Vietnam is considering making significant cuts to car taxes to boost domestic production, especially when import tariffs are scrapped on cars from Southeast Asia in 2018 under a regional treaty.
The country needs to cut taxes to help local producers compete with the expected influx of cheap imports, Vietnamese authorities, Japanese embassy officials, and automakers from both countries agreed at a recent meeting, news website VietNamNet said.
Japanese representatives said from now through 2018 the government needs to offer incentives, including tax cuts, to bump up demand and induce auto producers to stay.
If carmakers leave, the Vietnamese market would be taken over by cheap imports from other Southeast Asian countries, they warned.
The Common Effective Preferential Tariff agreement among the Association of Southeast Asian Nations (ASEAN ) member countries requires Vietnam to cut import taxes gradually to zero in 2018 for vehicles imported from each other and are at least 40 percent of ASEAN origin.
The Vietnamese Ministry of Industry and Trade is considering cutting special consumption tax on automobiles by 30-70 percentage points and registration fees by 50-70 percentage points.
Cars made in the country are now subject to special consumption tax of 30-60 percent and a registration fee of 20 percent of the car's value in Hanoi and 15 percent in Ho Chi MInh City, while components attract import tariffs of around 20 percent.
The ministry also plans to eliminate tariffs on components that cannot be produced in the country.
The proposals would be submitted to the National Assembly, Vietnam's legislature, by the end of 2014 and are expected to take effect in 2015, the ministry said.
Vietnam has yet to make post-2018 plans but it expects it to be an "automobile era."
Toyota, Ford, and Honda executives said at the meeting they are torn between staying and leaving, but would stay if Vietnam guarantees stable policies.
Vietnam has lost its charm for foreign carmakers after years of increases in taxes, which now account for around 60 percent of retail prices, that pulled consumption down.
From being the fourth largest auto industry in Southeast Asia behind Thailand, Malaysia, and Indonesia in 2003 with sales of more than 43,000 automobiles, the country has slipped far below even the Philippines now.
Current annual automobile sales is around 100,000.
The industry said it does not only need tax cuts, but also clear government plans for developing a strategic line of vehicles so that they can decide strategy.
Vietnam originally planned to focus on small trucks, buses, fuel tankers, and fire trucks until the Ministry of Industry and Trade in 2009 suggested a shift to passenger vehicles with six to nine seats.
Some auto executives suggested at another meeting in April that Vietnam should focus on five-seat cars and trucks since they have been the best sellers.
Thoi Bao Kinh Te Saigon Online (Saigon Economic Times) last month quoted insiders as saying frequent changes in policies have prevented the auto industry from maturing though the country's first company, Mekong Auto, was established as long ago as in 1991.
They also complained about underdeveloped supporting industries.
Though the government has support policies in place, the regulations are too vague and stipulations hard to meet, they said.
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