6 August 2024, Kathmandu
The recent reduction in customs duty on mobile phones by the Indian government has led to a significant increase in the illegal import of smartphones into Nepal.
Impact of Indian Customs Duty Reduction
Due to the open border between the two countries and insufficient market monitoring, many phones are being smuggled into Nepal, bypassing customs regulations.
Deepak Malhotra, President of the Mobile Phone Importers Association, emphasized the need for Nepal to harmonize its tax and customs rates with those of India.
He suggests that Nepal should adopt an automatic tax policy that mirrors India’s changes in customs duties to prevent market imbalances. “When mobile phones are cheaper in Nepal, they get smuggled into India and vice versa. Therefore, aligning the customs rates could help mitigate this issue,” said Malhotra.
Currently, the Nepali government imposes an 18.65 percent tax on mobile phones, including a 5 percent excise duty and 13 percent VAT. This significantly increases the cost of smartphones in Nepal, making them much more expensive than in India. For example, a smartphone priced at NPR 1 lakh (100,000) incurs an additional NPR 18,650 in taxes, resulting in a final price of NPR 135,000 for the consumer.
Malhotra pointed out that the implementation of the Mobile Device Management System (MDMS) could have addressed this issue by ensuring proper regulation and monitoring of mobile phones in the market.
However, due to the failure to implement MDMS and the thin market monitoring, the government of Nepal now has limited options. One potential solution could be to remove the customs duty on mobile phones to reduce the price disparity and curb the illegal market.
Without immediate action from the Nepali government, illegal smartphones will continue to dominate the market, negatively impacting legitimate businesses and the overall economy.
Aligning customs duties with India and improving market monitoring are crucial steps to address this growing problem.
Impact of Indian Customs Duty Reduction