Car importers are requesting a postponement of the new special consumption tax.

Authorized car importers have just sent a petition to the Prime Minister requesting a six-month postponement of the new special consumption tax (SCT) implementation date, instead of January 1, 2016, as stipulated in Decree No. 108/2015/ND-CP issued at the end of October 2015.

This proposal aims both to avoid causing losses to importers due to the "unpreparedness" caused by the rapid issuance and application of the decree, and to harmonize the law, as the National Assembly is also considering amending the Special Consumption Tax Law, which is also expected to take effect from January 1, 2016.

Imported cars will see price increases due to changes in the new excise tax calculation method. The image shows Euro Auto launching the imported BMW Series 7, 740Li version. The price has not been disclosed. The newly launched 740Li will be the most expensive model in the BMW lineup distributed by Euro Auto.

In their petition, eight car importers noted that Decree No. 108/2015/ND-CP, issued at the end of October 2015, guiding the implementation of the Special Consumption Tax Law and effective from January 1, 2016, may soon be replaced.

According to these car import businesses, the National Assembly is discussing amendments to this Law, which is also expected to take effect from January 1, 2016. However, according to the draft, the method of calculating excise tax is different from the guidance in Decree 108/2015/ND-CP, which was issued at the end of October.

Importers argue that the frequent adjustments to tax policies over such a short period create significant difficulties for businesses in general in keeping up with changes in tax policies and adjusting their business plans accordingly. Furthermore, car importers also believe that the constant changes in tax policies will negatively impact the overall business environment.

Damage to businesses

Some importers say they are facing difficulties and risk losses or contract compensation because the backlog of customer orders extends into 2016 and even into the middle of next year. This is because it typically takes 3-4 months to fulfill an import order for a single car model due to waiting for orders from the parent company and lengthy shipping times.

For example, Euro Auto, the official authorized importer of BMW cars in Vietnam, is facing the prospect of having to compensate many customers who had previously placed deposits to purchase vehicles.

Speaking to TBKTSG Online at the launch of the BMW Series 7 740Li on November 20th, Mr. Nguyen Dang Thao, General Director of Euro Auto, said that orders from BMW customers so far will not be delivered until May 2016. Meanwhile, if the new special consumption tax calculation method is applied, the company will suffer significant losses.

According to Mr. Thao, under Decree 108, the special consumption tax would be based on the price of imported cars, including import tax, and would have to increase by at least 5%; while the draft law currently being discussed by the National Assembly levies the special consumption tax on the final retail price, and the increase cannot be less than 7%. Thus, these two bases for calculating the special consumption tax on imported cars are completely different.

According to Mr. Thao's calculations, with the regulations of Decree 108 on tax calculation, the selling price of imported cars is likely to be pushed up by about 10% or more, and if the calculation method of the draft Law currently being discussed by the National Assembly is applied, the price of cars will be pushed up by 20% or more, compared to the current calculation method.

Mr. Thao, along with several other authorized importers of genuine automobiles, was "shocked" by the issuance of the new excise tax policy, which had only been in effect for two months but had to be applied immediately. This left them with no time to adapt their business plans.

Therefore, according to the above proposal from importers, if the tax policy needs to be amended according to the new Special Consumption Tax Bill, the effective date of Decree 108 should be postponed to July 1, 2016, instead of January 1, 2016.

In addition, these units proposed that the Ministry of Finance organize a meeting to gather opinions from authorized importers and domestic assemblers and manufacturers before approving the method of calculating excise tax and issuing it for application.

Is this due to protectionist measures for domestic car manufacturers?

The government's adjustment to the calculation of this special consumption tax is believed to stem from a proposal by domestic automobile manufacturers, as the two methods of calculating this tax have long differed between domestically assembled and imported vehicles, with the disadvantage allegedly falling on domestic automobile assembly.

Previously, the Vietnam Automobile Manufacturers Association (VAMA) had petitioned the authorities to change the method of calculating excise tax on imported cars to avoid disadvantaging domestically assembled vehicles. VAMA proposed to the Ministry of Finance that the excise tax on automobiles should be calculated using a common taxable value for both imported and domestically assembled vehicles, based on the import price including shipping and insurance (if any).

According to VAMA members, current regulations tax domestically produced vehicles based on wholesale price, including sales costs; while imported vehicles are taxed based on CIF price excluding sales costs; this leads to domestically assembled vehicles being less competitive than imported vehicles.

A representative from VAMA argued that domestically produced cars, in addition to production costs, incur many other expenses: investment in distribution systems, after-sales service, etc. These costs make up the price of the car. The special consumption tax is levied on the total cost of the car, including these expenses, while imported cars are only taxed at the time of import, excluding sales and after-sales service costs. This creates an inconsistency in taxation and disadvantages domestic car manufacturers.

In addition, the price used to calculate excise tax on domestically assembled cars includes the company's profit margin, transportation costs from the production site to the dealership, and other expenses.

In response to VAMA's proposal at the time, the businesses importing completely built vehicles immediately countered that the current method of calculating excise tax was fair and had taken into account the related costs for calculating excise tax for domestic automobile assembly businesses as well as authorized importers of completely built vehicles.

According to importers of completely built vehicles, the manufacturers and importers of these vehicles in Vietnam are two separate entities operating under different contractual terms. The importers argue that the CIF price used in calculating excise tax already includes production and marketing costs, as well as the profit margin when selling to the importer.

In the case of domestic assembly units, the manufacturers charge insurance and shipping costs for the parts to the assembly units in Vietnam. The manufacturers retain control of the assembly units by becoming shareholders. Therefore, the cost of parts, domestic assembly costs, and marketing costs form the basis of the final product's value, and this value is used to calculate excise tax. Similar to the case of fully imported units, this value includes the manufacturers' costs (parts costs + assembly costs), marketing costs, and profit from sales to distributors.

In fact, members of VAMA – most of whom are both manufacturers/assembly companies and importers/distributors – believe that maintaining the current tax calculation method benefits them in terms of imported vehicles. However, in the long run, domestically produced vehicles will find it difficult to compete.

Following the dispute between the two sides, the special consumption tax policy on imported automobiles was ultimately changed by Decree No. 108/2015/ND-CP on October 28th, and will take effect on January 1st, 2016. However, even though this Decree has not yet been implemented, the National Assembly is discussing amendments to this Law, which are also expected to take effect on January 1st.

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