Vietnam ministry rejects rumor of car prices surging next year

At many dealerships, salespeople have told their customers that a special consumption tax mechanism, which will take effect on January 1, 2016, will trigger a retail price hike of 15-30 percent, news websiteVietNamNet said.

The rumor has led to a rise in sales of imported automobiles at many dealerships, especially those in Vietnam’s biggest cities Hanoi and Ho Chi Minh City.

Those who have planned to buy a car are rushing to realize their intention before possibly having to pay the extra amount caused by the new taxation regime.

However, one expert from the Ministry of Finance told VietNamNetthat there will be no such price surge.

Regulations on the new taxation regime including very specific guidelines from the finance ministry have been cascaded to all automotive businesses, he said.

Given the new special consumption tax rate, the retail price of imported cars, or CBUs, from the start of 2016 will only be 1.2-5 percent higher the wholesale price, excluding value-added tax, he added.

Automobiles that are built thoroughly in one country and then shipped to other nations are called CBUs.

All of the information is mentioned in Circular 195/2015/TT-BTC guiding the implementation of Government Decree No. 108/2015/ND-CP dated October 28, 2015 and providing detailed regulations and guidelines for the application of the new special consumption tax, he told VietNamNet.

In Article 5 of the section specifying the calculation of the new tax rate in the circular, the Ministry of Finance presented an example of a CBU with a wholesale price of US$20,000.

With an import duty of 70 percent, a special consumption tax rate of 45 percent, and an official foreign exchange rate of VND22,500 to the U.S. dollar, the wholesale price of the CBU in Vietnam will be at VND1.165 billion (US$51,260).

According to an expert from the Ministry of Finance, with the new tax regime, the retail prices of the majority of CBUs will be 1.2-3 percent higher than the wholesale prices for cars with a small engine capacity, and 4-5 percent more expensive for vehicles with a bigger engine capacity.

This will not lead to a 15-30 percent retail price surge as rumored, he added.

In a press conference in October this year, Pham Dinh Thi, head of the Tax Policy Department under the finance ministry, said the price of small imported cars may go down sharply in the next four years given the adjustment in taxes levied on them following the commitments of Vietnam to join multiple regional and international free trade agreements.

The price drop applicable to imported cars with an engine capacity smaller than one liter is due to the exemption of import tax and a dip in special consumption tax, according to news website VnExpress, which cited calculations by the department.

The prices of such small cars may plunge 42 percent compared to the current rates, Thi said.

As seen in the roadmap on excise tax reduction for imported cars with nine seats or fewer, the special consumption tax rates will drop from 45 percent to 40 percent, 30 percent and 20 percent by June 2016 to 2017-end, 2018, and 2019, for vehicles with engines of one liter and below.

The rates for 1-to-1.5-liter cars will also drop from 45 percent to 40 percent, 35 percent and 25 percent from June 2016 to 2017-end, 2018, and 2019, respectively.

Meanwhile, the duties slapped on 1.5-to-2-liter automobiles will be cut from 45 percent to 40 percent, falling to 30 percent by 2018 and 2019.

According to the Vietnam Association of Automobile Manufacturers (VAMA), total sales in the first 11 months reached 215,517 vehicles, up 57 percent over the same period last year.

Particularly in November, turnover rose 86 percent year on year.

The VAMA forecast that total sales would meet or exceed the record level of 220,000 vehicles sold by the end of this year.