The mobile handset assembly and manufacturing sector in Bangladesh has declined by over 50 per cent in the last two years.
Traders cite the encroachment of the grey market, the ongoing economic crisis, and the burden of Value Added Tax (VAT) as the main reasons.
According to Bangladesh Telecommunication Regulatory Commission (BTRC) data, 4.145 million mobile phone sets were assembled and manufactured in January 2022. This decreased to 1.892 million in January this year, a reduction of about 54 per cent.
In terms of imports, 61,891 mobile phones were imported in January 2022, compared to only 5,050 in January this year, a decrease of about 92 per cent.
Business insiders say that, in addition to 5 per cent VAT on each product, locally manufactured mobile handsets are subject to around 7.5 per cent VAT.
This makes it difficult for them to offer competitively priced handsets. Meanwhile, grey market traders are selling phones at lower prices, capturing about 40 to 50 per cent of the market.
Investors have called for the immediate implementation of the National Equipment Identity Register (NEIR) to stop the illegal entry of mobile handsets.
They also demand the withdrawal of VAT at the trade level and the continuation of tax exemption at the production level.
The mobile handset assembly and manufacturing industry employs about 12,000 to 15,000 skilled workers.
Despite having production capacity, about 40 to 50 per cent of it remains idle due to reduced demand.
Business leaders warn that the industry will struggle to survive if these conditions persist.
Jakaria Shahid, president of the Mobile Phone Industry Owners' Association of Bangladesh (MIOB) and managing director of Edison Group, told The Business Post that mobile phones are essential for everyone, including the poor, for daily needs and transactions.
“In 2017, the government allowed the assembly and manufacturing of mobile handsets in Bangladesh. Currently, 17 factories employ 25 to 30 thousand people. Including production, distribution, and retail, over 100,000 people depend on this sector,” he said.
Jakaria noted that price inflation has changed people's purchasing priorities.
“Previously, if a mobile phone had issues, people would buy a new one. Now, they opt for repairs. This shift, along with competition from the grey market and refurbished phones, has led to losses for local manufacturers,” he said.
“Overall, mobile production has declined in the last two years, with 30 to 40 per cent of capacity remaining unused. If this trend continues, sustaining the industry will be very difficult,” he added.
One mobile buyer, Atikur Rahman, reported buying a Samsung Galaxy S24 Ultra for almost half the official price. The official price of that phone at Samsung's point of sale is around Tk 2.2 to 2.3 lakh, while the unofficial grey market price is Tk 1.2 to 1.25 lakh.
He questioned why anyone would buy from the official showroom if they could buy the same phone at a much lower price elsewhere.
Businessmen in local markets note that demand for smartphones is rising, but many people cannot afford them due to high prices.
Unscrupulous traders exploit this by importing smartphones from other countries and selling them at lower prices, avoiding VAT and tax hassles, and making high profits, which affects legitimate assembly and manufacturing traders.
They further alleged that around 1,00,000 iPhones are active in Bangladesh annually, but only about 5,000 are imported legally.
The grey market is worth about Tk 4,000 crore and because these phones enter the country unofficially, the Bangladesh government loses about Tk 800 crore in customs duties and taxes each year.
If these phones were imported legally and sold as finished goods, the government would collect 58 per cent VAT and other taxes, resulting in a potential revenue of about Tk 2,000 crore.
Rezwanul Hoque, vice-president of the MIOB and CEO of Ismartu Technology BD Limited, told The Business Post that the grey market now accounts for about 40 per cent of mobile phone sales.
“Due to VAT and tax on assembling and manufacturing, there is a 25 to 30 per cent price difference between official and grey market phones,” he said.
“Smartphone penetration in Bangladesh is stuck at 42-43 per cent, whereas India has reached about 60 per cent and Pakistan about 50 per cent. Despite aiming for a digital Bangladesh, high mobile phone prices are a barrier to wider smartphone adoption,” he added.
Hoque noted that the benefits provided by the government in 2017 for assembling and manufacturing handsets have gradually declined.
“The tax on locally assembled and manufactured handsets was initially 15 to 20 per cent because of a 5 per cent VAT applied at each of the three stages of sale - from the factory to the distributor, and then to the retailer,” he said.
“Businessmen in the sector started with assembly and now many factories are making motherboards, considering further backward integration and export plans.
“However, they are hearing that VAT and taxes will increase from 10 to 15 per cent. If this happens, the grey market should be completely shut down, and the NEIR should be implemented immediately,” he said.
“Then, even with a 20 per cent tax increase, the market can be balanced. Otherwise, these factories will be forced to close,” he added.
According to BTRC data, 81.20 per cent of the 1.892 million phones produced in January 2024 were 2G phones, while 18.80 per cent were smartphones. In the same month, 5,050 phones were imported, all of which were smartphones.
BTRC Commissioner Engineer Sheikh Reaz Ahmed said at a public hearing on May 8 that both registered and unregistered mobile phones are currently active on the country's network and customers will be given sufficient time if it becomes necessary to disable the illegal phones that are in use.
"There is no reason to worry that unregistered mobiles will be blocked. All mobile phone sets owned by customers will work on the network," he said.
Regarding the security and revenue loss from illegally imported phones, Ahmed said that arrangements have been made to increase mobile phone manufacturing within the country.
“There are 17 mobile manufacturing companies involved in this initiative. BTRC is not responsible for monitoring phones that arrive through customs illegally; this is the responsibility of the National Board of Revenue (NBR),” he said.
Bangladesh Mobile Phone Consumer Association President Mohiuddin Ahmed told The Business Post that many manufacturers are reluctant to stop the illegal trade.
“Various types of phones, including iPhones, are available in the market illegally. Customs officials, manufacturers, and several government sectors are involved in this business because the profit from selling phones in the grey market is high,” he said.
"The government should proactively stop them. However, this becomes difficult if BTRC and the government both benefit from it," he added.
