The government’s decision to impose an additional five percent excise duty on smartphones is fuelling a grey market in importsAfter the Nepal government’s decision to impose an additional five percent excise duty on the import of smartphones in last year’s budget, the inflow of phones has gone down comfortably.
After the Nepal government’s decision to impose an additional five percent excise duty on the import of smartphones in last year’s budget, the inflow of phones has gone down comfortably. But this is nothing surprising. Everyone was unhappy regarding the government’s decision. On top of the five percent excise duty, the 40 percent refundable VAT has also been taken away. So, now, importers have to pay a total of over 18 percent tax on smartphone import.
So, at present, there has been a dramatic reduction in the import of smartphones in Nepal—at least, legally. But the increase in grey market import shows that many retailers or distributors might have resorted to importing these goods illegally. And this is made evident in the increase of new smartphone retailers across the country.
According to data from the Birgunj Customs Office, the import of phones has gone down by 50 percent this fiscal year. While the number of imports last fiscal year was about 249,280 in a period of six months, this year, the number rested at 110,700 within the same time frame. According to custom officials, the number has decreased due to the additional excise duties and the revoking of the rebate.
But mobile phones are still making their way into Nepal via grey channels—perhaps due to less strict control at border areas or some other reasons. And there is quite the amount of profit to be made in them. There are no taxes to be paid and actually, more profit to be made. They can even be sold for lower prices to unsuspecting customers without a warranty.
And all of this is happening because of the Nepal Government’s lack of concern or failure to implement the policies it has made. The government had already made a policy to register the IMEI number of any mobile device inside the country some years back, but this has not yet been implemented. If the policy were to come into action, those who imported phones from abroad or haven’t paid any taxes or haven’t registered them wouldn’t be able to use any network within the country. But that policy remains on paper, and so, there is no discouraging of grey market importers.
The Mobile Phones Importers Association (MPIA) also issued a statement about necessary steps to discourage grey importers and imports through illegal means. They announced that they will first warn all grey importers—the ones known publicly, anyway. For those who don’t abide by the warning, there would be legal action from the Importers Association. This means that any retailer with grey market supplies won’t get any kind of warranty facilities, phone imports and won’t be made part of any schemes.
But this is not a very strong solution to the problem at hand. First, grey importers cannot be very easily identified. Second, for all we know, there could actually be more grey importers than white ones. Third, cheaper handsets appeal to more people.
Yes, grey imports may be beneficial for some, and many can get phones for cheap, but it hurts the nation’s overall economy.
But even with all this going on, and most of it is quite well-known, there hasn’t been any kind of action from the government. The policy that is still on paper seems quite easy to implement, at least from our perspective.
The Nepal Telecommunications Authority, as the ruling telecommunications body, possesses the records of all legally-imported phones in the form of an IMEI number. And any phone whose IMEI number is not registered can be easily banned from using any mobile network. It’s even possible to get the operators to issue a message to the user, directing them to register their IMEI and pay the necessary taxes to use the phone without restrictions. But for now, no such system exists. Whether you buy from an authorised dealer or import the phone from any other place, it will still work, as long as the handset is factory unlocked. So, even though there is a facility to register one’s IMEI, it makes very little difference whether you do it or not.
The Pakistan Telecommunication Authority’s system for this very purpose went operational last December. Device Identification Registration and Blocking System, as it is known, blocks all mobile handsets with a non-standard IMEI number bought after December 1, 2018.
This system too can be implemented in our country. There could be legal and political hindrances, but if the government is to tackle this problem, it simply can’t organise raids on smartphone sellers. The Telecommunications Authority needs to take action, and only then, can it justify increasing taxes on mobile phones.