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Auto manufacturers want tax reductions, MOF shakes head
The Ministry of Finance (MOF) has stated that it will not lower or adjust the luxury tax rates applied to cars with nine and fewer seats. The statement was the official reply to the proposal Toyota Vietnam had put forward.
Recommendations that only benefit Toyota
In its petition to the government, MOF and other government agencies, Toyota Motor Vietnam’s (TMV) General Director Tachibana wrote that under Vietnam’s CEPT commitments, the tax on import vehicles under the mode of complete built unit (CBU) will decrease step by step to 60 percent in 2013 and to 0 percent in 2018, which means that the prices of import vehicles will decrease gradually.
This will force domestic automobile assemblers to compete fiercely with CBU imports. Two scenarios may happen with domestic assemblers.
If the state applies preferential policies for the development of strategic line, the sales of the line will be high enough to expand investment and develop supporting industries, increase localisation ratios, reduce production costs and improve the competitiveness of products.
The second scenario will occur if the state’s policies do not clearly define the priorities for strategic line. As Vietnam’s market is small, and there are many car models, sales of models will be small and not high enough for localisation ratio increases and production cost reductions. As such, domestically-made products will not be able to compete with CBU imports.
Manufacturers will shift to import CBU vehicles for domestic consumption instead of assembling cars in Vietnam. If so, Vietnam will not only not be able to develop its automobile industry and supporting industries, but will also see its trade deficit increase, Akito Tachibana warned.
TMV suggested that 6-9 seat cars be chosen as strategic models for Vietnam, since these models fit Vietnamese families.
TMV said that with the changes in the ownership registration tax and the luxury tax recently, preferential policies for 6-9 seat models do not exist anymore. As a result, sales of the line have decreased dramatically, while plans to increase the localisation ratio of the models have been postponed.
MOF: No tax reduction, enterprises will not be affected
Vu Van Truong, Director of the Tax Policy Department under MOF, said that the current luxury tax is designed on the principle that vehicles with higher cylinder capacities bear higher tax rates.
“The principle fits the target of the luxury tax law in that it encourages economising fuel consumption,” he said.
Prior to January 1, 2009, the luxury tax imposed tax rates based on the number of seats.
MOF believes that the tax increase on high cylinder capacities will not affect the operations of domestic assemblers.
The ministry said that in order to help enterprises deal with the economic downturn, the government cut the VAT by 50%, as well as slashed the corporate income tax enterprises had to pay for Q4 2008 by 30%. It also decided to slash 50 percent of the ownership registration tax on vehicles carrying passengers of under 10 seats, and lowered the import tax rates on some car parts, including engines, to support the operations of enterprises.
A senior expert of the Market and Price Research Institute under MOF said that TMV is benefiting mainly from 6-9 seater models; therefore, it is understandable why it is asking for tax reductions.
The expert also noted that TMV has been lobbying for the selection of 6-9 seat models as a strategic line for Vietnam while it does not care if the models fit into Vietnam’s urban and transport planning.
VietNamNet, TP
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