VietNamNet Bridge – From 2018, the import tariffs on the car imports from the AFTA (ASEAN free trade agreement) zone under the mode of complete built unit (CBU) will be lowered to zero percent. This will make imports cheaper than domestically assembled cars.

Tax and fee reductions will force car prices down…

Analysts have said once the import tariff is cut to zero percent, the import cars with less than 9 seats and the cylinder capacity of less than 2.0 L would decrease by 20 percent in prices.

If so, a car priced at VND700 million now in Vietnam would see the price fall by VND140 million to VND560 million. And once the car prices go down, the car ownership registration tax will decrease accordingly by VND14-16 million.

Meanwhile, domestically assembled cars would meet big challenges. The car part imports from AFTA zone are taxed 5 percent and will be taxed zero percent from 2018, while the imports from non-AFTA zone will be taxed 5 percent. If so, the domestically assembled products are believed to be 1.2 times more expensive than the imports.

A car with less than 9 seats, which is now sold at VND700 million, would see the prices falling down to VND670 million, which is VND100 million higher than an import product.

The higher selling prices would make domestic buyers turn their back to domestically made products. However, domestic automobile manufacturers still have the opportunities to develop, if they have the locally made content ratios of 40 percent or higher.

Under the Vietnam automobile industry development program by 2020, the less than 9 seaters with the cylinder capacity of less than 2.0 L and the locally made content ratios of 40 percent or higher will enjoy tax incentives, including the 70 percent luxury tax and ownership registration tax.

With the tax incentives, the strategic car models would see the 27 percent price decrease. A car with the selling price of VND700 million now would be sold at VND500 million in the future, if the manufacturers can satisfy the above said requirements.

The car models with the localization ratios of between 25 percent and 40 percent would also enjoy tax incentives. However, analysts believe that the incentives are not big enough to bring considerable advantages over the imports.

Meanwhile, the selling prices of the car models with the cylinder capacity of 2.0 L and higher--both the imports or domestically assembled products, would see the prices increasing due to the higher taxes and fees.

…but will help the State collect more taxes

Domestic automobile manufacturers are drawing up their business plans to get adapted to the tax changes. Analysts said they would focus on assemble the car models which have high output and advantages in attracting supporting industries. Meanwhile, they would stop making the models with fewer advantages domestically. The models would be imported for domestic sale.

The automobile manufacturers which do not make strategic car models and cannot enjoy tax incentives, would have to shut down their factories, shifting to import and distribute cars in Vietnam.

Some analysts have warned that if the tax incentives are offered to the strategic car lines, this would create the discriminatory treatment.

Meanwhile, others believe that Vietnam should do like Thailand has been doing – offering tax incentives to protect the local production. They said preferences should be offered to retail foreign automobile manufacturers which would help Vietnam develop its automobile industry. However, the preferences would be valid for a fixed term only, while a 10 year period is believed to be reasonable.

Tran Thuy