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HELSINKI (Reuters) - The European Union executive is planning to tax some cellphones, a move which would mean higher prices for consumers, the wireless industry said.
The European Commission last week sent to member states a formal proposal to reclassify some phones as "multi-functional devices", which would trigger a 14-percent tax on phones with TV receivers and 3.7 percent on navigation-enabled phones.
The new taxes would put additional pressure on the already ailing industry. Handset sales in Europe have dropped since start of 2008 as consumers delayed 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 all top cellphone vendors and many other global technology firms, said in a statement.
Europe's top cellphone vendors Nokia and Sony Ericsson -- who together make almost every second phone sold in the world -- 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," said a spokeswoman for Sony Ericsson, the world's third-largest cellphone maker.
A spokesman for Nokia said: "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."
In the proposal, seen by Reuters, the commission aims to open for duties 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 said.
While GPS chips are currently used mostly in top-end cellphones, Nokia and others are pushing them increasingly to the more mass-market phones.
For mobile TV -- which so far has been launched in just a few countries mostly due to the high cost of phones -- an additional 14 percent tax would be another major blow.
The Commission's plan will be discussed next February within the Customs Code Committee, which can also decide on the matter.
Maria Assimakopoulou, spokeswoman for EU Tax Commissioner Laszlo Kovacs, said no decision was imminent as the Commission is only starting discussions with member states.
"These discussions will not be concluded for at least another 6 months," Assimakopoulou told Reuters.
With French president Nicolas Sarkozy pushing the EU towards more trade protection, member states seem set for another bruising battle at a time when Europe is frantically trying to stimulate economies to mitigate recession.
Also European jobs are at stake as mobile phone makers rely on duty-free transport of their products.
"There is a risk that some more protectionist states could support the commission's plan," said Mark MacGann, director general of trade body EICTA.
"This plan would make the cost of production much more expensive -- we think this will drive more jobs overseas."
Additional reporting by Huw Jones in Brussels