Car Buyers Upset as New Taxation Mechanism Proposed

Potential car buyers in Vietnam are now feeling disappointed as the Ministry of Finance proposed a new taxation mechanism on imported used automobiles last week.

 

The Finance Ministry (MoF) has asked the Government to impose an absolute tax on secondhand cars imported into the country from May 2006, instead of the previously proposed 150 per cent import tariff, it said.

 

The absolute tax is a fixed amount of tax on every car regardless of its model or origin and is an easy way to manage trade frauds.

 

According to MoF’s taxation proposal, the absolute tax will drive up total taxes on imported cars to over 600 per cent compared with the vehicle’s value.

 

Apart from the absolute tax, imported used cars must endure two other kinds of taxes, namely a 50 per cent special consumption tax (SCT) and a 10 per cent value-added tax (VAT), a MoF official said.

 

The absolute tax will help the Government take control of the imported used automotive industry, which could endanger the poor road infrastructures in Hanoi and Ho Chi Minh City, the two largest cities in Vietnam, he said. Hanoi’s current car park system, for example, can support only 30 per cent of the demand.

 

Do Huu Hao, deputy minister of Industry, said the internationally-recognized absolute tax is a barriers to prevent potential influxes of cheap used cars into the country.

 

With this taxation mechanism, prices of imported secondhand cars will be equal to around 70 per cent of the price of brand-new cars of similar technical specifications manufactured in Vietnam.

 

The good absolute tax will protect the national fledging automobile industry and help local automaker gradually adjust their prices to become more competitive, which are now at least 1.5-2 times higher than the regional average.

 

Trade Minister Truong Dinh Tuyen said the Government has calculated in a thorough and logical way to ensure local production which does not permit local car assemblers to take high profits from consumers.

 

Hao said the absolute tax may be removed once infrastructure conditions in Hanoi and Ho Chi Minh City are improved.

 

Udo Loersch, chairman of the Vietnam Automobile Manufacturers Association (VAMA), said “If the import of used cars is not properly controlled, it could negatively affect Vietnam’s natural environment, traffic safety, government tax income and seriously damage the local auto industry.”

 

However, local auto import firms are strongly protesting the MoF’s proposal, arguing that the absolute tax is an unnecessary protection for locally car manufacturers.

 

The forecast of lower-priced imported used cars have strongly affected car sales in the country since the middle of 2005.

 

In January and February alone, auto sales by 11 foreign-invested carmakers, including Toyota, Ford, Mitsubishi and GM-Daewoo were down 21 per cent to 2,984 units.

 

* The following table reveals tax amounts on old sedans of less than five seats.

 

Engines capacities	Prices ($) (est.)  (1)	Absolute tax ($) (2)	Special consumption tax ($) (1+2)*50 per cent (3)	VAT (1+2+3)*10 per cent (4)	Total Taxes (2+3+4)
Under 1.0L	1,000	3,000	2,000	600	5,600
1.0-under 1.5L	2,000	7,000	4,500	1,350	12,850
1.5-under 2.0L	3,000	10,000	6,500	1,950	18,450
2.0-under 3.0L	5,000	15,000	10,000	3,000	28,000
3.0-under 4.0L	6,000	18,000	12,000	3,600	33,600
4.0-under 5.0L	8,000	22,000	15,000	4,500	41,500
5.0 onwards	10,000	25,000	17,500	2,550	47,750