Importing Tech: Does Sri Lanka Pay Too Much?

With the proliferation of smartphones and tablets, devices that cater to a multitude of audiences are now ever more easily available. No longer are Apple and Samsung the only choices you have; now, nearly anyone can have the option of finding a smartphone to fit their budget.

About five years ago, you would not have expected a farmer or a tuk tuk driver to carry around a smartphone, as back then, these devices were considered things that only a few could afford. But practically everyone has a smartphone these days, even if it is one of those ‘Made In China’ clones, but, were it not for these affordable options, smartphones and tablets would still remain only in the hands of a fair few, and hey, your iPhone is made in China too.

Sri Lanka does have access to a lot of the latest mobile devices. But are we paying too much for them? Is it the fault of the “elite” brands such as Apple and Samsung for refusing to drop prices? Perhaps Sri Lanka’s import and customs tax laws are adding to the problem of overpricing ‒ or is there something in-between that’s the cause?

We looked into our customs and import processes to find out.

The Customs Process

Smart devices are exempt from import duties. Image courtesy

Sri Lanka’s Customs Department lists everything that falls under the category of taxable items. The charges are explained in a manner typical of any Government site, with pseudo-legal language that is hard to decipher and perhaps so confusing that it’s ripe for hitting you with those famous “hidden” costs.

Here’s where it gets interesting.

Smart devices are actually not charged a duty by customs, but instead, these imports are charged VAT (Value Added Tax), NBT (National Building Tax) and PAL (Port and Airport Development Levy) with mobile phones being exempted from VAT.

With an FTA set to be agreed on between Sri Lanka and China, one of the items that may fall under this proposed agreement are electronic consumables. This could result in reduced costs on average on Chinese brands, but don’t count on your next iPhone or Google Pixel to retail at a cheaper price.

The other major manufacturer that’s closest in proximity to us is India. In terms of our ‘big brother’, we currently have a direct free trade agreement (ISFTA), and a second as part of a larger trade agreement (SAFTA) with India. However, unlike China, who have managed to make entries into the European and US markets, India is yet to amass a global electronics brand or make strong inroads outside their doorstep, not to mention Sri Lanka holds a skeptical attitude towards Indian products than they do Chinese.

The E-Commerce Sectors And Imports

Resellers face major issues during the import process. Image courtesy:

Sri Lanka’s fast growing e-commerce sector believes that there are certain factors that can be improved to reduce the costs and create a more streamlined import process.

One of the biggest problems is that in Sri Lanka, smart phones are not sold on a contract; this means that either you need to take a small loan to pay for this, or pay the price upfront. This comes with its own set of problems:

  • Middlemen are a potential hazard, where they are free to charge their own margins for shipment due to the fact that Sri Lanka’s market space is small and doesn’t buy directly from the manufacturers themselves. This leaves a reseller in a position where they may have to pay extra to cover the cost of what these middlemen charge them.
  • Non-refundable taxes result in a 5% increase in price and any excess stock cannot be resold overseas, so it pretty much needs to all be sold in the local market.
  • Warranties, MSRP, and commodification continue to have large scale problems. These importers may not even be authorised importers, and therefore can control costs to the point of local resellers having to find the balance between paying random fees and selling a product at an affordable price.

It all sounds a lot like a mafia-style model where businesses have no choice but to pay up, or they’ll sleep with the fishes. We often find fault with resellers for charging ‘crazy’ prices, but while they are definitely not void of responsibility, they are stuck between a rock and a hard place when it comes to providing truly reasonable prices.

Comparing Cost In South Asia

To put things in a more rational perspective, a starting point would be pricing ranges, and how we stack up in the sub-continent. Smartphones have taken off in places like Sri Lanka thanks in part to our island wide coverage of internet access (although sadly not everyone has access to 4G yet and dead spots are still a reality).

To get an idea of where Sri Lanka stacks on prices, we cross-compared price ranges on some of the more popular premium models of phones to find out where we rank.

(Please note that the following are price ranges based on listings via multiple e-commerce sites in these countries. It is possible that these devices may fall below or above these ranges.)

Based on exchange rates, Sri Lanka has the lowest prices

The economist in us always goes for the a simple direct exchange rate calculation. The problem with such a quick conversion is that it ignores metrics such as median income, cost of living, cost of labour, and other vital socio-economic factors.

