Tax Draft and the Worries from Enterprises

The changes in the State’s tax drafts and policies always have significant impacts on car manufacturing, assembling and trading enterprises. Many people make a comparison “Enterprises respond to taxes like our people respond to storms”.

Enterprises complain, taxes keep changing suddenly

Speaking of tax policy applicable to the automotive industry in general, the heads of the automotive enterprises (including assembling, manufacturing, importing, both "domestic" and "foreign") when asked agreed that: "Car tax drafts and policies issued change at a fast clip, and are difficult to either predict or anticipate."

Mr. Bui Ngoc Huyen, General Director of Vinaxuki (Xuan Kien automobile plant) once said in a talk with the press that: "People across the world are aware that Vietnam's automobile policies change at the drop of a hat. Our policies on cars do not change only continuously but also suddenly with no roadmap."

Mr. Xavier Casin - Executive Director of Auto Motors Vietnam (official importer of Renaults in Hanoi) who has just taken his first footstep to Vietnam confirms: “The study of Vietnam's automobile market is not an easy task. Policy issues as well as laws related to this area are constantly changing. Therefore, traders should be very adaptable and flexible to be able to keep up”. Nissan Vietnam General Director - Mr. Flemming Eltang says: “A stable tax policy will be a great motive power giving investors the confidence to expand their productions.”

VAMA chairman, General Director of Toyota Vietnam – Mr. Akito Tachibana also suggested in a most recent interview with Autonet that: "We need stable policies from the Government. As long as stable policies are available, we can make long-term decisions and investment plans.”

Manufacturers complain, importers complain, domestic protected manufacturing and assembling joint ventures also complain but the changing tax policies still keep changing. For example, 2007 - 2008 was the period with too many tax surprises imposed on cars (with 5 adjustment times within 16 months). In 2007, the Ministry of Finance reduced the import taxes on CBU cars for three times from 90% down to 60%. However, people could enjoy the tax reduction for only few months before it rose to 70% in 3/2008 then not long after that to 83%. The Ministry of Finance said that the goal of tax adjustments were to "prevent traffic congestion and reduce trade deficit." It is unknown whether traffic congestion and trade deficit were prevented or not, but many enterprises importing cars felt miserable for the unexpected situation. However, it is more important to say that the Ministry of Finance often keeps the information confidential until the last minute, causing suddenness and loss of initiative for importers.

“Importing” is worried, “assembling” is anxious

Recently, information about the new tariff changes in early 2011 together with the draft of car import tax reduction to 0% in 2012 once again has startled enterprises.
November is usually the period when the number of imported CBU cars increases sharply before enterprises close the books and to prepare enough goods to market last year. However, the happenings in the import car market are going against that annual rule. According to the statistics from the General Department of Vietnam Customs, cumulative number as to the first half of November, the total import turnover of CBU cars this year reaches only 41,570 units in quantity and U.S. $ 763.6 million in value, decreasing by 28.1% in quantity and 16.8% in value compared with those in 2009.

Representatives of some imported cars trading enterprises said that the reason for this phenomenon was the skyrocketing USD to VND exchange rate in the past time causing higher prices for cars. Thereby, not only enterprises had difficulty in importation, sale price formulation but the customers’ demand itself was also held back.

Import car market, by its very nature quiet, is becoming bleaker before the information about tax adjustments in 2011. Car salons still have visitors but simply to ask about the new tariffs rather than requesting for sale. In November, the Ministry of Finance will have completed the development of tariffs applied to both passenger cars and trucks. Not providing information about the tax rates as well as the expected time of application, the Ministry of Finance just announced their commitment to the ASEAN level of 70% and WTO level of 83%. The four-wheel-drive vehicles in particular have tax rates commitment to WTO of 73% and to ASEAN of 70%. Consumers in past years bought cars to run away from taxes and this year stop buying cars to wait for tariffs.

Importers worry that import car market will fall into gloom in the end-year time. That is the immediate concern. Meanwhile, car manufacturing and assembling units in the country are worried about their future with a long-lasting anxiety.

Information about the draft of items enjoying tax cut down and exemption in 2012 (lowering the tax rates to 0-5%), including CBU cars, surprises domestic assembling enterprises. If this draft takes effect, it is true that "VAMA members will face the risk of being closed" as affirmed by the representative of Toyota Vietnam upon receiving the said draft. This information is dramatically unexpected with the enterprises because, according to the roadmap, until 2018, cars will be the import items to be exempted from tariffs are with the tax rate of 0%.

Many economic analysts predict that without any changes, year-end auto market will remain relatively bleak, despite entering the shopping season. Once again, the information about the tax drafts and policies affect consumer psychology and directly impact the sales of automobile enterprises.

Thai Thanh