The decision on allowing car manufacturers to extend the luxury tax payment deadline will help them maintain cash flow amid the Covid-19 pandemic and stimulate demand.
The government on September 15 issued Decree 109 allowing automobile manufacturers and assemblers to extend their luxury tax payments.
Under the new decision, enterprises will have to make payments for the March tax period by September 20, 2020, while the tax of April can be paid by October 20, 2020.
The new deadlines are November 20, 2020 for tax in May, and December 20 for the tax in June, July, August, September and October.
Prior to that, the government issued Resolution No 84 in late May on solutions to overcome difficulties caused by Covid-19. It cut the vehicle registration tax by 50 percent. The decision will be valid until the end of 2020.
It also extends the luxury tax payment to December 31, 2020 for domestically manufactured cars, commencing from March 2020.
However, only on September 15 did the Decree 109 come out, or four months after Decree 84.
According to Nguyen Trung Hieu from VAMA, under the current laws, enterprises have to pay luxury tax immediately after selling cars. In principle, the tax for cars sold in March must be paid no later than April 20.
Though the tax payment extension was mentioned in the resolution, local taxation agencies still collect luxury tax as usual because there is no concrete guidance on tax payment delay.
To date, most automobile manufacturers have paid luxury tax for the cars sold from March to the end of July. This means that they can only delay the payments for August, September and October taxes, and the time for enterprises to enjoy tax payment extensions is quite short. Enterprises have to wait too long, four months, to enjoy the promised preferences.
The tax payment deadline extension has raised hopes that car prices will fall. However, enterprises have denied this, saying that it will not affect car prices, because they can pay tax later, but they don’t have a tax exemption. Car prices will fall only when taxes are cut.
The Council on Private Economic Development Research under the Government’s Public Administration Reform Advisory Council has recently asked the government to submit to the National Assembly a plan to cut the corporate income tax by 30 percent, applied to all enterprises in 2020, rather than only to enterprises with total revenue of no more than VND200 billion.
It also proposed slashing the VAT from 10 percent to 5 percent.
If the proposed tax cuts ate approved, car prices would decrease by another 5 percent.
As predicted by experts, the Vietnamese automobile market continues sliding as manufacturers cannot sell products and their production has arrived at a ‘new normal’.
What should automobile manufacturers do – import cars for domestic sale or assemble cars domestically? They prefer the second solution, though the first brings higher profit.