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The European Commission has proposed reclassifying smartphones as "multi-function devices", which would see them attracting up to 14 per cent in tax at a time when the industry is already under pressure to cut prices.

The proposed reclassification, which was sent out to member states last week for comment and is reported by Reuters, would add 3.7 per cent to the cost of a phone with satellite navigation, and 14 per cent to one capable of receiving TV pictures - enough to seriously threaten the mobile TV business which is already tottering on the edge of viability.

The EU doesn't collect taxes directly, and this reclassification is aimed at unifying taxes across the zone: Germany and the Netherlands have said they are already considering such a tax, so the EU just wants to see a level playing field - by lifting it everywhere. The smartphone business is already bracing for hard times ahead. Smartphones are still considered a luxury by most people, and the last thing the industry needs is more taxation.

As Nokia put it: "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."

The company went on to point out that only a small proportion of handsets would attract the tax today, that will increase rapidly as new models come out.

This is, for the moment, only a proposal. Member states will have to spend at least the next six months discussing it before any new taxation is introduced, but even the threat of higher taxes is hurting manufacturers in their share price as investors start to worry about the impact such a tax could have.®

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