Car producers, importers split over special consumption tax

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Imported cars on display at an exhibition. Photo courtesy of Thoi bao Kinh te Saigon Online
Vietnam's automotive manufacturers have asked for changes to the current car tax scheme amid objections from importers.
Soon after the the Vietnam Automobile Manufacturers’ Association (VAMA) petitioned the government to overhaul its system for calculating Vietnam's special consumption tax on cars, six automotive importers drafted letters asking that things remain unchanged, Thoi bao Kinh te Saigon reported Monday.
The letters, sent to the Ministry of Industry and Trade, and the Ministry of Finance were signed by six companies that import cars made by Audi, BMW, Porsche, Renault, Subaru, and Volkswagen.
Under the current regulations, cars are subject to a special consumption tax rate of 15-60 percent. Imported cars are taxed based on their Cost, Insurance Freight (CIF) price, while domestic vehicles are taxed based on their retail price.
VAMA had already proposed that taxes on imported vehicles be based on local delivery and insurance costs.
Jesus Metelo Arias, director general of Ford Vietnam and chairman of VAMA, told the newspaper that the sale price of locally made cars includes a number of ancillary costs such as distribution, post-sale services, delivery, and business profits.
Meanwhile, taxes on imports don't not include sale and post-sale costs, which is a disadvantage for car producers, Arias was quoted as saying.
According to another manufacturer, under the current calculation methods, the price of an imported car is some five percent higher than that of a domestically produced vehicle with a similar design.
VAMA’s members, most of whom are also importers and distributors, said the existing laws give unfair advantage to automotive importers making long-term competition difficult for local manufacturers.
On the other hand, the six importers said that the current method is fair and that the authorities have already considered the relevant costs to producers as well as importers.
They said the CIF price used for calculating automotive taxes already includes foreign producers’ manufacturing and marketing costs and profits earned by selling cars to Vietnamese importers.
Local producers churn out some 100,000 cars every year, meeting 60-70 percent of local demand, the Institute for Industrial Policy and Strategy under the Ministry of Industry and Trade reported last week.
Due to high manufacturing cost and special consumption tax, a car sold in Vietnam is more expensive than those in neighboring countries, by between VND50 million and VND300 million (US$2,300-14,000).
The local auto market remains small compared to other countries in Southeast Asia, the institute said, adding that in 2012 it was half of the Philippines’ market, one-fifth of Malaysia’s, and one-24th of Thailand’s.
With import duties of 15-60 percent, the local auto industry is still protected from foreign competition, but it faces a gloomy future. In 2018 cars imported from ASEAN will no longer be subject to duties under the 2007 ASEAN Trade In Goods Agreement, the institute said.
Without careful preparation, Vietnam will face a similar situation that the Philippines did a few years ago when producers began importing cars to meet rising demand, leading to a serious trade deficit, it said.

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