Calculations based on the PPP (Purchasing Power Parity) such as the Big Mac Index, iPhone Index, etc. are interesting economic indicators, but unfortunately, the data available is limited.

India ranks in the Top 3 in GDP (PPP) in the IMF, World Bank and CIA World Factbook’s rankings. Sri Lanka ranks between 61 and 57 in these same rankings. Pakistan and Bangladesh both rank higher.

The difference here is that when we take a look at GDP (PPP) per capita, Sri Lanka ranked higher than India, Bangladesh, and Pakistan, mostly thanks to a much lower population and the fact that our larger three neighbours also suffer from some of the worst poverty worldwide.

Due to the GDP (PPP) per capita being higher in Sri Lanka, on a percentage/population ratio basis, Sri Lanka has a higher affordability when it comes to the population that can afford smartphones, as the economic disparity in India, Pakistan, and Bangladesh is on a much larger scale .

It’s interesting to note that on the iPad index calculation run in 2013 by CommSec, India ranked ahead of countries such as Singapore, South Korea, Germany and the UK.

Due to our small market size and poor import processes, sadly, prices on premium models will likely remain high.

The often talked-about point is that despite a large global market and high growth in places like India and China, the USA remains the largest consumer of smart devices. Bringing the pricing to the same global standards as the likes of Apple, Samsung, and Google provide to the USA will likely lead to a very unpopular sentiment in Apple, Google and Samsung’s largest market. Don’t count on subsided prices hitting our markets anytime soon.

Thanks in one part to the Android OS and the other part to China and India, consumers now have a choice. We may not get the best prices on these products, but, at least not everyone has to dish out more than a lakh (Sri Lanka’s median income is around LKR 30,400) to get a smart phone.

Making Smart Devices Affordable For The Masses

The fact of the matter is that Sri Lankans are a connected bunch, with a ratio of 113 mobile phones per 100 people, and above 4 million subscriptions to mobile data plans. We have access to around 26 different mobile phone manufacturers and 10 tablet manufacturers, with Apple, Huawei, MicroMax, Samsung, Sony, Xiaomi, Zigo, and ZTE offering both smartphones and tablets. There are additionally countless other smaller manufacturers that are largely only available online or even larger manufacturers that are yet to build a customer base here.

Due to this brand and price variance in our market, even a farmer or tuk tuk driver is now equipped with a smartphone (unless they’re one of those Nokia 3310 fanboys). This continual growth in mobile users in Sri Lanka has been largely in thanks to this new age of extremely low-cost smartphones that cover the basic features, and screens that don’t crack at the touch of a dial like certain premium models do (yes, iPhone, we’re looking at you).

In Sri Lanka, examples of these budget phones are the Greentel C7 that retails for just under LKR 4,000 or the more established Huawei’s Y336 model which retails for around LKR 7,500.

If we were still talking iPhones and Galaxy as our only options, this would make it a pipedream to achieve the levels of connectivity we have.

Where Are We At And Where Can We Go?

Sri Lanka has the opportunity to build our very own smart devices. Image courtesy:

Despite having no import duties imposed on smart devices, the cost of premium brands are considerably high. Despite our GDP (PPP) per capita ranking better than India, Pakistan, and Bangladesh our overall GDP (PPP) is too low for the prices to fall.

Due to low-cost options from China and India, the proliferation of smart devices has helped increased connectivity. Despite this, the prices of the best models of smartphones and tablets remain relatively high.

With Sri Lanka already having its own manufacturing plant, maybe it’s time we need to start supporting domestic products more than we currently tend to, so that it’s in the hands of our own people on how we price these products, and how accessible these smart devices are to our citizens.

It’s important to note that Sri Lanka’s literacy rate stands at above 92%; this is one of the greatest achievements our nation has, especially when, in comparison, the literacy rates of India, Bangladesh, and Pakistan are about 20-30% lower. Our high rate of literacy has no doubt played its part in the adoption of smartphones.

The Sri Lankan Government could set a trend (don’t hold your breath) and push for a more straightforward approach when it comes to the moderation of importers, resellers, and how smart devices are priced. Love it or hate it, improving the affordability of smart devices will lead our little island nation towards becoming one the most connected nations in the world, but there is still much work to be done before we can achieve this lofty feat.

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