AVI on locally made cell phones, refrigerators on cards

The government has decided to charge AVI to these industries to make them more competitive in the market

May 26, 2022, 9:00 p.m.

Last modified: May 26, 2022, 3:12 p.m.

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

The government has decided to charge AVI to these industries to make them more competitive in the market. It is also a strategy to achieve the revenue collection target by increasing AVI on some products, ministry officials said.

At the same time, the government recommended cutting AVI to 5% of the existing 10% for jewelry retailers and 5% of 3% for the restaurant sector.

In the next budget, there will be some proposals to make the VAT law business friendly. In some cases, VAT rates will be reduced to help people, given local and global economic conditions, said sources familiar with the development.

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

Infographics: TBS

Infographics: TBS

Infographics: TBS

“We have invested mostly in the manufacture of mobile phones and refrigerators to offer products at affordable prices if the government imposes any AVI on those at any stage that will affect its prices,” said Mesbah Uddin Ahmed, chief marketing officer at Fair Electronics.

“Prices of raw materials destined for electronic goods have risen by about 20%, we need to adjust the rise with product prices,” he also said, adding that some brands have already done so.

Mesbah Uddin Ahmed said the VAT rate would also hinder the growth of Digital Bangladesh.

Rabiul Islam Milton, deputy general manager of Walton Hi-Tech Industries PLC, said, “We all manufacturers are struggling with a rising commodity price rise. The economy is facing a slowdown as the local currency has lost its value.”

Rabbi Islam urged to continue the current facilities provided by the government to deal with these economic conditions, otherwise manufacturers will have to increase the product prices.

People in the industry say that local refrigerator manufacturers have been enjoying an AVI exemption since 2010.

Thanks to government political support, a dozen industries have developed locally, with about 80% of the market and the remaining 20% ​​owned by foreign brands, according to Marketing Watch Bangladesh.

By 2010, foreign brands had about 80% share of the refrigerator market with the remaining 20% ​​market being the contribution of aspiring local brands.

The annual refrigerator market grew by $ 131 million in just two years from $ 549 million in 2018, research from Dhaka University revealed.

A rapid rise in middle-class income, a growing number of small families and workers in the midst of nationwide electricity and urbanization, and the localization of manufacturing together have helped the Bangladeshi refrigerator market grow at a double-digit rate over the past decade.

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

Location of mobile phone manufacturing

According to data from Bangladesh Mobile Phone Businessmen 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 crore units.

These provide more than 90% of the market demand.

More companies are waiting for the permit to enter production with new investments.

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

At least seven global brands, including Samsung, Nokia, Xiaomi, Life, Oppo and Lava, have set up factories in the country in the last three years.

Industrial insiders say almost all major brands have set up factories as well as assembling in the country due to import tariffs on mobile phones, tax holidays and VAT exemptions on local products.

The government first introduced a tax policy for local assemblies in the fiscal year 2017-18 and it has been revised in every budget to date.

Currently, there is a 57% tax on smartphone imports and 32% on basic and feature phones. The rate for locally assembled and manufactured handsets is 18% and 13% respectively.

Rezwanul Haque, CEO of Transsion Bangladesh Limited, said mobile phone manufacturers had paid 5% AVI for raw materials in the import phase if the government imposed any AVI on retail that could put pressure on the industry.

All kinds of raw materials have seen a 10% increase in prices, she also said, adding that in the current budget, the government has offered local mobile phone manufacturers a VAT waiver at production stage for next two years (up to FY23).

“The local mobile phone industry is growing with political support in any country. It was no different in Bangladesh,” said Rezwanul Haque, a 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 the air-conditioned (AC) and non-air-conditioned (non-AC) restaurants to revive the pandemic shock sector.

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

Ministry officials said the restaurant sector has been hit hard by the pandemic and the sector is also under threat due to rising commodity prices.

Given the situation, the government decided to support them by setting a flat AVI rate.

Welcoming this move, Imran Hasan, secretary general of the Bangladesh Association of Restaurant Owners (BROA), said that this deduction of VAT rate is one of their main requirements.

This is one of the emerging sectors in the country, but it has almost drowned in the pandemic situation, he noted.

According to the Bangladesh Association of Restaurant Owners, there are currently about 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 it includes the support sectors.

Reduced VAT rate for Jewelry

The new budget proposed reducing the AVI on jewelry to 3% from 5% to help it thrive.

Welcoming this move, Bangladesh Jewelers Samity Secretary General Dilip Kumar Agarwala said it would make the sector more competitive with neighboring India.

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

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