Since 2017: Small cars are seeing significant price reductions across the board?

Imported vehicles with small engine capacities will receive tax incentives.

By 2017, the prices of cars with engine capacities under 1.5L are expected to decrease significantly thanks to the lower special consumption tax. However, this also depends on the government's policy of tightening import regulations on vehicles.

The Prime Minister has just instructed relevant agencies to calculate and apply a higher excise tax rate to vehicles with up to 9 seats and engine capacities exceeding 3.0 liters. Along with this, the excise tax rates will be adjusted according to the principle of dividing them into smaller groups as stipulated in the current Excise Tax Law.

With this directive, many believe that vehicles with engine capacities of 1.5L or less will be prioritized for development. This is because these vehicles are more affordable, making cars more accessible to more people, minimizing environmental impact, and promoting the development of the automotive industry. Conversely, vehicles with engine capacities of 3.0L or more will be subject to higher excise taxes, resulting in higher prices.

Previously, the Ministry of Industry and Trade proposed to the Government the application of special consumption tax rates on automobiles. Accordingly, cars with engine capacities of 2.0L and above would be subject to an increase in special consumption tax of at least 15%. Cars with engine capacities above 3.0L would face a very high special consumption tax, projected at 70%. Cars with engine capacities under 1.5L would only be taxed at 30%, while cars with engine capacities from over 1.5L to under 2.0L could maintain the special consumption tax rate at 45%.

Many businesses importing completely assembled cars, especially luxury brands like BMW, Audi, Mercedes, Lexus, etc., are starting to worry, because most of their imported models now have large engine capacities, over 2.0L, and thus will certainly be subject to increased taxes.

In addition, changing the timing of calculating excise tax to the selling price to dealers, rather than the CIF price at Vietnamese seaports as is currently the case, will increase the price of car models by at least another 20%, making business operations more difficult. When the new tax rates are applied, domestically assembled and imported vehicles will be treated the same. Thus, imported vehicles with smaller engine capacities will receive tax reductions, while domestically assembled and imported vehicles with larger engine capacities will face increased excise tax.

Conversely, businesses importing small-engine vehicles like the Hyundai i10 can be pleased to benefit from the reduced special consumption tax rate, leading to a price reduction of approximately 10% compared to the current price, thus creating favorable conditions for increased sales volume.

Affordable cars: Just a dream?

According to the amended and supplemented Law on Special Consumption Tax approved by the National Assembly, cars with 9 seats or fewer will still have the same three tax rates: 45% for cars under 2.0L; 50% for cars from 2.0L to 3.0L; and 60% for cars over 3.0L.

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To support domestic automotive businesses, the Ministry of Industry and Trade previously proposed creating technical barriers to limit the competition from imported vehicles.

The tax law will take effect from January 1, 2016, but many believe it will not be implemented until 2017 at the earliest due to further amendments and additions after the amended law comes into effect.

By 2017, when the import tax rate on completely assembled cars is reduced to 30%, coupled with the reduction of the special consumption tax on cars with engine capacities under 1.5L to 30-35%, the price of small cars is expected to drop quite significantly.

Therefore, domestic car assembly would then be considered to have lost its competitive advantage due to its small scale and higher production costs (20% higher than imported cars). When imported cars also enjoy the same excise tax as domestically assembled cars, the advantage will certainly belong to imported cars.

However, if authorities tighten import controls by erecting technical barriers, then even small-engine imported cars may not necessarily see a price reduction.

To support domestic automobile businesses, the Ministry of Industry and Trade previously proposed creating technical barriers to limit competition from imported vehicles. Specifically, this included imposing stringent standards on import dealers regarding financial capacity, warehousing, etc., requiring warranty and maintenance systems; stricter vehicle inspection procedures; and limiting vehicle import to only 2-4 seaports, etc.

Notably, the Ministry suggested that the declared customs value of imported cars needs to be checked to prevent under-declaration for tax evasion and fraud, implying that the taxable value of imported vehicles could be increased. When the taxable value is raised, the selling price of the cars will certainly also have to increase.

According to Labor