Grey market casts long shadows on mobile makers
Up to 40% job cuts are feared in the industry for grey market invasion, VAT burden and ongoing economic crisis
When mobile handset brands assemblers and manufacturers in Bangladesh are operating at 50% capacity, there are fears of up to 40% job cuts in the industry due to grey market invasion , burden of value-added tax (VAT) and ongoing economic crisis.
For the survival of the local industry, investors have called for the immediate implementation of the National Equipment Identity Register (NEIR), a system aimed to stop illegal entry of mobile handsets from abroad. They have also sought the withdrawal of the trade stage VAT and the continuation of tax rebates at the manufacturing stage.
As the budget for the upcoming fiscal year is set to be proposed early next month, manufacturers and assemblers have requested the government not to introduce new taxes that would further erode their competitiveness against the illegal grey market.
Mohammad Mesbah Uddin, chief marketing officer at Fair Electronics, the local assembly partner of the South Korean multinational brand Samsung, said that around 50% of handset demand is captured by the grey market in the absence of restrictions on this trade.
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"If this trend continues, the sector is likely to experience a 40% job cut as most companies are currently operating at 50% capacity due to the drop in device sales caused by the influx of the grey market," he said, expressing his worries.
He mentioned that the implementation of NEIR could serve as a significant initiative to encourage local assemblers and manufacturers in their battle against the invasion of the grey market.
Currently, in addition to a 5% VAT on each sale, there are approximately 17% VAT and taxes imposed on locally produced mobile handsets. In contrast, grey market traders contribute zero revenue to the national exchequer.
"Imposing VAT and tax on local manufacturers and leaving the grey market unaddressed will threaten the mobile manufacturing industry and reduce the government's revenue earnings," said Rizwanul Haque, vice president of the Mobile Phone Industry Owners' Association of Bangladesh.
He suggested that the government go for no further imposition of VAT on devices if it wants to keep the industry operational.
At present, 14 national and multinational licensees are engaged in mobile manufacturing in Bangladesh.
Since its inception in 2018, the mobile manufacturing industry has witnessed an investment of approximately Tk1,500 crore and has generated employment for around 12,000 skilled individuals, predominantly diploma engineers.
The industry has sufficient capacity to meet the annual demand of approximately 32 million handsets in the country, according to the Bangladesh Telecommunication Regulatory Commission (BTRC).
Of the total number of handsets registered in the fiscal year 2021-2022, 96% were locally produced, while the remaining 4% were imported, it added.
Handset production in local factories experienced significant momentum in 2021 when the authorities implemented the NEIR to combat the influx of mobile products from the grey market.
But the momentum did not last long as the authorities decided not to go ahead with the plan to implement NEIR soon after signing a contract with a firm.
Following this sudden change, some assemblers reported that the share of locally produced handsets started to decline.
In the third quarter of 2021, the sales of locally manufactured smartphones surpassed 3.8 million units. However, in the subsequent quarter, the sales dipped to 3.2 million units.
As the downward trend persisted, production further declined to 1.4 million units in the first quarter of this year, according to the BTRC and industry data.
Shyam Sunder Sikder, chairman of BTRC, said that in order to protect the manufacturers and assemblers, BTRC is conducting sudden drives against illegal mobile handsets.
He agreed that it was technically possible to drag down the grey market's penetration through the implementation of NEIR, which has unfortunately been postponed even after an initiative was taken.
When asked why NEIR implementation initiative had been postponed, Shyam Sunder Sikder said that the authorities thought it would create an adverse reaction among the mass people if the handsets registration was gone through manually.
To avoid that situation, the authorities walked back from implementing the system, he added.
However, new mobile handsets are being registered – once they are connected with the network.
