EU to crank up cost of smartphones with new tax

 

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Posted on 17 Dec 2008 at 17:10

The European Commission is planning to start taxing a number of smartphones, a move which would could lead to more expensive handsets.

The EU Commission has sent member states a formal proposal to reclassify some phones as "multi-functional devices," which would trigger a 14% import tax on phones with TV receivers and 3.7% on GPS-enabled phones.

Phones are currently exempt from import duty, and the new taxes would put additional pressure on the already ailing industry. Handset sales in Europe have dropped since the start of 2008 as consumers delay purchases due to the slowing economy, and the market is expected to fall further next year.

"European companies would face a further costly blow to their operations in the EU, at a time when many are struggling to maintain profitability, given the economic crisis," trade lobby EICTA, which represents the leading mobile phone vendors, claims in a statement.

The EU Commission says it has put the proposal forward in an attempt to unify taxation across the 27-country bloc after Germany and Netherlands said they would introduce similar charges.

Europe's top mobile phone vendors, Nokia and Sony Ericsson, are strongly against the tax. "These new duties would inevitably lead to a high increase in consumer pricing at a time where we are all struggling to keep prices as low as possible," says Simone Bresi-Ando, a spokeswoman for Sony Ericsson, the world's third-largest mobile phone maker behind Nokia and Samsung Electronics.

A spokesman for Nokia says: "There is a danger that this proposal would put the latest technology out of the reach of European consumers as it would simply push up the price of sophisticated mobile phones. This is in nobody's interest."

Analysts claim the EU's plan would be unwise. "Especially in the current market, this will put even more strain on sales," says Gartner analyst Carolina Milanesi. "Replacement markets like Europe rely on new technology - if we are now adding tax to it this will make consumers think twice before upgrading."

Which phones will be hit?

The Commission aims to allow duties to be imposed on handsets with the most advanced features, including high-quality cameras and full Qwerty keyboards.

"While only a small number of sophisticated mobile phones in the industry would be affected today, due to rapid technological advances, the number... would likely rise significantly in the coming months and years," the Nokia spokesman says.

While GPS chips are currently used mostly in top-end devices, Nokia and others are increasingly looking to use them in mass-market phones. "We estimate the planned taxes would increase the average price of a navigation-enabled or TV-enabled mobile phone by between 5 euros and 40 euros in 2009," claims Neil Mawston from Strategy Analytics.

"We currently forecast total mobile phone shipments to decline 9% in Western Europe during 2009 and the industry needs to offer lower, not higher, prices to consumers," he adds.

For mobile TV - which so far has been launched in just a few countries - an additional 14% tax would be another major blow.

Author: Reuters