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IT businesses suffer in the presence of high tariffs and import of discarded computer hardware



By Shahzada Irfan Ahmed

Just like in the past many years, the government of Pakistan kept on expressing its resolve this year to give a boost to the IT industry. On different occasions the policymakers had termed the sector an engine of growth for the whole economy.

They talked about the introduction of computer education at the basic level, provision of Internet access to more and more people, promotion of e-governance, tapping of software export potential and patronisation of local computer hardware industry as the main goals of their policy.

There were some commendable steps taken at the federal and provincial level like the launch of IT labs project by the Punjab government. Similarly, the Internet penetration also increased at a satisfactory level, thanks mainly to the growth of the telecom sector and laying of Wimax networks in the country. The software industry also showed some signs of recovery as some Pakistani companies got fresh orders despite the deteriorating security situation in the country. Though the progress was not remarkable, the sector had shown resilience in one of the worst times in the country's history.

In this whole scenario, a point worth noting is that local assemblers of new computers, laptops, and related equipment suffered a lot. This seems strange as this industry was supposed to grow exponentially due to the huge surge in demand of computers over the year. The local assemblers and importers of computer components say their business is suffering due to unfavourable tariff structure imposed by the government, the import of used and outdated PCs, non-patronisation of the sector by the government and non-availability of consumer finance to people to buy computers.

According to the figures available with Pakistan Computers Association (PCA), demand for locally assembled computers has diminished by 65 percent as many people go for the used imported computers which cost less. The assemblers say that the buyers who think they have saved money by buying used computers are, in fact, at the loser's end in the long run. "These computers have completed their life and the amount spent on their maintenance, repair and power consumption is much higher than what had been saved," they believe.

Azhar Husain, a sales representative with a local assembler firm tells TNS the government step to impose 15 percent general sales tax on the import of laptops, computers and related equipment served a deadly blow to the industry. "This was something totally different from what the federal government did in 1999," he says.

Azhar says at that time the government had allowed import of computer hardware at zero rate customs duty. Unfortunately, this facility was withdrawn in the federal budget of 2005 and 15 percent general sales tax was imposed on the import of these products, he adds. Since then the demand for locally assembled computers has decreased and the number of people opting for used import computers has increased, he says. Azhar says the government will have to remove GST on computer imports if it wants to see the sector boom and create jobs for the country's IT workforce.

Ashar H Zaidi, Country Director Intel Corporation, tells TNS that the perception among people that cheap used imported computers are a feasible option is totally unfounded. He says people have a feeling that they save money by buying cheap computers, but if they calculate the costs incurred on keeping them running, they will never go for them.

He says people buy computers that sell for around a half of a new computer, but they do not realise that new computer is five to six times faster, has four times more memory, ten times bigger hard drive and a long-term warranty. New computers run the latest operating systems, come with all the software and manuals and save a lot on energy consumption.

Ashar questions that if the government can impose a ban on import of reconditioned cars then why not on used computers which are an environmental hazard as well as a strain on the consumer's pocket? He tells TNS that the prices of new computers have come down very fast due to increase in competition, transfer of technology and innovation. Therefore, it seems totally irrational to waste money on buying used computers.

He wonders how sensible it is to buy a used computer for Rs 8,000, which can crash anytime, instead of a new one for Rs 13,000.

He says there is a complete ban on such imports in the developed countries that recycle these computers once they have completed their life. Everyone can imagine how harmful they are, but even then their import is continuing, he adds.

Ashar says if the government thinks banning this import outright is not feasible then it must at least put some conditions on it. For example, he says, the government should allow import of only one-year-old computers. Ashar says his company has developed products that are energy-efficient and consume power only when it's needed. This aspect should be kept in mind keeping in view the cost of electricity and its shortage in the country. Finally, he says the survival of this industry is vital as local companies play a great role in the growth of economy and creation of jobs. Intel has trained thousands of school teachers in IT as part of its efforts to promote the sector in the country, he adds.

Another suggestion from the local assemblers is that consumer financing should be made available to people at low interest rate to buy new computers. This, they believe, will increase the purchasing capacity of people and give the sector a boost just like the one got by the auto industry due to this facility.