Vietnam's biggest Japanese car assembler, Toyota, said on Wednesday it had laid off nearly a fifth of its workforce in the country because of a tax hike that has hit sales.

A Reuters report said that, from March 1, Toyota shrank its Vietnam workforce to 545 from 670.

The report said the firm, which controls about 26% of the country's car market, became the first among 11 foreign car makers in the country to slash jobs after new 'consumption' taxes of up to 24% on new car sales came into effect this year.

"We have to let people go because of the shrinkage in sales," an official from the firm, which operates a joint venture with a Vietnamese partner, told Reuters.

The news agency noted that sales figures for February were not available but said that company officials were quoted by state media as saying January-February sales dropped 50% from a year earlier.

The firm sold 667 vehicles in January this year while sales for the whole of 2003 stood at 11,769 units, the report added.

Toyota was one of the first foreign car makers to set up shop in Vietnam in the 1990s, assembling Camry sedans from CKD (completely knocked down) kits imported from Japan supplemented by locally-made components as available.

Reuters said that foreign car makers have said they expect to almost halve production in 2004 to a combined 22,000 cars as the new taxes squeeze demand.

In May last year, the communist government slapped the special consumption tax on locally assembled cars along with a 25% tariff on imported car parts [such as those in CKD kits] from January this year, the report noted, adding that the taxes and duties rise until 2007, when the special consumption tax will reach 80% for cars with fewer than five seats.

Reuters said that Ford and General Motors have protested the moves, which Hanoi said were needed to offset falling revenue in 2006 when it joins the ASEAN free trade agreement.

Vietnamese buyers, scrambling to beat the higher retail prices this year, sent car sales surging 59.4% in 2003, the report noted.

Foreign car makers say they employ more than 7,500 workers and have warned that if the higher taxes are not repealed, investment in the sector will drop to $US1 million by 2007 from previous projections of $18.7 million, Reuters said.