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Import Tax/Automotive Industry
August 8, 2007

Govt mulls further tax cut on imported cars
Vietnam plans to advance the schedule for its latest cut in auto import tariffs on the advice of the Prime Minister who is concerned with inflation.

The finance ministry, which has drafted a proposal for the cut, said if approved by the cabinet the import tax on new complete knocked down autos would be reduced from the current 80% to 70%, possibly from August 8.

It would apply to certain categories of autos - like sedans of up to eight seats, passenger vehicles with a capacity of 10 and above, four-wheel drive cars, and diesel vehicles with 1,800-4,000cc engine capacity.

Vietnam has a road map for cutting import tax under both ASEAN and WTO agreements. Deputy Minister of Finance Truong Chi Trung said under the former, the tariff was to be reduced to 20% in 2014, and to 5% or below by 2018.

The latest cut came slightly ahead of schedule, ministry officials explained, as the Government sought to cool consumer prices. Thus, besides automobiles, several other import items too would see tariffs sharply reduced.

A 5% tax cut on imported second-hand vehicles is also under consideration by the finance ministry. The officials said this would cause prices of used foreign autos to drop by around US$1,000.

Trung said: "The Government is seeking ways to inform domestic producers that it plans to ease protection and also inform consumers about guideline automobile rates."

According to independent analysts, the domestic auto market is going through an unusually strong phase. This time of the year was usually a quiet period for sales, they said, but not this year as sales had boomed during the last two months.

The Vietnam Auto Manufacturers Association (VAMA) said 35,000 vehicles had been sold in the first seven months of 2007, an 82% increase over the same period last year.

The skyrocketing demand at first caused a supply shortfall and then a sharp rise in prices. Buyers have had to wait for several months to take delivery. Even cars like the Toyota Innova have at least a one-month wait period.

From being a buyers' market - companies used to offer all kinds of freebies - it has become a sellers' market almost overnight. Not only have dealers stopped offering gifts and discounts, but also actually demand a premium for early delivery.

Nguyen Quoc Hung, a dealer on HCM City's Hoang Van Thu Street, said the going rate was $1,000 to $3,000, depending on the make and model. The analysts said the price hikes had also spread to the second-hand car market.

Automakers in Vietnam sold a combined 6,474 vehicles in July, up 92% year-on-year, the highest growth rate over a decade, due mainly to strong sales in the passenger car segment. VAMA on August 6 presented their monthly report indicating the industry sold 1,414 passenger cars last month, up 159% over July 2006.

The sport utility vehicle (SUV) and multi purpose vehicle (MPV) segments grew 49%  to 1,867 units, while the commercial segment expanded by 104% to 3,193 units sold last month.

Toyota remains the top seller in the market, offloading 1,774 units in July, followed by local truck and bus maker Truong Hai at 972 units, and then the GM-Daewoo maker Vidamco with 613 units.

According to the General Department of Customs (GDC), Vietnam has imported over 1,800 used cars since the Government began allowing the sale of such vehicles in May 2006.

Over 600 used cards have been brought into the country in 2007, said the department, with the Republic of Korea's Kia the best-selling over the past year at nearly 500 vehicles.

Car ownership remains the preserve of the elite and emerging upper-middle classes in Vietnam, according to VAMA. The country has over 700,000 privately-owned cars compared to 18 million motorbikes. VNA

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