Feature phone production has more than doubled month-on-month in July as consumers turn to more affordable alternatives to smartphones amid sustained high inflation.

Local manufacturers produced 17.29 lakh feature phones or 2G phones in July, a 104 percent increase compared to June, according to data from the Bangladesh Telecommunication Regulatory Commission (BTRC).

Meanwhile, smartphone production dropped by 7.35 percent month-on-month in July to 5.92 lakh.

Of the 23.21 lakh phones manufactured in July, feature phones accounted for 74.48 percent while smartphones made up the other 25.52 percent.

Industry insiders said smartphone prices had been steadily climbing for the past one-and-a-half years due to increased prices of raw materials on the international market. The depreciating rate of the taka against the dollar caused import costs to soar further.

Consumers in the nation, who are facing hardships due to inflation and an economic downturn, have turned to either feature phones or low-cost smartphones that are smuggled into the local market.

However, sales of feature phones are still drastically low compared to the first quarter of 2022, when the global economic downturn gathered steam.

"Our sales are very low," said Md Asraf Uddin, managing director at Anira international, a manufacturer that primarily produces feature phones. "At the beginning of 2022, we would sell about two lakh phones per month. Now it has dropped to 70,000."

Production of handsets has made impressive strides in Bangladesh in recent years, aided by huge tax benefits unveiled by the government in the 2017-18 fiscal year. Since then, 15 factories have been set up, creating jobs for around 15,000 people.

But Asraf blamed recent tax and VAT increases for the downturn in business.

Prior to the last fiscal year that began on July 1, 2022, there was a 58 percent tax on smartphone imports. On the other hand, tax on locally-assembled and manufactured handsets was between 15 to 20 percent.

But now, taxes on locally-assembled and manufactured handsets stands between 30 to 35 percent due to the imposition of five percent VAT on each of the three stages of sales, encompassing factories, distributors and retailers.

In a further blow to manufacturers, the National Board of Revenue has imposed more VAT on the production stage.

Additionally, two per cent VAT was imposed for the first time on production that made use of wholly locally-manufactured components from this fiscal year. Moreover, the VAT applicable on handsets produced with at least two components made locally was increased from three percent to five percent.

Similarly, VAT on handsets assembled wholly with imported components increased from five percent to 7.5 percent.

On top of that, import costs have increased due to the taka's sharp depreciation against the US dollar while the foreign reserve crisis has made it challenging to open letters of credit.

All these combined factors have led to an increase in the price of locally-manufactured phones.

A major factor behind falling sales is the fact that a section of unscrupulous businesses have swarmed the market with phones imported through unauthorised channels.

Rizwanul Haque, vice-president of the Mobile Phone Industry Owners' Association of Bangladesh, told The Daily Star that a key factor in the smartphone market's downturn was an expansion of the grey market.

Representatives from the industry have appealed to the government, suggesting that if reducing taxes appears impractical, measures should be adopted to curb the prevalence of the grey market.

One proposed solution is the implementation of the National Equipment Identity Register (NEIR) to safeguard the domestic smartphone manufacturing sector.

Established by the BTRC in 2021, NEIR is a system designed to ensure the usage of legitimate mobile devices within the country by linking their International Mobile Equipment Identity (IMEI) numbers with the customer's national identification and SIM card details.

However, as of now, some of its essential functions, such as the ability to block counterfeit, unauthorised, or cloned handsets on the network, have not been put into practice.

Mohammad Mesbah Uddin, the chief marketing officer of Fair Electronics, Samsung's local assembly partner, noted that while Bangladesh had taken an early lead in the establishment of NEIR, other nations were already implementing it.

For instance, both Pakistan and Nepal are actively using NEIR to combat illegal trade and encourage local manufacturing opportunities.

He further emphasised that the government had already invested in NEIR infrastructure, but has yet to initiate the process of blocking unlawfully imported mobile phones.