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Official: tax increase to have little impact on market   2009-03-31 - VietNamNet/VNA

The amended Special Consumption Tax Law will have no significant impact on the market once it officially becomes effective on April 1, said an official from the Ministry of Finance.

The special consumption tax rate is aimed at discouraging large-capacity cars

According to Vu Van Truong, Director of the Tax Policy Department, the new law stipulates that several goods and services will see higher or lower tax rates, and that other commodities will be added to the list of taxable products, including airplanes, yachts and motorbikes.

Services that will see higher tax rates include dance clubs, casinos, online gaming and golf businesses, which are services most often used by high-income earners who are not included in the targeted groups of the consumption stimulus package. Thus, the tax adjustments will have little or no influence on the lives of the majority of labourers, nor on social security issues.

In terms of automobiles, which have drawn considerable public attention recently, Truong said that the special consumption tax rate is aimed at discouraging large-capacity, energy-inefficient and polluting cars.

The rate on vehicles with cylinder capacities exceeding 2 litres will be increased, driving the price up by 15-18 percent.

For vehicles with cylinder capacities under 2 litres, the tax will be decreased from 50 percent to 45 percent.

The amended law has resulted in adverse consequences in the auto market, even before implementation. While many are rushing to buy 6-9 seat cars to avoid higher taxes, those who want smaller cars with engine capacities below 2.0 litres are waiting to take advantage of the lower tax rate coupled with decreases of between 2-5 percent for spare part import tariff.

The customers’ reactions have had a significant impact on auto sales. According to the Vietnam Automobile Manufacturer’s Association (VAMA), the number of large and multi-functional car sales increased from 1,355 in January to more than 2,190 in February, while only 1,086 four-seaters were purchased last month, falling by 172 units against the previous month.

Auto experts and producers say that after April 1, manufacturers of large-capacity cars will have to implement stimulus measures to avoid a fall in demand.

While affirming the tax adjustment’s impact on the auto industry, Truong reaffirmed that it will not have a significant effect on the general economy, because automobiles are not a staple product.

To help enterprises during the economic downturn and stimulate demand, the government has issued several tax-reduction and rescheduling measures for several business categories, including eligible producers of goods subject to the special consumption tax.

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