Higher VAT drives up auto prices

Car retail prices in Viet Nam have increased by from 4.5 to 5 per cent to cope with the higher value-added tax (VAT) on the product that became effective at the beginning of the year.

The Ministry of Finance raised the tax from 5 to 10 per cent, ending the five percentage point preference given by the Government to ignite demand.

Preferential policies for registration fees of 10-seater cars or below have also ended.

Accordingly, the fees will return to the previous level of 10 per cent nation-wide and 12 per cent in Ha Noi. The rise of VAT and registration fees would cost customers 10 to 15 per cent more when buying a new car.

Last Saturday, Toyota Motors Viet Nam (TMV) was the first producer to announce a new price list with increases of VND20 million to 61 million (US$1,100-3,380) per car, equal to 4.6-5 per cent.

The Camry 3.5Q has seen the highest increase of VND61 million ($3,380) to its retail price, now around VND1.334 billion ($74,000).

Honda Viet Nam on Monday said it had added between VND27.7 million and 41.7 million ($1,540-2,300) to every model, a rise of 4.5 to 4.9 per cent. The Honda CRV rose the highest to a price of VND960.9 million ($53,380), up $2,300 while its Civic 1.8MT sedan saw the lowest hike.

On the same day, American Ford said it would raise the price of its Focus, Escape and Ranger models by an average of 4.9 to 6.1 per cent or VND24 million to 31.4 million ($1,300-1,700) with the Escape 2.3Lx2 worst hit.

However, the manufacturer said it would not increase prices on its Everest minibus, Transit or Mondeo sedan until the end of the first quarter. In addition, customers would be offered a free accessory set.

A representative of the Viet Nam Daewoo Motors Company (Vidamco) said it planned to raise its prices by 4.5 to 4.8 per cent a car.

A four-seater like the Gentra or the Lacetti will see an additional price of $900 while the five-seater Spark LT will increase by $700.

Some other manufacturers and importers including Mercedes, Vinastar, Hyundai Thanh Cong and Euro Auto said they would make public their prices as soon as the rise takes effect.

Representatives from the manufacturers said that automobile sales in the first quarter of the year would drop sharply as many customers bought cars at the end of last year to take advantage of the favourable conditions.

They said the auto market would not retain last year’s growth, even though Viet Nam’s economy this year is expected to improve with a GDP growth of 6.5 per cent and inflation rates below 7 per cent.

In addition, the Ministry of Industry and Trade has been planning solutions to limit the trade gap, thus stabilising the macro economy. This could see prices of imported cars increase.

However, some manufacturers and importers said demand for automobiles would not be reduced much as the first quarter of the year will coincide with Tet (Lunar New Year) holiday.

The rise would affect individuals but not businesses which would be able to claim VAT back.