Foreign car makers have claimed a proposed hike in consumption tax by Vietnam could raise the price of a standard car by as much as 50% next year and cripple the young industry, Reuters reported.
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“It would be so catastrophic for both producers and consumers if they go ahead with the new taxes,” an official of Vietnam Automobile Manufacturers Association (VAMA) told the news agency.
Reuters noted that the association groups 11 foreign companies, including Toyota, Vidamco, a local venture with General Motors Daewoo, and Ford.
Car sales could drop by as much as 90% by 2005 if the government ratifies the tax, VAMA told Reuters. The group expected to sell 33,000 units this year, up 22% from 2002 if the tax was unchanged.
The proposal seeks to gradually increase special consumption tax rates for locally assembled cars to a ceiling of 70% by 2005, up from a current range of between 1.5 and 5% depending on the vehicle type, Reuters said.
“With that kind of tax, we will all have to close our business,” the VAMA official told the news agency.
Reuters said that imported cars are currently subject to tax rates of up to 100%.
Vietnam defended the higher tax as necessary, Reuters added.
“The new tax is not aimed at hurting the local automobile assemblers but rather to allow fair competition between Vietnam’s auto producers and foreign imports as Vietnam is preparing to enter WTO and ASEAN’s free trade zone,” an official from the General Tax Bureau told Reuters.
She also added that automobile assemblers should consider scaling back their “current thick margins” to stay competitive, according to Reuters.
The news agency said that, while motorcycles are still the vehicles of choice for Vietnam’s 80 million people, rising disposable incomes have spurred purchases of cars. First quarter car sales of the 11 foreign-invested firms rose nearly 34% year-on-year.
