Mobile-phone-handset manufacturing in Bangladesh declined 41 per cent in May from the previous month while sales also contracted as high inflation and costly dollar dent the fledging import-substitution industry, sources say.
Higher VAT and new import duty on raw materials deal another blow, industry people have said.
The May output went deep down below one million a month manufactured in last four years.
About 872,000 units of phones were manufactured in the month of last May while the number was 1.47 million in April.
The decline is 61 per cent year on year, according to the latest data from the Bangladesh Telecommunication Regulatory Commission (BTRC).
Feature phones accounted for 56.52 per cent in the period while smartphones the rest.
The smartphone production almost halved from 668,000 in April to 378,000 in May, as consumer price rises keep eroding people's purchasing power, the sources said.
Industry people say "taka's depreciation, delay in release of some components by customs, and reduced purchasing capacity of people due to high inflation are some of the reasons for massive decline" in handset manufacturing.
"Import costs have increased due to depreciation of the taka against the US dollar. Also, the opening of letters of credit has become challenging for shortage of the foreign currency," says one executive in the tech-industry in the modern telecommunications sector.
High inflation has further reduced the purchasing power of smartphone-users.
Mobile sales saw a year-on-year drop of more than 40 per cent in the first quarter of 2023 due to the economic slowdown, said the industry people.
In recent years, the production of mobile-phone handsets in Bangladesh had made significant progress, thanks to the introduction of substantial tax benefits by the government in the fiscal year 2017-18 to help the new industry grow to cut import dependence.
As a result, 15 manufacturing plants have been established, generating employment opportunities for approximately 15,000 people.
Before the just-past fiscal year, which commenced on July 1, 2022, the import tax on smartphones was approximately 58 per cent, while locally assembled and manufactured handsets taxed 15 per cent to 20 per cent.
In a further blow to manufacturers, the government imposed a value-added tax (VAT) of up to 7.5 per cent on locally manufactured and assembled mobile phones, based on their status, the sources said.
The national budget for the 2023-24 fiscal year, which just commenced, imposed higher import duties on handset raw materials.
Under the surface mount-technology (SMT) assembly process, as well as for assembling companies, the VAT rate will now increase from 5.0 per cent to 7.5 per cent.
Similarly, companies that have power circuit board (PCB)-assembly facilities, SMT -assembly processes, battery-charger assembly facilities and general-assembling facilities will pay VAT at a rate of 5.0 per cent, up from the current 3.0 per cent.
Moreover, companies that have additional facilities for power circuit board (PCB) assembly and mobile housing manufacturing will now be subject to a VAT rate of 2.0 per cent, compared to the previous zero-rated tax.
The budget also has proposed rationalising certain conditions mentioned in the notification and introduce new conditions.
Local electronics brand Walton was a pioneer in mobile manufacturing as it ventured sometime in the enterprise in 2017.
Later, global smartphone-vendors Samsung, Symphony, Oppo and Realme spread their wings into Bangladesh for producing phones locally.
Samsung began its manufacturing in association with a local partner in 2017, which is now able to produce over 7.0 million devices annually, company sources said.
Fair Group is the local manufacturing and distribution partner of the South Korean giant.
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