Tax hikes trigger uproar in Vietnam

Tax hikes trigger uproar in Vietnam

Agence France-Presse, Hanoi

A series of tax hikes aimed at encouraging foreign-invested auto manufacturers in Vietnam to increase local content ratios has left the industry seething and predicting impending closures.

From Monday, import duties on complete knocked down (CKD) component kits for vehicles with 15 seats or less increase to 25 percent from the previous 20 percent.

Under the finance ministry's Decision 110, which was signed off on July 25, the rate for 16-24 seaters rises to 15 percent from 10 percent, and doubles to 10 percent for larger capacity vehicles.

The government has justified the increases as a means of helping the domestic parts industry grow by forcing manufacturers to raise their local parts content rather than importing them from abroad for assembly in Vietnam.

In a separate decision announced in June, special consumption tax (SCT) will rise from its current five percent to 24 percent on cars with five seats or less from the beginning of next year, with similar gains for larger vehicles.

The SCT rates will increase annually until 2007, at which point cars will be taxed at an outlandish 80 percent and other sized vehicles at between 25 and 50 percent.

To compound the industry's woes, value added tax on CKD imports will also double to 10 percent across all vehicle categories from January 2004.

The Vietnam Automobile Manufacturers Association (VAMA), which is made up of 11 foreign-invested companies including Toyota, DaimlerChrysler and Ford, says the tax increases will devastate the industry.

It predicts sales will plunge by 30-40 percent next year as the companies are forced to pass on these added costs to consumers.

"Currently we are making around 30,000 units per year. Over the last few years, the automotive industry is growing very fast at 30-50 percent annually. Now the dramatic increase in price will stop this growth," a spokesman for the industry association said. "Many VAMA members may have to close their operations in Vietnam."

All vehicles assembled in the communist nation, where motorbikes remain the undisputed kings of the roads, are for domestic consumption.

The situation is very different from what auto manufacturers had envisaged when they flocked into the communist nation in the mid-1990s ago seeking to tap anticipated soaring income levels.