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Vietnam’s automobile industry still without key line
Contentions arise every time Vietnam adjusts automobile tax policies. It is simply because policymakers still don’t know what the priority line of automobiles is that should be receiving tax incentives.
Toyota and the tax story
One month ago, Toyota Vietnam stirred the public with a letter sent to the National Assembly suggesting that 6-9 seat cars be considered the key line.
Toyota Vietnam has made heavy investment in developing the seven-seater 2.0 Innova, becoming the automobile manufacturer that has the highest localisation ratio in Vietnam with 37 percent of car content made in Vietnam.
In 2008, the manufacturer sold 16,000 Innovas in Vietnam.
However, as the new special consumption tax law, which has been applied since April 1, 2009, is imposing a high tax on 2.0 models, the price of Innova has increased by $3,000 per unit. As a result, sales of the model have dropped dramatically. The manufacturer is now able to sell just 300 units a month.
“It is undeniable that the luxury tax adjustment has caused heavy losses to serious manufacturers who follow a serious plan on gradually localising car production. Meanwhile, localisation is the most important goal in the development of Vietnam’s automobile industry,” said Phan Dang Tuat, Head of the Industrial Policy Institute (IPI) under the Ministry of Industry and Trade.
The new luxury tax imposes a higher tax on models with higher cylinder capacities, as the country wants to limit the number of cars that consume a lot of fuel, cause environmental pollution and cause traffic jams.
However, when commenting about the ministry’s aim, Tuat said: “It is understandable why the ministry tries to discourage the use of large-size cars in Vietnam. However, tax policies should be set after considering the trends in the automobile market.”
Still looking for key car line
Though Vietnam’s automobile industry has been in existence for 15 years, it was not until reading Toyota’s letter that policymakers finally asked: “What is the key line of cars in Vietnam?”
Returning to Toyata’s proposal to designate 6-9 seaters the key line and the recipients of tax incentives, Pham Dinh Thi, Deputy Director of the Tax Policy Department under the Ministry of Finance, said that enterprises that manufacturer 6-9 seaters may suffer a loss because of rising taxes. However, these same manufacturers also make five-seater models, and therefore also benefit from the tax decrease. Car models with cylinder capacities of over 3.0, which bear the highest tax rate, just account for three percent of total car sales and 0.8 percent of total vehicles manufactured.
“In general, the taxation in no way influences enterprises’ operations,” Thi affirmed.
Meanwhile, Tuat of IPI, while saying that it remains unclear if 6-9 seaters should be defined as the key models, affirmed that 6-9 seaters fit Vietnamese people’s tastes. A lot of people choose 6-9 seaters as they can use the models for both business and taking their families on vacation.
A representative of the Ministry of Finance also said that 6-9 seaters are accounting for a big proportion in enterprises’ production. If 6-9 seater models cannot enjoy tax incentives, sales will continue to decrease and enterprises will have to cancel their plans on localising products.
Pham Huyen
vietnamnet
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