Locally-made mobile phones to be costlier

Locally made mobile handsets are likely to get costlier in the next fiscal year as the government decided to impose value-added tax (VAT) on mobile phones, manufactured and assembled, and increase import duty for raw materials, commerce ministry officials said.  

At the same time the government may also ease some clauses to import raw materials and micro-parts under the current tax break facility, they added. 

The officials said the government has taken this plan to increase VAT and duty on raw material imports of cellular phones in a bid to encourage value addition by local manufacturers.

However, industry leaders said it would create uneven competition among local manufacturers and  illegal importers, as currently such importers are dominating about 40% of the country's market share. 

If the government does not revise this plan, it might affect local and foreign direct investments (FDIs) in this sector.

According to ministry sources, currently local mobile phone companies are paying VAT based on their status – only assemblers are paying 15% VAT. 

But those companies which have the Surface Mount Technology (SMT) assembly process along with assembling their VAT rate which is 5%, and it would be 7.5% from 1 June this year. 

The companies which have power circuit boards (PCB) assembling facility along with the SMT assembly process and battery charger assemble facility and assembling facility, and currently their VAT rate is 3%, which would be 5%.

On top of this, if any company has additional facilities for power circuit boards (PCB) assembling and mobile housing manufacturing, its VAT rate would be 2% from zero. 

On the other hand, mobile phone manufacturers are likely to pay a duty of 5% on some core raw materials, which is currently 1%. Some raw materials might include a payment of 15% import duty from the current rate of 10%. 

Industry insiders said when mobile handset brands assemblers and manufacturers in Bangladesh are operating at 50% capacity, there are fears of up to 40% job cuts in the industry due to grey market invasion, burden of value-added tax (VAT) and ongoing economic crisis. If the government further increases their tax burden they might face uneven competition, which might push them out of business. 

 Mobile phone handset sales in the country, including smart and feature phone sets, were around 3.5 crore in FY22, which might come down to 2 crore this year if VAT and duty is increased, they added. 

Overall tax on local mobile handsets is currently 18-22% and it is 57% in the case of imported ones.

"Imposing VAT and tax on local manufacturers and leaving the grey market unaddressed will threaten the mobile manufacturing industry and reduce the government's revenue earnings," said Rezwanul Hoque, vice president of the Mobile Phone Industry Owners' Association of Bangladesh.

On Wednesday Transsion Holdings, a leading provider of smart devices and mobile services, inaugurated its ISMARTU factory in the Meghna Industrial Economic Zone, Narayanganj, said Rezwanul Hoque, also Bangladesh Chief Executive Officer of the company.

If the government further imposes VAT and Duty on devices manufacturing and assembling, it will be very tough to keep the industry operational, he added. 

Echoing Rezwanul, PRI Executive Director Ahsan H Mansur said it would not be wise to impose sudden VAT and duty imposed on local mobile phone manufacturing as it related to FDIs. 

He also mentioned that the NBR should take action against the grey market importers, as they are well known about them. Otherwise local investors will be affected largely. 

At present, 14 national and multinational licensees are engaged in mobile manufacturing in Bangladesh. 

Since its inception in 2018, the mobile manufacturing industry has witnessed an investment of approximately Tk1,500 crore and has generated employment for around 12,000 skilled individuals, predominantly diploma engineers.

The industry has sufficient capacity to meet the annual demand of approximately 32 million handsets in the country, according to the Bangladesh Telecommunication Regulatory Commission (BTRC). 

The country sees sales of mobile phones worth Tk15,000 crore per year, while investment in this sector is more than Tk5,000 crore, insiders said.