VAT on locally made mobile phones, fridges on cards

The government has decided to tax these industries with VAT to make them more competitive in the market

May 26, 2022, 09:00 a.m.

Last modified: May 26, 2022, 15:12

The National Revenue Board (NBR) has proposed imposing a 5% VAT on locally manufactured mobile phones and refrigerators from the next fiscal year, according to Finance Ministry sources.

The government has decided to tax these industries with VAT to make them more competitive in the market. It is also a strategy to achieve the goal of raising revenue by raising VAT on some products, ministry officials said.

At the same time, the government recommended reducing VAT from the existing 10% to 5% for jewelery dealers and from 3% to 5% for the catering sector.

In the next budget, there will be a series of proposals to make the VAT law business-friendly. In some cases, VAT rates will be lowered to provide relief to people, considering local and global economic conditions, sources familiar with the development said.

The finance minister is scheduled to present the next fiscal year’s budget in parliament on June 9.

Infographic: TBS

“>
Infographic: TBS

Infographic: TBS

“We have heavily invested in the manufacture of mobile phones and refrigerators to offer products at affordable prices if the government imposes any VAT on them at any stage that affects their prices,” said Mesbah Uddin Ahmed, director of marketing at Fair Electronics.

“Raw material prices for electronics have risen about 20%, we have to adjust the increase with product prices,” he also said, adding that several brands have already done so.

Mesbah Uddin Ahmed said that the imposition of VAT will also hinder the growth of Digital Bangladesh.

Rabiul islam Milton, Deputy CEO of Walton Hi-Tech Industries PLC, said: “All of us manufacturers are struggling with rising commodity prices. The economy has been facing a slowdown as the local currency has lost its value”.

Rabiul Islam urged to continue with the current facilities granted by the government to deal with these economic conditions, otherwise manufacturers will have to increase the prices of products.

People in the industry say that local refrigerator manufacturers have enjoyed VAT exemption since 2010.

Thanks to the support of government policy, a dozen industries have been developed locally, occupying around 80% of the market with the remaining 20% ​​belonging to foreign brands, according to Marketing Watch Bangladesh.

Before 2010, foreign brands held around 80% share of the refrigerator market with the remaining 20% ​​of the market being the contribution of aspiring local brands.

The annual refrigerator market has grown $131 million in just two years from $549 million in 2018, research from the University of Dhaka has revealed.

A rapid rise of a middle-income class, a growing number of small families and working women amid electrification and urbanization across the country, and the localization of manufacturing have helped make Bangladesh’s refrigerator market grow at a double-digit rate over the past decade.

And now, Marketing Watch Bangladesh (MWB), a research initiative of Dhaka University’s marketing department, forecasts that the market will reach $900 million by 2022.

Location of mobile manufacturing

According to data from the Bangladesh Mobile Phone Business Association (BMBA), 12-13 companies have invested more than Tk5,000 crore in mobile phone manufacturing and created more than 1 lakh employment. The annual production capacity of these companies is more than 4 million units.

They are supplying more than 90% of the market demand.

More companies are waiting for authorization to go into production with new investments.

Pran RFL Group is preparing to enter the market after the local industrial giants: Fair Electronics, Walton and Edison and Tecno.

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.

Industry insiders say almost all major brands have set up manufacturing and assembly factories in the country due to tariffs on mobile phone imports, tax holidays and VAT exemptions on local goods.

The government first introduced a tax policy for local assemblers in fiscal year 2017-18 and it has been revised in all budgets so far.

Currently, there is a 57% tax on imports of smartphones and 32% on basic and feature phones. The tax on locally assembled and manufactured mobile phones is 18% and 13%, respectively.

Rezwanul Haque, CEO of Transsion Bangladesh Limited, said mobile phone manufacturers have paid 5% VAT on raw materials at the import stage if the government imposes any VAT on retail sales which may put pressure on the industry. .

All types of raw materials saw a 10% increase in prices, he also said, adding that in the current budget, the government offered local mobile phone manufacturers a VAT exemption at the production stage for the next two years (until fiscal year 23).

“Local mobile phone industries grow with the support of policies in any country. It was no different in Bangladesh,” said Rezwanul Haque, former secretary of the Bangladesh Mobile Phone Manufacturing Association.

Flat VAT rate for restaurants

The new budget is also likely to introduce a flat 5% VAT rate for air-conditioned (AC) and non-air-conditioned (non-AC) restaurants to revive the sector from the impacts of the pandemic.

However, the VAT rate for five-star hotels remains at the same rate of 15% for the next fiscal year.

Ministry officials said that the restaurant sector has been greatly affected by the pandemic and that the sector is also under threat due to rising prices of basic goods.

Taking into account the situation, the government decided to support them by setting a flat VAT rate.

Imran Hasan, Secretary General of the Bangladesh Restaurant Owners Association (BROA), welcomed this move and said that this VAT rate deduction is one of their main demands.

This is one of the emerging sectors in the country but it was almost drowned out by the pandemic situation, he said.

According to the Bangladesh Restaurant Owners Association, there are currently around 60,000 restaurants across the country, with more than 8,000 in the capital alone. About 2.8 million people depend on the restaurant industry for their livelihood, while the number is several times higher if supporting sectors are included.

VAT reduction for the jewelry sector

The new budget has proposed to reduce VAT in the jewelery sector from 5% to 3% to help it prosper.

Bangladesh Jewelers Samity Secretary General Dilip Kumar Agarwala welcomed this move and said it will make the sector more competitive with neighboring India.

A group of people used to go to India to buy jewelry as their VAT rate is 3% on jewelry.

Leave a Reply

Your email address will not be published.