Cellphone assemblers stumped by policy shift

A big policy shift in mobile handset assembling within a year has created an ominous air of uncertainty among companies that have already invested hundreds of crore taka in setting up assembling plants in the country recently.

After the finance minister's budget proposal on Thursday, the National Board of Revenue (NBR) issued a Statutory Regulatory Order (SRO), listing 10 conditions, and said if anyone fails to meet those, a 15 percent VAT will be imposed to the phones produced by that company.

Investors say except for one company, none others can meet the conditions at this moment.

However, the finance minister also proposed to reduce customs duty on some raw materials to boost this industry, and proposed an increase of 1 percentage extra surcharge for imported handsets.

Global mobile phone giant Samsung has already set up a new assembling plant in Narsingdi, and has started rolling out test production. Transsion Group, another leading company (which sells the brands Tenco and Itel), also completed their factory's set up in Gazipur and is waiting to begin production, along with four other local players who are also setting up plants in different parts of the country. Local company Walton is the only one with a fully-operational manufacturing unit for cellphones. 

Investors said they have already invested about Tk 300 crore based on the government's last year's policy, that assured them of tax benefits on both manufacturing and assembling in the country. But after this new SRO, assemblers are faced with a steep challenge, and said NBR has brought this change in the policy with the intention of giving undue benefits to a single company. 

Of the seven visible players in the market, only local company Walton has manufacturing capacity, while other companies are moving for assembling plants.

According to the SRO, to gain tax benefits, companies will have to add 30 percent value to the devices, and have the capability of manufacture five components of the mobile handsets -- Printed Circuit Board (PCB), charger, battery, housing and casing -- in the plant.

However, investors say Walton is the only company that can comply with these conditions, since they have other similar plants like of television and laptop, which also requires same kind of manufacturing plant.

Rezwanul Haque, chief executive officer of Transsion Bangladesh Limited, which is ready to roll assembling in their plant, said no mobile brand in the world manufactures all the components themselves.

“All top brands like IPhone, Samsung or Huawei also don't manufacture all the components for mobile phones; rather, they collect different parts even from different corners, and assemble it in their plant,” said Haque, who is the former general secretary of BMPIA.

“This is a conspiracy against the country's entire mobile industry. NBR shouldn't do it, only giving one company extra privilege,” said Kazi Jasimul Islam, president of OK Mobile, which has set up a plant jointly with government's company Telephone Shilpa Sangstha Limited. “If we knew this would happen, we would have not moved for the plant.”

However, Walton ruled out the claim and said if other companies join the race of manufacturing, everyone will get the same benefits.

“They should praise us rather than blaming Walton, as we have taken the lead for this kind of industry in the country,” said Asifur Rahman Khan, head of Marketing at Walton Cellular Phone.

If the 15 percent VAT on assembling is applied, locally-assembled products will be taxed higher than imported sets, said Ruhul Alam Al-Mahbub Manik, chairman of Fair Group, a local business that brings Samsung phones and components for the plant to the country.

“After the policy shift, no one will survive with their investment, and no new entity will be interested to invest if the government changes its policy every year,” said Manik, also the president of Bangladesh Mobile Phone Importers Association (BMPIA).

He said imported mobile devices are now charged about 31 percent tax, while assembling them in their plant will put the tax amount at about 34 percent. “Then why should we go for assembling?” he questioned. Last year's guideline had put the total tax for locally-assembled phones at about 18.8 percent.

Samsung started assembling two kinds of sets initially in Bangladesh, and the plant will be shut down if this tax structure remains unchanged, he added.

Jakaria Shahid, managing director of Edison Group, the parent company of mobile handset brand Symphony, said they have invested about Tk 40 crore, while some other companies have invested even more.

“Total amount of investment in the sector is about Tk 300 crore, and it might be a waste if this VAT remains the same,” said Shahid, who is also the general secretary of BMPIA.

Symphony, the market leader in handset business in the country, has already employed about 400 people for their plant, work of which is now halted due to the policy change, he said.

Last year, the industry imported 3.34 crore units of mobile sets in the country, at a price of Tk 10,000 crore. Investors say if they get favorable regulations, they can save a huge amount of money from this sector.

AMTOB EXPRESSES DISSATISFACTION

Mobile operators have expressed their dissatisfaction about the proposed budget, as there have been no favorable changes for the sector in it. Being one of the highest contributors to the economy of the country, the Association of Mobile Telephone Operators Bangladesh (AMTOB) had urged the government to reconsider some recommendations, including exemption of 15 percent VAT on internet use.

Other demands include withdrawal of Tk 100 tax on new and replacement SIM cards and reduction of corporate tax from them, which is 40 percent for stock market-listed and 45 percent for non-listed companies, in order to continue the uninterrupted growth of the mobile sector. But none of them were met by the government in this budget, AMTOB said in a press release issued late on Thursday.