends up paying 30% of tax whereas a person buying a PKR 55,750 is paying only 1.36% of taxes. So instead of making mobile phones more affordable for the low-end segment, the taxes have made them far more expensive for wage-earners who literally save a fraction of their earnings to be able to purchase a mobile phone. The increase in taxes has not affected the demand for mobile phones because consumers have cheaper alternatives available in terms of Chinese copies of handsets and mobile phones available via grey channels. Both consumers and government suffer from this situation. On one hand, consumers have no choice but to purchase a product with no warranty or reliability and on the other hand, government is ripped off the import duties that it can earn only when all the imported goods enter the country through legitimate channels.

 

It is unfair to the less-privileged segment of the population to bear the greatest burden of import duties. Mobile phones below PKR 5,000 should be exempted from import duties because they play a vital role in facilitating the livelihood of a common man and must not be classified as luxury items.

 

The telecom industry can only prosper if the government provides required support to the cell phone manufacturers and exempt low-cost phones from high import duties.

 

Written by Danish Hassan