New import tax proposal - cars 'skimming' all the way back to Vietnam

The high import tax on used cars according to the mixed calculation formula can make the price of used cars and "used" cars much higher than the price of new cars in the country.

In the proposal that the Ministry of Finance recently submitted to the Government, in addition to adjusting the import tax on auto parts to 0%, it also changed the way of calculating import tax on used cars, with a sharp increase in all lines from cars, passenger cars to trucks. This adjustment is considered a move to limit imported used cars to control quality, environmental impact and, more importantly, protect the domestic manufacturing industry.

Import tax on used cars increased sharply

The Ministry believes that the current tax rate is lower than the level committed to the WTO and needs to be raised to an equivalent level. The new calculation method applied to passenger cars (vehicles carrying less than 9 people) is as follows:

(Some other car models in the same capacity category may apply a new tax rate of X +10,000 USD or X +15,000 USD).

In the table above, X is the tax calculated according to the tax rate of the same type of new car. The formula 200% or 150% + 10,000 USD takes the result at the lowest rate. In fact, the Ministry of Finance is applying the formula 150% + 10,000 USD. Here, 150% is understood as 150% of the tax rate of the same type of new car, not 150% of the tax price of the used car.

With the new tax system, imported used cars will be marked up in price compared to the current one. Take an example in each segment to see the difference.

In the segment under 1 liter, suppose the old Kia Morning 2016 imported from Korea has a tax price of 5,000 USD, the old method the price after tax is 10,000 USD, but the new method the price after tax will be 15,000 USD. From this 15,000 USD, plus 40% special consumption tax, 10% VAT, the price is 23,100 USD, not including profit and other costs of the importing company, so the price of the old car is almost certainly much more expensive than the price of new cars on the market.

In the higher segment, suppose a showroom imports a 2016 Toyota Camry XLE with a 2.5-liter engine from the US, the tax price is set at 20,000 USD. If the new Camry imported from the US is subject to a 70% import tax, if calculated using the old formula, the tax rate will be 20,000 x 70% + 5,000 = 19,000 USD.

But the tax rate under the new formula 150%+10,000 USD is calculated as:

20,000 x 70% x 150% + 10,000 USD = 31,000 USD. Much higher than the previous figure of 19,000 USD. The price after import tax is already 51,000 USD.

The XLE version has a 2,499-liter engine, so it is subject to a 50% special consumption tax and 10% VAT. Adding these two taxes, the price after tax will be 84,150 USD. Adding the importer's profit and other costs, the price of the car can reach more than 100,000 USD. Previously, this type of car was sold at domestic showrooms at the threshold of 70,000-80,000 USD.

With the new tax system, the price of imported used cars will be much more expensive than the price of new cars. Especially for luxury cars, the price gap will be even larger, which is the main target of imported used cars.

The door to import "used" cars is closed.

Imported Camry will have difficulty finding its way back to Vietnam.

According to industry experts, if this proposal becomes a reality, used cars will almost certainly not be able to enter Vietnam. In 2011, the Ministry of Industry and Trade issued Circular 20 stipulating that new cars imported into Vietnam must be made by authorized companies or dealers. Outside showrooms circumvent this regulation by importing "used" cars, meaning cars that have been used for 6 months or 10,000 km. However, only businesses with good financial potential can survive in the market.

In mid-2016, the Ministry of Industry and Trade proposed that businesses importing used cars must also have a certificate from a foreign company on the designation of an importer and a vehicle recall on their behalf when a defect occurs. This regulation is new, but in fact has the same effect as Circular 20, even much stricter. Private showrooms are at risk of bankruptcy because it is almost impossible for a foreign company to issue a certificate of designation to a small business in Vietnam.

Now, the Ministry of Finance has proposed to increase import tax on used cars. Assuming a business satisfies the new requirements of the Ministry of Industry and Trade, with the new tax rate and new "sky-high" prices, finding customers will be many times more difficult.

"Without customers, we have no choice but to close," the director of a used car showroom in Hanoi sighed in frustration.

When used cars are banned from entering Vietnam, it is a clear opportunity for domestic car manufacturers. Newly assembled or officially imported cars become the only choice for customers, if they do not want to buy used cars that have been used for many years, through several owners.

According to VNE