The tax increases on car imports, which have been explained as aiming to reduce the trade deficit and control inflation, will surely lead to the price increase of cars. Besides, some small automobile joint ventures are thought to be weeded out from the market.

 

 

After the Ministry of Finance unexpectedly announced on March 11 about the tax increase on brand new and used imports, there has been the information that the ministry would also raise the tax on car part imports.

 

In theory, the adjustment of the import tax on car parts may create difficulties for automobile joint ventures. The impacts of the tax increases will not have much influence on the operation of big joint ventures like Ford, Toyota, GM Daewoo, Honda or Mercedes Benz. These joint ventures have a lot of orders from clients, which will make them busy for a long time.

 

However, smaller joint ventures including Mekong Auto, VMC or Mitsubishi will face a lot of difficulties. These manufacturers have not changed the sale prices over the last two years. With several tens of units sold at the hottest moments of the market, they would find it hard to survive when the sale prices increase, which will lead to a downturn in sales. Some experts have anticipated that the import tax increases will eliminate several manufacturers, saying that more dissolution cases like Vindaco (which assembled Daihatsu cars) in 2007 will be seen this year.

 

Besides, the plans to import cars to sell domestically by local automobile joint ventures will also be influenced. When the import tax rate was lowered to 60%, which made imported cars cheaper, several joint ventures tried to get the license to import cars. However, the joint ventures now said that they are reconsidering the import plans after the import tax was raised again.

 

When announcing the decision on raising the import tax on brand new imports from 60% to 70% in early March, Deputy Minister of Finance Truong Chi Trung said that the 70% tax rate will be maintained for several years before it will be lowered gradually to come in line with the WTO commitments. However, just two weeks later, the Government, once again, urged the Ministry of Finance to raise taxes once more on both ready-made cars and car parts imports.

 

If the tax rate is raised further, this will be the big disappointment for local joint ventures, who once hoped that the tax rate will be stabilized for at least six months, so that they can plan their production and business.

 

Nubohiko Murakami, General Director of Toyota Vietnam, said that the continuous tax rate adjustment shows the uncertainties of the tax policies, which makes the market become more complicated and unpredictable.

 

He said that a long term stabilized policy is the key to the market development, to the developed automobile industry and supporting industries. In the Philippines, for example, the tax policy is always stabilized for six months at least, the minimum duration for enterprises to get adapted.

 

A director of another automobile joint venture, a member of the Vietnam Automobile Manufacturers’ Association (VAMA), also said: “We can’t explain the way the Ministry of Finance regulates the market with tax policies. All the decisions are made unexpectedly which do not follow any previously set plans”.

 

The director said that as the material prices for car part import tax rate all are increasing, local manufacturers will have to raise the sale prices to cover losses.

 

Nguyen Thanh Giang, General Director of the Vietnam Engine and Agriculture Machinery Corporation (VEAM), on one hand, acknowledged the necessity to raise the import tax in order to reduce the trade gap, on the other hand, said that the Ministry of Finance should consider the suitable tax increases in order to ensure the competitiveness for locally made cars.

 

Giang said that the Government should support local joint ventures in one or another ways to help them maintain operation. Unlike importers, manufacturers can help create thousands of jobs.

 

Honda now employs 6,000 labourers, Toyota more than 1,000, and the number of labourers is similar in other joint ventures.

 

An official from the Ministry of Finance stressed that the tax increases aim to reduce trade deficits and control inflation. Therefore, not only ready made cars, but other products, including electronics parts are also the subjects to tax adjustments.

 

“The tax increases can also ensure the equality between locally made cars and imported cars, while helping prevent the foreign currency bleeding, which may occur when the demand for importing car parts increases sharply,” he said.

 

He added that the car part tax will still be imposed on every product. The import tax will be higher on the products which can be produced domestically, in order to encourage the localization of car production.

 

The Ministry of Finance is also consulting with relevant ministries on adjusting the luxury tax and registration tax on cars.

 

(Source: VNE)

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