The government has decided to impose Value Added Tax (VAT) on local industries involved in the manufacturing of mobile phones and refrigerators to make the market more competitive and to achieve revenue collection tax.
According to Finance Ministry sources, the National Board of Revenue (NBR) proposed imposing a 5% VAT on locally-manufactured mobile phones and refrigerators in the upcoming budget.
But, industry insiders in manufacturing such electronic products argue that the move is likely to disrupt the growth of the sector and it goes against the idea of a “Digital Bangladesh”.
According to a top official of Fair Electronics, the high cost of raw materials for electronic goods have already seen a 20% rise. “This is not reflected in the final price yet, although more brands are already raising prices.”
On top of that, local manufacturers had heavily invested in manufacturing mobile and refrigerators so that products can be offered to consumers at an affordable price, and any VAT imposed would further increase prices, which would in turn affect the growth of the sector, the top-brass argued.
Echoing the same rationale, Walton Hi-Tech Industries' top brass said that local manufacturers have already been struggling with price hikes in raw materials globally and with the economy struggling because of currency volatility and devaluation.
Industry insiders in that regard urged the government to continue providing incentives that have helped cater to growth in the sector previously, otherwise, the price of the products has to be increased at the manufacturer’s end.
The local refrigerator manufacturers have been enjoying VAT exemption since 2010, as part of policy support of the government to develop the local market that was previously dominated by foreign brands.
According to Marketing Watch Bangladesh (MWB), before 2010, foreign brands had around 80% share of the refrigerator market with the remaining 20% market being the contribution of aspiring local brands.
According to insiders, a rapid rise of the middle-class, increasing numbers of small families and working women amid countrywide electrification and urbanization, and the localization of manufacturing have together helped the Bangladesh refrigerator market grow at a double-digit rate over the past decade.
The annual market for refrigerators has grown by $131 million in just two years from $549 million in 2018, Dhaka University research revealed.
According to MWB, the market will reach $900 million in 2022.
Meanwhile, around 12-13 companies have invested over Tk5,000 crore in manufacturing mobile phones generating more than one lakh employment, according to data from Bangladesh Mobile Phone Businessmen Association (BMBA).
Having a yearly production capacity of more than four crore units, these companies are supplying more than 90% of the market demand, with other companies waiting for the clearance to go into production with new investments.
Following the footsteps of local industry giants Fair Electronics, Walton, Edison, Tecno and Pran RFL Group is gearing up to enter the market.
Apart from that, at least seven global brands, including Samsung, Nokia, Xiaomi, Vivo, Oppo and Lava have set up factories in the country in the last three years.
According to industry insiders, almost all major brands set up local plants because of incentives such as tariffs on mobile handset imports, tax holidays and VAT exemptions on local products.
Currently, there is a 57% tax on smartphone imports and 32% on basic and feature phones. The tax for locally-assembled and manufactured handsets is 18% and 13% respectively.
The government first introduced a tax policy for local assemblers in the fiscal year 2017-18 and it was revised in every budget till now.
The government offered the local mobile handset manufacturers a VAT waiver at the production stage for the next two years (till FY23) in the current budget.
According to sources, mobile manufacturers have paid 5% VAT on raw materials at the import stage and if the government imposes any VAT on retail sales that might pose extra pressure on the sector, with raw materials already seeing a 10% increase in prices.
They also said, without policy support, local mobile phone industries cannot grow in any nation, and it's the same for Bangladesh.
The finance minister is scheduled to present the next fiscal year's budget in the parliament on June 9, in which the NBR proposed imposing VAT on electronic products such as phones and refrigerators.
