Latest Industry News

Foreign carmakers cash in on Vietnamese middle-class families’ car-buying rush

Ask about the dream of any Vietnamese middle-class family and you will quickly get a humorous wish list - “one wife, two children, a three-story (town)house, and a four-wheeled car.” A set of progressive figures, they are considered to bring luck to Vietnamese people if they become a reality in the same sequence.

In reality, many households have already had the first three elements and are rushing to realize the last one, as they are set to pay significantly more money after a new taxation regime on imported automobiles, or completely-built units (CBUs), began to take effect on January 1, 2016.

CBUs are automobiles which are thoroughly manufactured, and then are assembled into complete vehicles, outside Vietnam.

The new consumption tax rate, once levied on all CBUs, is expected to add 15-30 percent to retail prices, which have already long been amongst the highest in the world due to the inclusion of multiple existing taxes and surcharges.

A reader of newswire VnExpress last month found that a VND450 million (US$20,000) Toyota Camry LE assembled in the U.S., once imported into Vietnam, will be charged a 70-percent import tax, 45-percent special consumption tax, 10-percent value-added tax, and 10-pecent registration tax, taking the retail price to almost VND1.8 billion ($79,200), nearly four times the original price.

Given such high retail prices, the new tax will bring prices to a new level after the way the base rate for taxation is calculated is changed.

New taxation mechanism for 2016

The new taxation regime was introduced by the Ministry of Finance in June, two months after the chief of Toyota Vietnam, chairman of the Vietnam Automobile Manufacturers\' Association, which is mostly composed of foreign-owned car assemblers, announced that it may cease, and even stop making cars in Vietnam, once imported cars become cheaper than locally assembled vehicles in 2018 when the regional free trade agreement takes full effect.

According to the Common Effective Preferential Tariff agreement, the import tax rate currently imposed on 24-seat-and-fewer passenger cars, 40 percent of whose parts are manufactured by ASEAN countries, will be cut from the current rate of 50 percent to zero by then.

The ten-member Association of Southeast Asian Nations, or ASEAN for short, is comprised of Vietnam, Indonesia, Malaysia, the Philippines, Singapore, Thailand, Brunei, Cambodia, Laos, and Myanmar.

The tax for locally assembled vehicles, or completely knocked-down units (CKDs), is based on the price at which an automobile is sold to the dealer, including business profit, charges for transportation from the place of production to the agent, and other expenses including advertising.

This way of calculating taxes made the price of a CKD at least five percent costlier than a CBU, Kazuhiro Yamana, general director of Vinastar automobile joint venture (VSM), told Tuoi Tre (Youth) newspaper in an interview in May last year.

Meanwhile, the tax on CBUs was worked out on the basis of the CIF price, which covers manufacturing, insurance and freight costs.

With the new taxation regime, the base rate for CBUs will be the same as that for CKDs, which means the difference in base rates for taxation between the two types has been eliminated.

According to the national statistical body, the General Statistics Office (GSO), in December alone, about 14,000 CBUs costing $382 million were imported into Vietnam, bringing the year 2015’s figures to 125,000 CBUs with import turnover of about $2.97 billion, up 76.6 percent in volume and 87.7 percent in value against 2014.

The new figures broke the year 2014’s record, which stood at around 72,000 CBUs worth $1.6 billion, a 103.8 percent increase in volume and 117.3 percent increase in value compared to 2013, according to a report the GSO released early 2015.

Respective figures in the volume and value of CBUs in 2013 and 2012 were 35,000 units worth $708 million, and 27,400 units worth $615 million.

Foreign beneficiaries, inside and outside Vietnam

As of November 30, Thailand dethroned South Korea to become the largest automobile exporter to Vietnam with 23,516 CBUs, surging 84 percent against the same period last of 2014, according to the General Department of Vietnam Customs.

Thailand made up 21 percent of total cars imported into Vietnam in the January-November period, followed by South Korea, China, and India.

Thailand, currently among the top 10 automobile exporters and the 12th biggest automotive producer worldwide, early last year set a target to produce two million automobiles, 1.2 million of which would be exported. 

A finding of Phap Luat TP.HCM (Ho Chi Minh City Law) newspaper revealed that in November alone, Thailand exported 3,193 CBUs worth over $60.5 million to Vietnam, the biggest category of which was pickup trucks.

Thailand is recognized as a powerhouse in pickup trucks with advanced manufacturing and assembly technologies, on a par with those applied in Japan and South Korea, Truong Kim Phong, director of sales and marketing of Ford Vietnam, told Phap Luat TP.HCM.

In addition, Thai pickup trucks are eligible for tax incentives when imported into Vietnam, including a five percent import tariff on a CBU, a representative of Vietnamese importer Truong Hai Auto Corporation (Thaco) told the Ho Chi Minh City-based newspaper.

Vichai Jirathiyut, president of the Thailand Automotive Institute, told a press conference in Ho Chi Minh City in April last year that the Thais were focusing on manufacturing pickup trucks weighing less than one metric ton and eco-friendly vehicles, as Thailand has the highest vehicle emissions standards regionally.

Thailand’s automobile production topped 2.8 million units in 2014 with 18 foreign-owned manufacturers including Honda, Isuzu, Mitsubishi, BMW, GM, and Tata, he said.

The aging 67-million-strong Thai market buys around 880,000 units per year, but as the Thai automotive market is plummeting, the 90-million-plus market of Vietnam with a younger age group will have higher demand for personal vehicles in the future, Vichai said at the conference.

But it is not just the Thai automobile industry, which many foreign carmakers are standing behind, that is benefiting from the car-buying rush of Vietnamese people, but the Vietnamese car industry, which is also led by foreign-owned firms, is also making a killing.

Official numbers released by the Vietnam Automobile Manufacturers\' Association on December 9 showed that the domestic auto market continues to accelerate rapidly when VAMA members sold nearly 215,520 units within 11 months, up 57 percent year on year, and the first time in history the sales of VAMA have reached a milestone of 200,000 vehicles a year.

With Vietnam’s gross domestic product expanding 6.68 percent in 2015, the biggest in the last five years, and projected to rise 6.7 percent next year, which will push more Vietnamese families into the middle-income class, foreign carmakers, based in Vietnam and elsewhere, including Thailand, may be sighing in relief as the search for another attractive market bears fruit.

scroll up