Can Vietnam 'catch' the wave of electric-vehicle production?
Vietnam’s plan to slash luxury tax and registration fees for electric cars is expected to push the development of the domestic electric vehicle market, which is currently at the starting line.
The country has issued a number of policies to encourage the development of electric cars. Most recently, the Government issued a decree on registration fees, under which battery-powered electric cars are exempt from registration fees for three years, from March 1, 2022. In the next two years, the first-time registration fee shall be paid at a rate equal to 50% of the fee for petrol and diesel-powered cars with the same number of seats. The new policy has attracted the attention of those who are intending to buy electric cars.
Previously, the National Assembly also agreed to reduce the special consumption tax for electric cars with the goal of encouraging investment in production and timely seizing opportunities to develop electric cars in Vietnam, contributing to reducing pollution from vehicle emissions.
From March 1, 2022 to February 28, 2027, battery-powered electric cars with 9 seats or less would enjoy a tax rate of 3%; from March 1, 2027, the tax rate would be 11%. The rate for electric cars with 10 to 16 seats would be 2% and 7%, respectively.
Electric cars with 16 to 24 seats would have a tax rate of 1% and 4%. Meanwhile, electric cars transporting people and goods would have a luxury tax rate of 2% and 7%, respectively.
Other types of electric cars would have luxury tax rates from 5 to 15% depending on the type.
The two important preferential policies for electric cars will take effect at the same time.
Previously, Vietnam reduced taxes for auto components for manufacturing electric cars, but it was not attractive enough for manufacturers.
New policies to encourage both domestic consumers and manufacturers are expected to act as leverage for the electric car industry of Vietnam, as the country's electric car industry is at a similar starting point of other Southeast Asian countries.
Policy is only short-term solution
Many countries around the world are promoting electric vehicle manufacturing through a variety of measures, such as granting direct subsidies for both manufacturers and consumers, tax exemptions, and support for the development of electric vehicles. China is one of the most successful countries in promoting the production and sale of electric cars.
According to the China Association of Automobile Manufacturers (CAAM), in 2011 only 5,000 electric vehicles were sold in China. In 2019, the number of electric vehicles sold reached more than 1 million units. Although this type of car accounted for about 8% of total sales of cars, the figure makes China the largest market and producer of electric vehicles in the world.
In 2009, the Chinese government began to apply generous incentives for the production and use of electric vehicles. Manufacturers were provided with subsidies to reduce prices to encourage sales. The subsidy is calculated based on the number of moves per charge. The State also invested in R&D, in electrical vehicle companies and charging infrastructure. In addition to giving direct discounts, the state also had a preferential policy to access license plate registration (for large cities where the number of vehicles is restricted to control traffic).
These policies have boosted consumer and business confidence, and spurred rapid popularity of electric vehicles, according to experts. This plays an important role in helping the Chinese electric vehicle market thrive.
Meanwhile, in Southeast Asia, Thailand, Indonesia and Malaysia have all showed their ambition with electric cars. With the desire to become a major electric vehicle manufacturing "base" in the world, Thailand is giving many privileges to electric vehicle manufacturers in addition to incentives for users.
Thailand offers a three-year tax exemption for plug-in hybrid vehicle manufacturers and a maximum eight-year corporate income tax exemption for battery electric vehicle manufacturers, accompanied with certain conditions. Manufacturers in the supply chain also enjoy incentives. Thailand has added many important components and spare parts of electric vehicles to the list of incentives; manufacturers of equipment and components are also exempted from corporate tax for eight years.
To be able to develop the electric vehicle market, incentives for users, manufacturers and building infrastructure are important conditions, experts said. However, the government’s policies are only measures to promote the market in the short term.
Some European countries are considering phasing out these subsidy programs. Many car manufacturers have expressed concern that these are short-term measures and cannot create a sustainable electric car market.
Experts said that governments should focus more on developing infrastructure for electric cars such as car charging stations, or supporting the construction of battery factories to reduce production costs.
Government subsidies have boosted demand for electric vehicles in many areas. However, subsidies, especially cash subsidies, are seen as costly. What has happened in China is a warning that this is not a sustainable policy.
Vietnam will reduce the excise tax and registration fee placed on electric cars, with these two preferential policies anticipated to become a lever in which the local electric vehicle market, which is in its infancy, can quickly develop in 2022.
Vietnam’s electric automobile industry has started and many enterprises want to join the automobile production chain as they can see great opportunities.