Sharp increase in import tax, used cars will increase in price by hundreds of millions of dong

Old cars will no longer be able to enter Vietnam if the new tax rate is applied in practice.

Import taxes on used cars are expected to increase, pushing up prices of used cars. On the contrary, import taxes on auto parts will decrease sharply, pulling down prices of domestically produced cars.

These are two notable contents presented by Ms. Nguyen Thi Thanh Hang, Deputy Director of the Tax Policy Department - Ministry of Finance, at the press conference announcing the draft decree replacing Decree No. 122/2016 related to preferential import-export tax schedules, list of goods and absolute tax rates... held on September 1.

Used cars can be more expensive than new cars.

According to the draft just announced by the Ministry of Finance, import tax on used cars will increase sharply. Specifically, the import tax on cars with nine seats or less, with a cylinder capacity of less than 1 liter, will be adjusted to increase to 10,000 USD/car, an increase of 5,000 USD/car compared to the current level.

Vehicles with a cylinder capacity of 1 liter or more will be subject to a mixed tax rate. In particular, SUVs, sports cars, passenger cars and general luggage compartments (except vans) with a cylinder capacity of 1 liter to less than 2.5 liters have a mixed tax rate of: Used car tax price multiplied by 200% or 150%, plus 10,000 USD. Other types of vehicles are: Used car tax price multiplied by the tax rate of the same type of new car, plus another 10,000 USD.

For 10-15 seat cars with cylinder capacity under 2.5 liters, the tax price of used cars is multiplied by the tax rate of new cars of the same type, plus 10,000 USD...

Import tax on used cars is expected to increase, used cars are twice as expensive as new cars.

Imported car dealers calculate that the new tax rate is more than twice as high as the current one. This will make used cars more expensive than new cars and imported used cars will no longer be able to enter Vietnam. Because currently there are many imported used cars in stock, businesses are having to sell them off to recover capital, accepting losses. Now if the tax continues to increase, the price of imported used cars will increase even more, making it more difficult.

“The price of imported used cars will increase by more than a hundred million VND/car when the tax increases,” Mr. Duy Minh, owner of a car dealership in Ho Chi Minh City, calculated. Mr. Minh gave an example: a used car with a 1-liter engine imported from Korea currently has a taxable price of 5,000 USD. If the current absolute tax rate is 5,000 USD, the price of the car is 10,000 USD. But with the new absolute tax rate of 10,000 USD/car, the price of this car will increase to 15,000 USD.

“If we add other taxes and fees, the price of this car will exceed 23,000 USD, equivalent to more than 600 million VND. Meanwhile, the new car line with 1 liter engine capacity is currently priced on the market at only 400-500 million VND/car. Thus, imported used cars are more expensive than buying new cars in the same segment,” said Mr. Minh.

Ms. Nguyen Thi Hien, in charge of used cars at Toyota, also said that imported used cars are currently mainly in the high-end segment with large engine capacity. With the proposal to increase high taxes, imported used cars will be completely "blocked".

Ms. Hien cited the Camry model with a 2.5-liter engine imported from the US, with a taxable price of 20,000 USD. If calculated according to the old formula, the tax rate would be 20,000 USD × 70% + 5,000 USD = 19,000 USD. But according to the new tax increase, the price of the Camry will be increased very high: 20,000 USD x 70% x 150% + 10,000 USD = 31,000 USD.

Ms. Hien added: “Not to mention that imported used cars are also subject to the same taxes as imported new cars, which are 50% special consumption tax, 10% VAT and many other fees. Therefore, the price of these used cars to the buyer can be three times higher than it is now.”

Domestically produced cars will be discounted

Ms. Nguyen Thi Thanh Hang, Deputy Director of the Tax Policy Department - Ministry of Finance, said that the Ministry proposed two options to reduce import tax on auto parts for five years from 2018 to 2022 for two groups: Passenger cars with less than nine seats and trucks with a total load weight of five tons or less.

Regarding the specific tax reduction, the finance sector proposed two options. One is to reduce the import tax of 163 tax lines of imported auto parts to assemble the two groups of vehicles above to 0%. Option 2 is to reduce the import tax of 19 tax lines of components such as engines, gearboxes, transmissions, high-pressure pumps to assemble the two groups of vehicles above from the current 3%-50% to 0%.

“The reduction of tax on components contributes to promoting the development of the automobile industry and supporting industries; contributes to supporting the stable growth of the automobile market, maintaining production with price competitiveness compared to imported cars; creating a market for low-cost, high-quality cars,” explained a representative of the Ministry of Finance.

However, many opinions suggest that import tax on components should be reduced for vehicles with cylinder capacity over 2 liters, not just for vehicles under 2 liters as proposed by the Ministry of Finance.

“Enterprises believe that cars with cylinder capacity under 2 liters are the mainstay of ASEAN countries such as Indonesia and Thailand. Therefore, if Vietnam only focuses on tax incentives for these cars, it will be difficult to compete. Enterprises also stated that if more incentives are given to cars with cylinder capacity of 2.5 liters, Vietnam can export cars back to ASEAN countries,” Ms. Nguyen Thi Thanh Hang added.

According to VNN