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.