Experts, customers and even state officials are displeased by the Ministry of Finance’s decision to raise the import tax rate from 60% to 70% on March 11, condemning it for aiming to protect local automobile joint ventures.

 

 

The Ministry of Finance (MOF) on March 11 decided to raise the import tax on brand new cars from 60% to 70%, stating that the tax rate will be kept for several years at least.

 

Explaining the decision, Deputy Minister of MOF Truong Chi Trung said that this aims to reduce traffic jams and the trade deficit.

 

Trung said that the happenings in the world show disadvantageous factors for Vietnam, and if cars keep flowing into Vietnam, the country will bear the burden of a big trade deficit.

 

According to MOF, Vietnam’s trade deficit was over $4bil in the first two months of the year, and the high import turnover of less-than-12-seat cars, at $94mil, or 10 times higher than the same period of last year, contributed to the high trade deficit.

 

Moreover, traffic jams have become more serious due to the rapidly increasing number of cars on roads. Statistics show that most cars are imported into Hanoi and HCM City, and the two cities prove to be the locations with the most serious traffic jams.

 

Trung said that the 70% tax rate will be maintained for several years and then will be slashed step by step in accordance with WTO commitments.

 

However, Trung’s words are not satisfying people. Dr Nguyen Minh Phong, Head of the Economic Research Division under the Hanoi Institute for Socio-Economic Development Researches, said that MOF is not following economic laws in setting up tax policies.

 

When MOF three times cut the import tax on brand new cars in 2007, it said that the decision was in line with WTO commitments, automobile industry development strategy, and that this would not put pressure on infrastructure.

 

MOF should have anticipated the situation and calculated how many more cars would be imported once the tax was cut, and if too many cars would overload the current infrastructure.

 

In fact, traffic jams have been occurring for a long time, and even before many cars were imported as a result of the tax cut. If MOF decides that cars are the main reason for traffic jams, it should be reminded that not only imported cars, but locally made cars cause them.

 

According to the General Department of Customs, some 6,000 cars were imported in the first two months of the year, while 7,386 cars were sold by 11 local automobile joint ventures.

 

Moreover, Phong said that traffic jams occur in Hanoi and HCM City only, therefore, MOF should not limit imports to other localities. Statistics provided by road and railway police show that in the first two months of the year, 11,397 cars were registered, including 2,048 units in Hanoi and over 2,000 units in HCM City.

 

“Traffic jams and the trade deficit are just pretexts the MOF is using to justify its aim to protect local automobile production,” Phong said.

 

Meanwhile, Dr Nguyen Quang A, Head of the Institute for Development Studies (IDS), said that MOF has its reasons for raising the import tax rate in the context of high trade deficit. As Vietnam is facing high inflation, businesses and authorities need to tighten their belts and limit spending on luxurious things.

 

However, according to A, MOF should have raised the import tax on car parts as well, because this is part of the government’s policy on limiting spending.

 

A said that if Vietnam only raises the import tax on imported cars but not on car parts, it will not be able to reduce foreign currency outflow abroad. A concluded that the tax policy, once again, aims to protect local production – what MOF has been failing to do for the last ten years.

 

An expert from the Central Institute for Economic Management (CIEM) said that it seems that MOF is under pressure to make decisions. In 2007, MOF, under public pressure, had to cut taxes in order to force automobile joint ventures to lower sales prices. However, MOF failed to force sales prices down, and domestically made cars still sold well. The Vietnam Automobile Manufacturers’ Association (VAMA) sold over 80,000 units in 2007, double that of 2006.

 

The main goal of the tax cut was unreachable, while the side effects of the tax cut were clear: imported cars flocked to the market. The imports in the first two months of the year alone are equal to the total imports of the first eight months of 2007.

 

Meanwhile, MOF faced strong opposition from the members of VAMA, which protested the tax reduction. The opposition was so critical that the government two times released a document asking MOF to reconsider tax policies, and make public the roadmap on tax reductions.

 

(Source: VNE)

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