Vietnam’s opening-up of the domestic market to foreign-made vehicles is squeezing domestic car manufacturers. The Ministry of Finance’s intention to cut tax rates on completely-built units (CBU), under-10 tonne
imported trucks by a half from 54-55 per cent to a proposed 25 per cent, has disappointed domestic car manufacturers.
“No producers can set their mind at ease when the proposed tax line may bring them to the verge of going bankrupt. Most car manufacturers, particularly newer ones, would find they are not in a position to immediately stay afloat of the foreign-made vehicle inflows which get benefits from low tax rates,” said an executive of a Vietnam Automobile Manufacturers Association (VAMA) member company.
Under -10 tonne imported trucks are just a significant example.
In a bid to cool down automobile prices in the domestic market, the Ministry of Finance (MoF) took strong measures by slashing the tax rates imposed on imported CBUs three times within 2007 alone. Following the move, the import duty was reduced from 90 to 80 per cent in January 2007. It was then further cut down to 70 per cent in August in the same year and ultimately to 60 per cent in November.
Lower tax rates had resulted in a sharp rise in value and volume of less-than-12-seat CBUs in Vietnam in 2007 with 13,360 units reported, up 10,000 units compared to the figure of 2006, with import value rising 2.4 times.
However, the tax rate was later raised from 60 to 70 per cent in March, 2008 and it currently stands at 83 per cent.
Vietnam’s automobile industry is losing its charm on the eyes of investors partly due to the lack of a detailed tax reduction roadmap applicable in particular periods until the Vietnam’s market is fully open to foreign-made automobiles in 2018 as per the ASEAN/AFTA trade liberalisation commitments.
With its clear and transparent incentives to car manufacturers, Thailand has lured more than $1 billion into the car-making industry from Japanese and US investors in the past year while no considerable amount of capital was injected into Vietnam’s auto industry in the past many years.
With the Vietnam’s market is increasingly open to foreign-made vehicles, CBU imports will be on the rise, putting local car manufacturers at disadvantages and undermining the opportunities for expanding production of those working in associated supporting industries such as chemical, rubber, plastic and glass companies
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