The Vietnamese government said it was cutting its vehicle registration tax by 50% from the beginning of July to help revive the country’s flagging domestic vehicle market.

Deputy prime minister Le Minh Khai said he signed a decree which provided for a 50% reduction in vehicle registration fees in the second half of 2023, in response to proposals by the ministry of finance following strong lobbying by related industry associations. The tax discount applied to domestically produced vehicles from 1 July.

The Vietnamese economy had struggled to recover from the Covid pandemic after an initial strong rebound last year. Economic growth came in at 3.7% in the first half of the year, the slowest pace of expansion since the first half of 2020, during the first months of the Covid pandemic. This despite a return of international tourism to the country last year after more than two years of lockdown.

The Vietnamese vehicle market declined 38% year on year to 100,733 units in the first five months of 2023, according to the Vietnam Automobile Manufacturers Association (VAMA) which excludes key brands Mercedes-Benz, Hyundai and domestic startup VinFast. Sales of passenger vehicles fell 43% to 75,235 units while commercial vehicle sales were down 16% at 25,498 units.

The government expected the tax discount would help domestic vehicle manufacturers reduce surplus inventory and help free up valuable working capital.