Financial Times

Despite a reduction in the import duty on mobile phones, the grey (illegal) market is still brisk and accounting for 50 percent of the total mobile phone market, industry analysts say but Customs rejects this view arguing that the grey market is just 15 percent.

Ashok Pathirage, Chairman, Softlogic Group, authorised dealers of Nokia phones, told The Sunday Times FT that the total customs duty, at 19.5 percent earlier, was reduced by 10 percent at the last budget with the removal of the excise duty. “However the ports or the airport levy was increased by one percent to 2.5 percent, bringing the total duty to 10.5 percent. Our business has increased, but we find that 50 percent of the phones are smuggled,” he said. The company is selling more than 20,000 handsets now against 10,000 earlier.

However, Sarath Jayatilake, Director General of Customs says that after the 10 percent tax was taken off, the grey market represents only 15 percent of total sales with official imports at 85 percent.

He said mobile phone imports are among the easiest forms of tax evasion through the green channel at the airport. “Some 1000 mobile phones a month come through this channel,” he said.

However, Pathirage is not so sure. He said that judging by the sales figures illegal imports are more. 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.

Pathirage said that last year more than Rs.1 billion revenue was lost by the government due to smuggled mobile phones sold for less than half the price of legal imports.

“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,” another industry source said.