Commerce Ministry officials said the government has decided to impose value added tax (VAT) on locally manufactured or assembled mobile phones and import of its raw materials. As a result, the price of this product will increase.
At the same time, certain conditions of existing tax exemption facility on import of raw materials and micro parts will be relaxed.
Officials said the government is planning to increase VAT and duty on the import of raw materials for cellular phones to increase value addition to local manufacturers.
But industry leaders said it would create unequal competition between local manufacturers and illegal importers. Currently, such importers occupy about 40 percent of the country’s market. If the government does not revise the plan – it will affect local and foreign direct investment (FDI).
According to ministry sources, currently local mobile phone companies are paying VAT based on their status – only the assemblers are paying 15 percent VAT.
But, the VAT rate of 5 per cent for companies having surface mount technology (SMT) assembly process facilities with additions will be 7.5 per cent from June 1 this year.
Apart from SMT, companies that have power circuit board (PCB) addition, battery charger addition system – their current VAT rate is 3 percent, which will be 5 percent.
Also, companies that have additional PCB assembly and mobile housing manufacturing processes will have VAT rates of zero to 2 percent.
Phone makers may also have to pay a 5 percent duty on imports of some key raw materials, up from 1 percent at present. The existing 10 percent import duty rate on import of some raw materials may increase to 15 percent.
While the country’s assemblers and manufacturers of mobile handset brands are operating at 50 percent capacity, the industry faces up to 40 percent job cuts due to illegal market encroachment, the burden of Value Added Tax (VAT) and the ongoing economic crisis, industry insiders said. If the government increases the tax burden further, they will face unequal competition, which may push them out of business.
In the financial year 2021-22, mobile phones including smart and feature phone sets were sold in the country around 3.5 crores. They said that if the VAT and duties increase, it will come down to 2 crores this year.
Currently the overall tax on locally manufactured mobile handsets is 18-22 percent; And in the case of imported mobile phones, it is 57 percent.
Vice President of Mobile Phone Industry Owners Association of Bangladesh Rezwanul Haque said, “If the problem of gray market is not addressed by imposing VAT and tax on local manufacturers, the mobile phone manufacturing industry will be under threat. As a result, the government’s revenue from this sector will also decrease.”
Transition Holdings, a leading provider of smart devices and mobile services, on Wednesday inaugurated an ISMARTU factory at Meghna Industrial Economic Zone, Rezwanul Haque said. He is the chief executive officer of the company.
According to him, if the government imposes VAT and duty on local production and addition, it will be difficult to sustain the industry.
Ahsan H. Mansoor, executive director of the Policy Research Institute, agreed, saying that there should be no sudden increase in VAT and duties on the local mobile phone industry as it involves foreign direct investment.
Besides, the Board of Revenue should take action against the illegal importers, as they know who is doing it. Otherwise only local investors will suffer.
At present 14 domestic and multinational licensed companies are manufacturing mobile phones in Bangladesh.
Around Rs 1,500 crore has been invested in the mobile manufacturing industry since its inception in 2018. It has given employment to about 12 thousand skilled workers, most of whom are diploma engineers.
According to Bangladesh Telecommunication Regulatory Commission (BTRC), the industry has sufficient capacity to meet the annual demand of approximately 32 million handsets in the country.
According to industry insiders, mobile phones worth Rs 15,000 crore are sold annually in the country. The investment in this sector is more than 5,000 crore rupees.