Govt wants taxes on pick-up trucks hiked to match cars

March 27, 2017 - 09:05

The Government has instructed the Ministry of Finance to consider changes to special consumption taxes on imported pick-up trucks to level the field for cars.

By Thiên Lý

The Government has instructed the Ministry of Finance to consider changes to special consumption taxes on imported pick-up trucks to level the field for cars.

Since July 2016 the tax has been just 15 per cent, much lower than the rate on passenger cars.

There is also a big difference in another tax between the two vehicles -- import tariff. It is a mere 5 per cent on pick-ups imported from ASEAN member countries, while it is 30 per cent on cars.

As for another major expense in buying a vehicle, registration fee, it is only 2 per cent of their cost on pick-ups whereas it is 10-15 per cent on cars.

Pick-ups now come with lots of convenient features just like passenger cars, and can be used for travelling in addition to carrying goods and are capable of operating in various terrains, including rural and mountainous areas.

While sport utility vehicles (SUVs) with similar engine displacement cost in the billions, a pick-up can be bought for just VNĐ600-700 million (US$26,595-$31,028).

To no one’s surprise, pick-ups have become favoured vehicles in Việt Nam, resulting in a sharp increase in demand for them in recent years.

Most famous brand names from Japan and the US, like the Mazda BT50, Mitsubishi Triton, Toyota Hilux, Nissan Navara, Isuzi D-max, Ford Ranger, and Chevrolet Colorado, are in the market besides some lesser known names like the UAZ Patriot from Russia.

Most are imported from Thailand, which is among the world’s largest pick-up manufacturing hubs.

According to the Việt Nam Automobile Manufacturers Association, last year automobile sales reached 304,427 units following a year-on-year increase of 24 per cent, of which pick-ups accounted for 23,099.

It put them in third position behind only small sedans and SUVs.

The low taxes and fees they enjoy has helped create “unfair competition” in the market, according to analysts.

They said pick-ups are now being used like small sedans and so it is only fair that they are taxed at the same rates as other cars.

The Government too thinks it is necessary to amend the taxes and fees to ensure fair play in the market.

The finance ministry has proposed hiking the special consumption tax on pick-ups to a level equivalent to 60 per cent of the rate on sedans with the same engine capacity.

At this rate, most pick –up trucks, which have engines of 2,000-3,000 cc, will attract a tax of 36 per cent, more than double the current rate of 15 per cent.

But there is opposition to this, with some analysts warning it would affect the transport costs of many goods and services since 70 per cent of pick-up trucks are used for this purpose.

Many enterprises’ costs would increase at a time when they are on the path to integrating with the regional and international economies, they pointed out. But it might be too late because though the plan to hike the special consumption tax is still under consideration, dealers have already increased prices by hundreds of millions.

The cost of a Ford Ranger pick-up has gone up from VNĐ619 million to VNĐ859 million, and that of a Toyota Hilux from VNĐ650 million to VNĐ750 million.

Market observers expect a dramatic drop in demand now since prospective buyers are likely to reconsider their plans.

In 2009, when the special consumption tax on the Toyota Innova increased from 30 per cent to 45 per cent, sales fell from 14,000 units the previous year to 7,500.

US rate hike to impact businesses

On March 15 the US central bank raised its benchmark interest rate by a quarter percentage point, the first hike this year.

The State Bank of Viet Nam maintained its reference rate on that day at 22,262 đồng/US dollar, unchanged for a third day in a row. The +/-3 percent trading band meant banks could buy and sell between VNĐ22,930 and VNĐ21,594.

While the exchange rate on the interbank market fluctuated slightly, liquidity basically remained steady.

Analysts said while the đồng-dollar exchange rate has been rather steady, the increase in the dollar interest rate would have an impact on the Vietnamese economy, especially as the US has revealed it would hike interest rates two more times this year.

The US rate hikes have already had an impact on Vietnamese companies, especially those involved in foreign trade and shipping since most of them have loans in dollars.

Experts said companies that import raw materials and feedstock for production would a hit if the đồng weakens against the greenback.  

An analyst at Maybank King Eng Securities Company said many shipping companies have large debts, which pose a high risk in case of exchange rate volatility.

An analyst at Sacombank Securities Company expected the dollar-đồng exchange rate to be higher than ever since remittances from overseas Vietnamese would drop significantly due to the US’s rate hike, hitting supply of the greenback.

To cope, companies should hedge their risks, he said. VNS