Financial Times

Smuggled mobile phones capture 60 pct market share
The government is estimated to be losing over a billion rupees annually because of large scale smuggling of mobile phone handsets which have captured more than half the market while a series of police raids last week, prompted by a complaint from Nokia Corporation, led to the seizure of thousands of counterfeit products, industry officials said.

Smuggled mobile phone handsets are sold in the grey market for less than half the price of legally imported handsets, while the smugglers have more than 60 percent of the market share in the business, they said.

“Nearly 70 percent of the mobile phone handsets are illegally imported and sold at half their legal market price, because the smugglers do not have to pay the various taxes that the authorised dealers pay,” Ashok Pathirage, Chairman, Softlogic Group, authorised dealers of Nokia handsets said.

He said 817, 755 new connections were added to the mobile subscriber base last year, but there were only 258,120 handsets legally imported during the same period. “The phone connections exceed the handsets imported to the country,” he said, adding that the government has lost US$6.5 million income last year,” Pathirage said.

He said that prior to importing a particular model, the importer is required to obtain a vendor’s license and approval for the model from the Telecom Regulatory Commission (TRC) and the Ministry of Defence, while obtaining an import licence from the Import Control Department. “Due to the considerable expenses incurred in obtaining these licenses and paying numerous taxes and duties, we have to add these expenses when pricing the phones, which is not the case with the smugglers,” he said.

Pathirage said the last government removed the value added tax imposed to the handsets, resulting in healthy legal imports. “They changed the mechanism to set a fixed rate to be charged from the mobile network service that each customer subscribes to and this method had a very clear measurement in how much revenue the government could make,” he explained.

He said the government's new tax structure of 19.5 percent custom's duty on mobile phone handsets imposed at the last budget, expected to increase the revenue capitalising on the high growth of the mobile industry, but the government has lost revenue as much as 75 percent of what they could have gained last year. “This is mainly because this tax structure prompted smuggled handsets last year,” he said.

Suraj Perera, Imports Manager at Abans (Pvt) Ltd., importers of Sony Ericsson, Motorola, Panasonic and ZTE handsets, said that the grey market, or the ‘Pettah market’, as it is commonly known, has nearly 60 percent of the mobile phone handset market share.

He said that some of the smugglers import used mobile handsets with changed outer covers and resell them, again at a cheaper price. He said that under the Telecom Regulatory Control Act, such refurbished phones cannot be imported. Perera said Abans lodged a complaint at the TRC about this issue recently.

Meanwhile, pursuant to the complaints made by Nokia Corporation, the police conducted raids on six shops last week. Officials from the company’s Intellectual Property Rights (IPR) division at the Asia Pacific Regional Office (APRO), who were in the country, had made a complaint and the police had captured 4350 counterfeit items which included batteries, housing, chargers, headsets and pouches seized from these shops.

“We will continue to monitor the market in Sri Lanka, because it is an emerging market for us,” an IPR official from Nokia’s APRO told The Sunday Times FT.

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