The government has proposed to increase customs duty on each imported set by Tk 300, bringing the total customs duty payable to Tk 500, irrespective of actual cost of the set. In other words, this would eventually affect the mobile phone users of the low-income group, according to industry insiders. The mobile phone manufacturers forecast that 7.5 million handsets would have been sold in the year 2007 under the present duty structure. However, if the proposed duty is implemented the overall market for handsets would decline by at least 2 million to 5.5 million, but illegally imported handsets would flood the market.

This would be counter productive to the government's objective of increasing revenue as well as fighting corruption. It is estimated that this increase in duty would give rise to money laundering to the extent of at least Tk 700cr annually.

At present at least 1 in every 5 handsets sold in Bangladesh is illegal having been brought into the country without proper approval.

"Bangladesh has been identified as one of the fastest growing markets globally, as the country's telecoms industry has shown tremendous growth in the last two years. This growth has been possible by the government's support to the industry and reduction in customs duties over the last 3 years to Tk200. With the proposed increase in duty we will see a slow down in the telecoms industry", Prem Chand, general manager, Nokia Emerging Asia, said, fearing that this duty would hit the consumers and put handsets out of their reach.

He said as 85 percent of the market is at the entry level, the duty will increase the cost of the handset by 12.5 15 percent.

"The government will also lose huge revenue in terms of duty out of those 2 million handsets if the market reduces by 1.5 -2 million units," said Engr. Anwar Hossain, secretary general of Bangladesh Mobile Phone Importers Association and managing director of Chemor Telecommunications Limited.

"This duty will have a negative impact on the economy, although the budget is for a growing economy," said Neeraj Bansal, head of Market units, Bangladesh and Sri Lanka, Sony Ericsson Mobile Communications International AB.

He said, "The mobile phone is not a luxury item anymore in this country. It's more like a necessity and is very much needed for the development of small industries. It's actually the poor people who are going to be affected by the implementation of this duty."

Unlike most countries of the subcontinent, the duty on handsets in India is very low (closer to Tk 100), while there is no duty on handsets in Pakistan at all.

In 2006, the government took a pragmatic step when the duty on imported handsets was slashed down to Tk 200 from Tk 300. This dramatically reduced the 'grey' market from 54 percent to 26 percent. The manufacturers and importers believe that the government's objective to increase revenue would be better served by bringing down the duty to Tk 100 or less, instead of increasing it.