Import tax will result in the price of several imported cars almost equalling locally-assembled ones. photo thitruongtaichinh.vn

HA NOI (Biz Hub) — The cost of completely-built-units (CBU) cars made in other Southeast Asian countries and exported to Viet Nam is expected to fall significantly as the present level of import tax is planned to be cut to 50 per cent from 2014.

This is in line with Viet Nam's plans to fully implement the country's commitments to the Asian Free Trade Area (AFTA) when it joined in the bloc in 1995. Subsequently, the import tax will be reduced to 35 per cent by 2015, 20 per cent by 2016, 10 per cent by 2017 and zero by 2018.

The import tax on CBUs is currently 60 per cent but after the drop in tax, an imported car that now costs US$10,000 will fall in price by $1,650. Hence, the more expensive the car, the larger the saving.

Many domestic businesses say that the cut, up to 50 per cent of CBU, in import tax will result in the price of several imported cars almost equalling locally-assembled ones.

However, models with sales of 1,000 units a year or less will be unable to compete with similar imported models and even models that record large sales and have a competitive capacity could feel the pressure.

This will lead to domestic automobile manufacturers having to find their own way of cutting prices to raise their competitiveness. If output and demand is weak they will be more likely to halt production and import cars to sell instead of taking up the challenge.

According to the Vietnam Enterprises' Forum, for the locally-assembled cars, the import tax on parts will still be set at 15-25 per cent during 2014. However, it could change in 2015.

Many expect that the import tax on parts manufactured outwith Viet Nam will be reduced to zero which if true, will help domestic manufacturers to reduce prices.

The price of cars, both imported and locally-assembled, will gradually fall in the coming years. However, this is only acceptable for models that have an engine under 2.0 litres as models above 2.0 litres will see the tax rise, according to the draft automobile industry development plan up to 2020 and on to 2030.

In response to the plan, many domestic manufacturers have been forward planning for the changes by focusing on assembling the best-selling and most competitive models as well as imports.

The number of models being assembled with a cylinder capacity of 2.0 litres or below will be stepped up, while those above 2.0 litre will be reduced and could eventually just be imported.

Besides import taxes, cars are also one of products to be hit by the special consumption tax.

According to the General Director of Vinaxuki, Bui Ngoc Huyen , if the special consumption tax and registration fee for models below 2.0 litres was cut by 50 per cent, the price of many cars would fall by $5,000-7,000. This would enable many consumers to buy a car and enter the growing auto market.

Director of General Motors Vietnam Gaurav Gupta, said that the recent reduction in registration fees has helped the market to grow and companies' sales have increased.

At present, auto companies are still waiting for the Government's approval of a draft plan for the country's automobile industry by 2020 with a vision to 2030. If the Government agree with the cuts to the special consumption tax and registration fees of 50-70 per cent on models that are 2.0 litre or under, the companies will push for more investment for production.

According to the Ministry of Industry and Trade, the annual market for cars will reach 157,000 by 2015, 383,000 by 202 and may exceed two million by 2030. — VNS