Vietnam’s greedy government tax attack on the fledgling car assembly industry has had the expected effect: output will be slashed this year.
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According to Reuters, the country’s 11 foreign carmakers will almost halve production in 2004 to 22,000 cars as the new taxes suppress demand.
“We do not have an option,” an official at the Vietnam Automobile Manufacturers Association (VAMA), reportedly said.
Reuters reported that the Vietnamese companies, which, as in China, operate as joint ventures with local partners, cut January production by nearly 36% from the previous month to 3,140 vehicles, after producing around 43,000 cars [from CKD kits] in 2003.
The news agency noted that, in May last year, the communist government slapped special consumption taxes of up to 24% on locally assembled cars along with a 25% tariffs on imported car parts from January this year.
The taxes and duties rise until 2007, when the special consumption tax will reach 80 percent for cars with fewer than five seats, Reuters added.
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By GlobalDataThe Hanoi-based government reportedly has said the hikes were needed to offset revenue it would lose in 2006 when it complied with the ASEAN Free Trade Area agreement and ignored the outcry from the local car assemblers, which include Toyota and General Motors.
Reuters added that the government has also defended the higher tariffs on imported car parts as a necessary measure to boost use of locally made components.
The report noted that, to comply with the trade deal, Vietnam may be unable to impose any tariffs on cars or car parts from other members of the Association of South East Asian Nations from 2006.
Reuters said that Vietnamese buyers, rushing to beat the higher retail prices this year, boosted car sales 59.4% in 2003 but, this month, orders have dried up.
“The trend is worrying; business is totally frozen,” the owner of one of Ford’s biggest dealerships in Hanoi told Reuters, adding that her showroom, which employs more than 100, sold just one vehicle in January compared with an average of two a day last year.
According to Reuters, industry association VAMA employs more than 7,500 workers and has warned that if the higher taxes are unchanged, its investment in the sector will drop to $US1 million by 2007 from previous projections of $18.7 million.
Estimated production for 2007 will be 7,000 units, or around 1999 levels, Reuters said, noting that, while motorcycles are still the vehicle of choice for Vietnam’s 80 million population, accounting for about 10% of vehicle owners, rising disposable incomes have encouraged car purchases.
