In keeping with the previous budget of FY23, the prices of locally assembled smartphones will increase further with the implementation of the new budget for FY24.
Finance Minister AHM Mustafa Kamal proposed the national budget for the upcoming 2023-24 fiscal year (FY) at the parliament on Thursday.
Currently, mobile phone manufacturers and assemblers receive a VAT exemption. But according to the new budget, a 2% VAT will be imposed.
In his budget speech, the finance minister said that the VAT rate is increased from 3% to 5% at the import stage and an additional 5% to 7.5% VAT is imposed at the local stage till June 30, 2024.
As a result, the prices of mobile phones, which already increased several times due to the unstable dollar market in the last year, may soon increase further.
It should be mentioned that the IMF recommendation also leads to imposing VAT on mobile phones in the budget to increase revenue.
Why different VAT rates for locally assembled smartphones?
The different VAT rates for different local smartphone manufacturers and assemblers work in the following ways:
The 5% VAT rate for businesses that assemble using Surface Mount Technology (SMT) will increase to 7.5%.
Surface mount technology (SMT) is an assembly and production method that applies electronic components directly onto the surface of a printed circuit board (PCB).
Companies that have facilities for assembling battery chargers, power circuit boards (PCBs), SMT components and other components would have a 5% VAT rate instead of the current 3%.
Additionally, a company's VAT rate would be 2% instead of zero if it had additional facilities for manufacturing mobile housing and power circuit boards (PCBs).
In short, the manufacturers or assemblers with the least amount of dependency on import and more capacity to manufacture internal components have the least amount of VAT rate.
Tech goods' prices except smartphones to remain unaffected
Meanwhile, the finance minister announced the extension of the existing VAT exemption facility for the production of some other tech products till June 30 of 2026, meaning that their prices won't be affected by the FY24 budget.
These products contain computer printers, toner cartridges or inkjet cartridges and other printer parts.
Computers, laptops, AIOs, desktops, notebooks, notepads, tabs, servers, keyboards, mice, barcode or QR scanners, interactive displays, RAM, PCBA or motherboards, mobile phone chargers and batteries, power banks, routers, network switches, modems, network device or hub, speakers and sound system, earphones and headphones are also on the list.
Prices of storage devices including SSD and portable SSD, hard disk drives, pen drives, microSD cards and flash memory cards will also remain unchanged.
CCTV, monitor (not exceeding 22 inches), projector, printed circuit board, e-writing pad, USB cable and data cables, digital watches and various types of loaded PCBs will keep having the existing VAT exemption.
According to the finance minister, there are approximately 184 million mobile phones and 126 million internet users in the country.