Drastic steps in sight to ease car problem

The Ministry of Finance is proposing to levy new taxes on used foreign luxury cars in an effort to curtail imports.

According to a proposal submitted to the Government, a luxury used car would be subject to two types of taxes: a fixed tax of US$5,000-10,000 and an import tax of 80-83 per cent, similar values to those imposed on new imported cars.

As of now, a used car imported to Viet Nam must pay only the fixed tax rate.

Minister of Industry and Trade Vu Huy Hoang said that his ministry would continue to keep a tight grip on automobile imports because they cost the nation about $1 billion annually but serve only few people.

The Viet Nam Association of Financial Investors (VAFI) wrote a letter to the Ministry of Finance this month saying that it was unreasonable for people to drive luxury cars when the country was plagued by congested roads and pollution.

Through the recently adopted measures, “the Government would be able to both reduce the number of cars on the road and cut their import value in half,” said the association’s head, Nguyen Hoang Hai.

Hoang confirmed that the nation’s infrastructure was too weak at the moment to handle large numbers of foreign vehicles, causing an increasing number of car accidents on the roads.

“Viet Nam imports around 30,000 four- to seven- seat cars annually, but most Vietnamese people are not able to buy them,” he said.

As a result, several import regulations were needed to protect consumers without violating the World Trade Organisation’s commitments, Hoang said, adding that the restrictions on auto imports existed in many other countries.

Starting from Sunday, traders have to prove that they are legitimate sales agents by providing a certificate and a letter of authenticity, certified by the Vietnamese ambassador to the importing country.

Car dealers expressed concern that the new measures would negatively affect the imported car market, resulting in about 1,700 companies going bankrupt.

Domestic market colder

In another move, the Government has approved a proposal to increase the ownership registration fee for cars by 5 percentage points.

Effective in September, the maximum registration fee for passenger cars with fewer than 10 seats will surge from 15 per cent (depending on the locality) to 20 per cent of the vehicle’s value, while the fee for larger vehicles will remain at the current 2 per cent.

According to car dealers, an increase in registration fees plus high interest rates would deter customers from purchasing cars, causing the domestic car market to slow even further.

According to the Viet Nam Automobile Manufacturers’ Association (VAMA), its members sold only 7,661 cars last month, a year-on-year decline of 19 per cent.

A representative of Toyota said that though registration fees would increase, car prices would not be raised as carmakers had been offering additional promotions and discounts to attract customers.

Experts said that domestic carmakers might shift their products to cheaper or smaller vehicles.

Around 1,200 diplomatic vehicles that had been transferred and used improperly might be taxed up to 90 per cent of their value, the Ministry of Finance said. The tax was being proposed for cars that otherwise would have qualified for tax exemptions enjoyed by diplomatic agencies and embassies in Viet Nam.

Accordingly, organisations and individuals improperly using diplomatic cars since 1988 would now be required to change the ownership and pay taxes.

Those vehicles would be subject to three types of taxes: import, special consumption and value-added taxes. The import tax would be calculated similarly for new and used cars, ranging from 5 to 90 per cent.

The ministry is proposing to apply tax rates of 80 per cent and 90 per cent to diplomatic vehicles owned for six months and one year, respectively.

The minimum tax rate of 10 per cent will be imposed after 10 years of ownership.

According to the ministry, there have been 4,366 diplomatic cars in the country over the last 20 years. Of these, 230 vehicles were re-exported and 1,758 cars transferred or destroyed. Approximately 1,200 diplomatic cars on that list are thought to be subject to the new tax.

Tags: Vietnam automotive, Vietnam automotive industry, Vietnam autos market, Vietnam car imports