No more chance to reduce car prices in Vietnam
The National Assembly Standing Committee believes that special consumption tax should not be reduced too deeply for cars under 2 liters because it will affect domestic automobile production.
In late October 2015,The Ministry of Industry and Trade has proposed to change the special consumption tax rate, accordingly, imposing a very high tax on cars with large cylinder capacity, from 2 liters or more, while small cars under 2 liters need to reduce tax to stimulate consumption.
Accordingly, the proposed level as of October 2015 is as follows:
| Cylinder capacity | Current tax rate | Revised tax rates |
| Under 2,000 cm3 | 45% | 20-25% |
| 2,000 - 3,000 cm3 | 50% | 60% |
| 3,000 - 4,000 cm3 | 60% | 90% |
| 4,000 - 5,000 cm3 | 60% | 110% |
| 5,000 - 6,000 cm3 | 60% | 130% |
| Over 6,000 cm3 | 60% | 150% |
However, recently the Standing Committee of the National AssemblyinReport on the acceptance of the law amending a number of articles of the laws on Special Consumption Tax, tax administration and value added tax,said he disagreed with the proposal.
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Special consumption tax rates are only slightly reduced for small cars. |
Many opinions say that if taxes are reduced too deeply for cars with engine capacity under 2 liters, it will cause great difficulties for domestic manufacturing enterprises and increase incentives for imported cars.
To stimulate the market to develop small cars under 2 liters, using less fuel, while still ensuring the development of the domestic automobile assembly industry, the Committee has proposed the latest tax rates in the draft according to each time frame as follows, starting to change from July 1:
| Capacity cylinder | Tax rate current | New tax 1/7/2016-1/12/2017 | New tax from 1/2018 |
| 1,500 cm3 or less | 45% | 40% | 35% |
| Over 1,500 - 2,000 cm3 | 45% | 45% | 40% |
| Over 2,000 - 2,500 cm3 | 50% | 50% | 50% |
| Over 2,500 - 3,000 cm3 | 50% | 55% | 60% |
| Over 3,000 - 4,000 cm3 | 60% | 90% | 90% |
| Over 4,000 - 5,000 cm3 | 60% | 110% | 110% |
| Over 5,000 - 6,000 cm3 | 60% | 130% | 130% |
| Over 6,000 cm3 | 60% | 150% | 150% |
According to this new draft, the tax rate for vehicles over 2 liters will still increase as the general goal is to limit it. However, for vehicles under 2 liters, the reduction is insignificant, in which the biggest incentive for vehicles from 1.5 liters or less will only be from 45% now to 35% in early 2018. Compared to the proposal in October 2015 from 45% to 20-25%, this reduction is too small.
If other taxes and fees on cars remain unchanged, the price of cars under 2 liters will decrease, but it will be almost a formality. Random calculations on some specific car models, for example, are as follows:
(*Old price at present, new price from the beginning of 2018)
| Car model | Version | Old price (million) | Old tax | New tax | New price (million) |
| Kia Morning | 1.2 AT | 390 | 45% | 35% | 363 |
| Toyota Vios | 1.5G | 649 | 45% | 35% | 604 |
| Honda City | 1.5 CVT | 604 | 45% | 35% | 562 |
| Hyundai Grand i10 | 1.0 AT | 417 | 45% | 35% | 388 |
| Kia K3 | 1.6 AT | 678 | 45% | 40% | 655 |
| Toyota Altis | 1.8CVT | 848 | 45% | 40% | 819 |
Each car is only discounted by about 20-30 million, which is equivalent to a monthly promotion program of car dealers. Considering the Kia K3 model in the table above, the discount is 23 million. In reality, the Kia distributor Thaco always has promotions for this car line, sometimes up to 30 million. Customers do not see any difference worth considering when the tax reduction is small.
Long-time sales experts in the industry say that if the reduction only stops at this level, it will be difficult to stimulate demand for the small car market. Because, if calculated as a percentage of the total price, this number is too low. An expert gives an example: when a customer buys an Altis for 848 million, they may only have 600 million, and borrow 248 million from the bank. When the new tax comes, the price is 819 million, the loan is reduced to 219 million. The monthly interest and principal payments to the bank between 248 and 219 million are almost the same.
"Without a significant change in prices, this tax reduction is just like scratching an itch, it's difficult to change the market," this expert emphasized.
The constant changes in proposals and drafts from regulatory agencies have put the Vietnamese car market at risk of price chaos. Imported car dealers are confused when they cannot finalize the exact figure to inform customers.
Recently, at the launch of the 2016 Range Rover Evoque, the importer UK Auto did not announce the official selling price. When asked, the company representative said that they themselves did not know what a reasonable price should be, when the regulations on tax calculation prices for special consumption tax have been in effect since January 1, but the Ministry has not provided any calculation instructions for imported car businesses.
"We are even more uncertain as there will be a new tax rate coming soon. Calculating how to sell at a reasonable price to customers and not incur losses is a difficult problem at this time," said the director.
Meanwhile, even car assembly companies are also making changes, although there are no regulations that are finalized and stable at this time. In the end, customers are still the ones who "just wait and see", whether they can buy cars at a cheaper price or not, market supply and demand is a small part, the rest depends largely on the intention of the management agency.
According to VNE
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