VAT on mobile phones to burden consumers, employees: Experts

In the proposed budget for the fiscal year 2022-23, Finance Minister AHM Mustafa Kamal proposed to withdraw the 5% VAT exemption facility on the trading stage of mobile phones. Instead, VAT will be imposed at different individual stages of the mobile handset businesses—from production to retail. 

Industry experts fear that this will cause an unprecedented rise in the base prices of mobile phones. Experts mention that due to the rise in the price of foreign currency in recent times, the retail prices of mobile handsets have already increased by 10 to 15%. Experts fear that the new taxation on mobile businesses will push mobile phones beyond the purchasing power of the general people. 

Experts also anticipate that manufacturers will look to cut manpower costs by at least 30-35%, amid rising production costs. At the same time, the new VAT will threaten the booming local handset manufacturing market, hindering the growth of the industry as a whole.

Chinese Brand Mobile Phone Manufacturers Alliance of Bangladesh, a coalition of four Chinese mobile brands operating in the county: realme, OPPO, VIVO, and Xiaomi, has issued a written letter to the National Board of Revenue (NBR), urging the regulatory body to rethink the proposed new taxation model. 

In their letter, the association mentions, "In the mobile phone business in Bangladesh, business is done at about 3 to 4 levels up to the consumer level for each brand. In this case, if a 5% VAT is imposed on every level of the mobile phone business, then the retail price of each mobile phone will increase by about 15 to 20%."

The association has proposed to withdraw 5% VAT at the business level and replace it with advanced business VAT at the factory level.

According to the Mobile Phone Industry Owners Association of Bangladesh (MIOB), 14 mobile handset factories have been set up in the country in the last decade with a massive investment in the sector. 

These factories produce 90% of the local demand for smartphones and 80% of the local demand for feature phones—the market value of which is more than Tk 10,000 crore. According to the association, the new taxation will hinder the Foreign Direct Investment (FDI) process in the country and will pose an obstacle to the growth of the 'Digital Bangladesh.'