Govt may tighten baggage rules for duty-free mobile phone entry

The National Board of Revenue plans to tighten the Customs Baggage Rules to limit the duty-free allowance for travellers entering the country with new mobile handsets in the upcoming budget.

Finance ministry sources said this measure aims to boost the local mobile manufacturing industry, diminish unauthorised handsets in the market, combat smuggling, and encourage imports via official channels.

Under Bangladesh Customs' Baggage Rules, international passengers are permitted to bring in up to two brand-new smartphones and two used phones. However, the rules do not allow duty-free entry of more than one unit of any other item.

Ministry officials said under the planned regulations, travellers will be allowed to carry a maximum of one brand-new phone and up to two used ones duty-free.

However, local phone manufacturers prefer banning the existing unauthorised handsets in the country over changing the baggage rules as the latter will not significantly benefit local industries.

Rezwanul Hoque, CEO of Ismartu Technology BD Limited, a leading mobile phone manufacturer in the country, told TBS, "The new regulations will not benefit the manufacturing industry, as around 50% of the current market is dominated by unauthorised handsets."

To effectively deal with unauthorised handsets, the government should implement the National Equipment Identity Register (NEIR), he said.

Rezwanul further said following the massive devaluation of the taka, the country has become a major destination for refurbished and second-hand handsets as they are cheaper than new ones.

Local industry sees growth

A decade ago, nearly all mobile phones used in Bangladesh were imported. Some 61,891 mobile phones were imported in January 2022, compared to just 5,050 in January this year, marking a decrease of approximately 92%, according to data from the Bangladesh Telecommunication Regulatory Commission (BTRC).

The local industry is seeing growth. Industry insiders said local manufacturing firms currently can meet over 95% of the country's demand but they cannot due to higher VAT and smuggled units.

According to data from the Bangladesh Telecommunication Regulatory Commission (BTRC), 4.14 million mobile phone sets were assembled and manufactured in January 2022. This number dropped to 1.98 million in January this year, a reduction of about 54% due to higher VAT and smuggling.

At present, over 17 companies are engaged in mobile phone manufacturing within Bangladesh. Among them, leading mobile manufacturers are Transsion, Xiaomi, Samsung, Vivo, Oppo and Nokia. They have set up factories in the country.

VAT on the rise

Just two years ago, imported mobile phones incurred a total tax incidence (TTI) of 56%, which was around 15% for local manufacturers. VAT was initially applied at the sales stage in FY23 and at the manufacturing stage in FY24.

Currently, mobile phone production is subject to VAT ranging from 2% to 7.5% at the manufacturing stage, depending on local value addition capacity. The NBR sources suggest a likely increase in this VAT by up to five percentage points in the upcoming budget.

Thanks to NBR's policy support, various other local industries such as refrigerators, air conditioners, motorcycles, and lubricant oil have also flourished in recent years, reducing import dependence. These sectors may also see cuts in tax breaks.

Additionally, last year saw an increase in VAT from 5% to 7.5% at the manufacturing stage for various types of home appliances, including tableware, kitchenware, and hygienic toiletries. The NBR is now considering further hikes.