Although mobile phone manufacturing in the country tripled in July this year compared to May, local phone makers saw smartphone productions plummet - putting Bangladesh's much-celebrated entry into the fifth-generation (5G) era in question.
The share of smartphone production dropped a disappointing 41 per cent in the May-July period, according to official data. Industry insiders attribute this decline to stubbornly high inflation, the weakening local currency Taka and an unfair tax structure on phone raw materials.
According to the Bangladesh Telecommunication and Regulatory Authority (BTRC), mobile phone manufacturing is slowly regaining momentum after a dip, but the share of smartphones produced by local manufacturers is on the decline.
In May, the share of smartphones was 43.48 per cent, but it decreased to 25.52 per cent in July, according to BTRC data.
However, total handset production nearly tripled during the period, rising from around 0.87 million in May - the lowest in the last four years - to 2.31 million in July.
Among the July production, 2G phones constituted 1.7 million, while 4G handsets numbered around 0.59 million and 5G handsets were only a few hundred.
Apart from pinching inflation, stronger greenback and high taxation of raw materials, industry insiders point out that grey market traders dominate smartphone sales, yet they do not contribute to national revenue.
Year-on-year smartphone production didn't change significantly, as it was at 28 per cent in July last year.
Currently, 15 companies hold licences to manufacture mobile handsets, with 14 of them meeting over 90 per cent of Bangladesh's demand for smartphones.
Mobile phone sales experienced a year-on-year drop of more than 40 per cent in the first quarter of 2023 due to the economic slowdown, according to industry sources.
In recent years, the production of mobile handsets in Bangladesh has made significant progress, thanks to the introduction of substantial tax benefits by the government in the fiscal year 2017-18 to help the budding industry grow and reduce import dependence.
As a result, 15 manufacturing plants have been established, generating jobs for around 15,000 people.
Before the just-past fiscal year, which commenced on July 1, 2022, the import tax on smartphones was around 58 per cent, while locally assembled and manufactured handsets were taxed at 15 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 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 proposes rationalising certain conditions mentioned in the notification and introducing new conditions.
Local electronics brand Walton was a pioneer in mobile manufacturing as it entered the enterprise in 2017.
Later, global smartphone vendors Samsung, Symphony, Oppo and Realme expanded their operations into Bangladesh for local phone production.
Samsung began its manufacturing in association with a local partner in 2017 and is now able to produce over 7.0 million devices annually, according to company sources.
Fair Group is the local manufacturing and distribution partner of the South Korean giant.
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