Car import tax reduced, will prices decrease?

The Vietnamese automobile market is gradually reducing import taxes on completely built-up cars according to the commitment of the ASEAN free trade area. So when import taxes on cars are reduced, will prices decrease?

Import tax down to 50%

According to the roadmap to join AFTA, import tax on complete cars from ASEAN to Vietnam will decrease to 50% in 2014, 35% in 2015, 20% in 2016, 10% in 2017 and 0% in 2018.

To develop the Vietnamese automobile industry from now until 2020, the Ministry of Industry and Trade and automobile manufacturers have built another tax reduction roadmap. Accordingly, the Ministry of Finance is requested to maintain a high pace until 2017. Specifically, it will be reduced to 50% in 2014, 50% in 2015, 40% in 2016, 30% in 2017 and 0% in 2018.

According to news from Vietnamese automobile enterprises, the import tax rate for completely built-up cars reduced to 50% will make the price of some imported car models equal to the price of domestically assembled cars.

Low-volume models, selling less than 1,000 units per year, with high costs, will not have a competitive advantage over fully imported vehicles of the same type. In addition, even models with high volumes and still have a competitive advantage are also under pressure.

This will create pressure for domestically assembled cars to find ways to lower prices to compete or, if they find production ineffective, they will have to stop and switch to imports.

It is predicted that imported car models with cylinder capacity under 2.0L will continue to decrease in price sharply in the following years.

Even in 2015, although the import tax rate remains at 50%, with the preferential plans for domestic automobile production proposed by the Ministry of Industry and Trade becoming a reality, with special consumption tax reduced by 30-50% and registration fees reduced by 50%, imported car models with cylinder capacity under 2.0L will also enjoy these incentives.

Car import tax reduced, will prices decrease?

Is the price reduced?

Tax adjustments have contributed to reducing car prices, stimulating people's shopping, helping the car market to be quite active right from the beginning of 2014. The Tax Policy Department - Ministry of Finance said that the number of imported cars in January 2014 increased compared to the same period in 2013. However, for cars with less than 10 seats, the number decreased compared to the same period but the value increased, which shows that consumers are shifting to cars with higher values.

It can be said that the research and development of a roadmap and tax rates for automobile imports from the ASEAN market to Vietnam is reasonable for the market, enterprises, management agencies and consumers. The positive signals from the market and consumers when receiving tax and fee policies have shown potential and opportunities; at the same time, it affirms that changes in tax and fee policies are a necessary and very important condition in the policy and strategy for developing the automobile industry.

Despite such a positive development, on the other hand, tax policies, especially import tax reduction, are not necessarily good news for both the State management agencies, the Tax sector and domestic automobile manufacturers when the Vietnamese automobile industry is still considered quite young. When the import tax rate for completely built-up cars is gradually approaching the 0% mark and the time to accelerate the construction and development of the Vietnamese automobile industry to be competitive with 100% imported products is less than 4 years away, many experts have commented that the door for the Vietnamese automobile industry is considered to be closed.

Taxes have been reduced, and imported cars have flooded into Vietnam, overwhelming the market share of domestically assembled cars. However, consumers have not benefited from the lower tax rates applied.

According to the Vietnam Automobile Manufacturers Association, compared to the same period last year, in the first quarter of 2014, domestic car sales only achieved a growth rate of 24%, while imported cars increased by 98%.

Many car companies present in the Vietnamese market, especially luxury car companies, expect sales to increase from several tens to several hundred percent this year.

According to VnEconomy