Impact of Rising Import Duties on Bangladesh’s Handset Market

The handset industry in Bangladesh has scaled rapidly over the last decade with 160.8 million total mobile subscribers at the end of May 2019. Bangladesh MNOs continue to register growth, riding high on rising digitization throughout the country. Grameenphone led the mobile subscriber market with 74.78 million users followed by Robi Axiata with 47.69 million customers in May.

During 2017-18, the Bangladesh government first offered some tax benefits to local assemblers and increased import duties. This was followed by further revisions to the import duty structure with the supplementary duty raised to 10 percent from 5 percent.

Local assemblers termed it a prudent decision that would help their industry to grow. Currently the total tax on imported handsets is 32 percent, which will rise to over 50 percent. In contrast, locally assembled handsets bear about 17 percent in taxes. For handsets fully manufactured in Bangladesh, the tax is just 5 percent. To obtain the tax benefit, five local and international brands have already started assembling mobile devices, catering to about 30 percent of the country’s annual demand for 35 million handsets. This will have an impact on the following areas:

  • Smartphone imports will be costlier

Currently the total tax on imported handsets is 32 percent – rising to over 50 percent. There are more than 90 million active internet connections in the country of which about 95 percent are accessing from a mobile phone. If smartphone costs increase, it will likely hinder the government’s digital Bangladesh vision.

  • Increase in Local manufacturing

The government is trying to promote local assembly of smartphones. A surge in demand for affordable smartphones has focused minds on the business opportunity in Bangladesh. At present five plants have launched, and they are assembling about 30 percent of the country’s total yearly demand. The tax on semi-knocked down (SKD) phones is about 17 percent. For completely knocked down (CKD) it is about 5 percent.

The target is to reduce import volumes and to cater to the local market, after which export opportunities will be explored. Local manufacturing and assembling of phones will further bolster replacement of feature phones by smartphones. Many of the locally manufactured and assembled phones are much cheaper compared to the imported models.

  • Boost illegal mobile imports

Not everyone is assembling locally and to get past the duty some brands will start importing illegally. This will have a negative impact on the industry. At present, illegal imports account for 15 to 20 percent of the market. While there has always been a notable presence of illegally imported handsets in the market, the trend has gathered pace in recent years. Such a high import duty ultimately increases the prices of legally imported phones while making the illegal shipments a more viable option. The resulting burden on the sector trickles down to the consumer, hampers growth and draws the country further away from the goals of Digital Bangladesh.

If the intent is to uplift and grow the sector and ensure that millions more Bangladeshi citizens can access digital services, then the tax proposals mentioned above need to be reconsidered and applied gradually. The manufacturing ecosystem is not robust. The poorest consumers, for whom mobile access could deliver the greatest benefits, are likely to be most negatively affected by these proposals. The increase in the minimum tax on turnover of mobile companies who were still not profitable will only add to their burden and discourage shareholders investing further in the market. The rise of local manufacturing and assembling of smartphones and subsequent availability of cheaper alternatives is reducing Bangladesh’s dependency on imports, but it will take some time as imports are the main source for meeting local demand.