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December 1, 2008

New law raises taxes on six-, nine-seaters in Vietnam
The newly-approved Law on Special Consumption Tax, revised, will deprive cars with between 6 and 9 seats of their current tax rate of 30 percent, increasing production costs by $9,000 for each vehicle, reported state news agency VNA.

The new law, which comes into force on April 1, 2009, will increase the tax rate levied on these vehicle to at least 45 percent and possibly 60 percent, as it will be calculated on the basis on the cars engine capacity instead of the number of seats, as is currently the case.

Currently, cars with between six and nine seats enjoy a low tax rate of 30 percent, compared with the 50 percent rate levied on cars with five seats, giving the former a huge price advantage and explaining their higher sales.

The tax adjustments will influence market trends and cause a shift in the plans of car manufacturers and importers, said experts.

Pham Anh Tuan, Head of the Toyota-Vietnam's Planning Section, said the company's Innova brand is facing a sharp drop in sales and forcing them to reconsider their localisation scheme, following years of producing up to 37 percent of parts in Vietnam. The scheme is even on the brink of bankruptcy, he said.

Regarding imports, a car dealer on Hanoi's Dao Duy Anh street said he would import 6-9 seat cars only if they are specially ordered by customers.

The special consumption tax adjustments, however, will not have a huge impact on the car industry in general, according to director of the Taxation Policy Department under the Ministry of Finance Vu Van Truong.

He explained that the tax levels would only increase for cars with engines ranging from 2,000 cc to 3,000 cc, but would decrease for cars with engines under 2,000 cc capacity and remain the same for cars with an engine capacity of more than 3,000 cc.

Domestic businesses manufacture cars with a variety of engine capacities at the same time, thus making their production levels immune to any large impact, he said.

Besides, car businesses are searching for opportunities to reduce their stock on the assumption that customers might rush to buy their dream products before the tax levels increase.

The car market rallied in October following four months at a standstill, with sales of 5,679 units slightly up from 5,180 during September, reported the Vietnam Auto Makers Association (VAMA). However, this figure represented an annual decrease of 26 percent.

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