Tax reductions may lead to car price decreases

It is highly possible that the automobile market would witness a new price decrease wave prior to the new year 2012, since the new car import tax policies would be approved soon.

The Ministry of Finance (MOF) is consulting with relevant ministries and branches and enterprises about the draft new tax policies on car and car part imports, under which the import tariffs would see sharp decreases from the current levels.

If everything goes smoothly as planned, the new tax rates will become effective as of January 1, 2012.

Under the draft compiled by MOF, the cars carrying passengers with less than 10 seats, which are imported under the mode of complete built unit (CBU) would see the tax rate reduction of 3-4 percent.

This means that the cars which are bearing the tax rate of 82 percent would see the tax rate reduce to 78 percent, if the draft document is approved. The vehicles with the cylinder capacity of over 2.5 L, which are imposed 77 percent in tax, would bear the new tax rate of 74 percent. Meanwhile, the current tax rate of 72 percent applied to some kinds of vehicles would be lowered to 68 percent.

As for the vehicles with 10 and more seats are expected to see the tax rates unchanged, with the CBU import tax rate staying at 70 percent. The currently five percent tax rate now being applied to the trucks with the tonnage of 6-18 tons and the vehicles carrying passengers within the airports would also be unchanged.

Regarding trucks, the import tariff of 65 percent for the vehicles with the tonnage of less than five tons, may be applied instead of the current rate of 68 percent. Meanwhile, the trucks with the tonnage of 5-10 tons would still bear the tax rate of 50 percent.

Similarly, the vehicles with the tonnage of 10-20 tons, 20-24 tons, 24-45 tons and over 45 tons would bear the unchanged tax rates of 25, 20, 5 and zero percent, respectively.

Analysts have paid their special attention to the way of calculating tax for the imported car parts for domestic assembling. The tax rate to be applied to the import car parts of all kinds of vehicles may be either at zero percent or at the lowest level of the tax frame to be set up by the National Assembly’s Standing Committee. This is a special way of calculating tax which may be also applied to the parts and accessories used for aircrafts.

Not only striving to set up tariffs on brand new imports and import car parts, MOF has also announced the suggested tax rates for used cars.

According to the ministry, the passenger cars with 15 seats and less should be imposed the fixed tax in accordance with the Prime Minister’s Decision No 36 dated June 29, 2011 and other guidance documents by MOF.

Meanwhile, passenger cars with 16 seats and more, and the trucks with the tonnage of no more than five tons, (not including some specialized vehicles) would be imposed the preferential tax rate of 150 percent.

MOF has said that in case ministries, branches and associations do not make any suggestions, MOF would promulgate the legal document with the regulations opened for public opinions.

As such, the import tariffs on the majority of CBU imports would decrease considerably from the current rates. Especially, a lot of car parts would enjoy the tax rate of zero percent.

The tax reductions are believed to be the good news for automobile manufacturers and car dealers, who hope that this would lead to the car price reductions, thus helping heat up the market.

According to the General Statistics Office, 3000 CBU car were imported in August 2011, worth 79 million dollars. The figure is equal to the import volume of February 2010, the deepest low so far.