Price hike, added VAT hit handset sales, production

A price hike of 10-20% and an added value-added tax (VAT) of 5% at the retail level have led to a decrease in the sales and production of mobile handsets, say manufacturers.

Mobile phone manufactures have been under pressure since the beginning of this year due to the global chip crisis and increase in freight charges and raw material prices. Then the increase of dollar price led to the sales dropping from May. On top of it, the added VAT in this year's budget further caused the sales and production to go down.

Mohammed Mesbah Uddin, chief marketing officer (CMO) of Fair Group (distributor and manufacturer of Samsung in Bangladesh) said that import costs have increased by 20-25% due to the dollar price within six months. The price of raw materials has increased by more than 40%. As a result, we have been forced to increase the price of handsets.

He said that the Bangladesh government has imposed 5% VAT on cell phones at the retail level amid the global crisis.

"All these have affected the country's smartphone market. Smartphone sales have been declining by 10 to 15% since May. It has decreased more in the last month," he said.

According to data from the country's telecom regulator, Bangladesh Telecommunication Regulatory Commission (BTRC), the production of 4G-supported smartphones fell by 51% year-on-year in July. And compared to January this year, it has decreased by 55%.

Manufacturers claim mobile handset sales have decreased by 15-20%.

Since the Russia-Ukraine war began last February, the price of the dollar has been increasing in the world market. In the local market the price per dollar is Tk96. However, for imports the dollar price has exceeded Tk110.

Mobile phones produced in the country are mainly assembled here after importing various raw materials.

Mobile phone manufacturing companies say the cost of importing raw materials has increased due to the rise in dollar prices, causing the selling price to go up in the retail market.

Mobile phone prices rose immediately after the budget proposal for the fiscal year 2022-23 last month, market insiders said.

The new budget announced the withdrawal of the 5% VAT exemption on mobile phones at the retail level. At that time, smartphone manufacturers in the country expressed fear that the price of handsets in the market may increase by 25-30%, which is exactly what happened.

According to BTRC data, 13.68 lakh 4G enabled mobile phones were manufactured in the country in January this year. Production fell to 5.89 lakh in July, which is a 55% decrease compared to January. After the announcement of the budget, the sale of smartphones has decreased since June and some 8.48 lakh phones were sold in that month.

On the other hand, no smart phone has been imported in the last three months due to price increases in the global market. Last April, traders imported 30,960 smartphones legally. After that, BTRC does not have any information on legally imported phones.

A senior official of Xiaomi Bangladesh said the companies had been speculating since last May that the demand for handsets may decrease drastically in the future, which is already being observed. Due to such fears, manufacturers have reduced the production of smartphones in advance. Moreover, the price of smartphones is increasing due to the withdrawal of VAT benefits, which also caused the lower production of smartphones.

There are 14 phone factories in the country operated by such companies as Samsung, Oppo, Vivo, Tecno, Symphony, Walton, Lava, Xiaomi, Nokia and Realme. Sources say, the smartphone market in the country is worth Tk15,000 crore while investment in the sector is more than Tk5,000 crore. More than 90% of the market's demand is met by locally manufactured phones. Investment in this sector is over Rs 5,000 crore.

Sales in the global market have also declined

According to the report of Canalys, a leading global technology market analyst firm, smartphone sales worldwide fell by 9% in the second quarter (April-June) of this year.

Due to rising dollar prices, chip crisis and overall slowdown in the global economy, smartphone sales have declined across the world, the firm said.