Wheel turns against the auto sector

Despite rapid growth in auto sales, the sector still faces many challenges

The duty on brand new cars dropped three times last year to 30 per cent from 60 per cent, and then rose again to 83 per cent in early April. Meanwhile, the duty on automotive spare parts increased by 3-5 per cent to 33-35 per cent.

Nguyen Van Phung, deputy head of the Ministry of Finance’s Taxation Policies Department, said vulnerable infrastructure and traffic congestion in urban cities like Hanoi and Ho Chi Minh City were the main causes behind the tax hikes.

Under the ASEAN Free Trade Agreement (AFTA) commitments, Vietnam will have to loosen tariff barriers with duties having to be reduced to five per cent by 2012. Gan Kok Seng, deputy general director of Honda Vietnam Company said that any increase in tax “will affect all companies in the industry.”

“For long-term development, adjustment of tax is an inevitable process,” he said, adding that the adjustment should be moderate and beneficial to the development of the local industry. After the first four months this year, total sales of locally-assembled cars came in at 47,366 units, an increase of 181 per cent against that of the same period last year.

Besides, over 28,000 cars were imported in the first four months this year, an increase of 7.5 times against the same period last year.

However, the latest figures released by the Vietnam Automobile Manufacturers’ Association indicated that in May, total locally -assembled cars sales amounted to 11,494 units, nearly 2,000 units lower than the previous month.
Whilst customs statistics also showed that around 5,000 CKD units were imported in May, over 2,000 units lower than the previous month.

Pham Huu Tam, director of the Ho Chi Minh Trade Company, said that import enterprises were forced to increase prices on imported used cars as a result of rising duties.

Local automobile producers also face concerns with the rising duty of automotive spare parts plus proposed taxes.
“Government policy affects the speed of development of all industries, including automobiles,” Seng said, adding that policy should be beneficial to all stakeholders.

In a related move, the MoF has recently released the draft special consumption tax (SCT) which will see an increase of 30 per cent to 60 per cent on both imported and locally assembled cars on average.

Also, the MoF has submitted a government proposal on increasing ownership fees from 5 per cent to 15 per cent of retail prices in Hanoi and Ho Chi Minh City, and up to 5 per cent from 2 per cent in other provinces and cities.
Both the proposed SCT and fees may be applicable to imported and locally-assembled cars by the end of this year.

With increasing tax of various kinds, experts estimated that the price of both imported cars and locally-assembled cars would increase by at least 30 per cent.

Kim Jung In, general director of the GM Daewoo Vietnam, also said that the Vietnam Automobile Manufacturers’ Association had requested related government agencies to reconsider potential negative impacts to the economy.
“The SCT and ownership fees increase will ruin all of us and completely knock down car assemblers’ efforts,” he said.