Car luxury tax may be as high as 70%
16-MAY-2008 Intellasia | Vietnamnet
May 16, 2008 - 7:00:00 AM
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The Ministry of Finance (MoF) is consulting with relevant ministries about its suggested plan to raise the luxury tax rate from 50% to 60% on vehicles with cylinder capacities of 2-3.0L, and to 70% on vehicles of 3.0L and higher.
According to the ministry, the luxury tax rates are different depending on the number of seats. There exist three groups of cars, less than 5-seat, 6-15 seat and 16-24 seat models.
With such a regulation, the luxury tax rate on less than 5-seat models is much higher than 6-9 seat models, though both of them are used for personal purposes. That explains why manufacturers have been focusing on making models which have low tax rates.
In 2006, the output of 6-9 seat cars accounted for 37% of the total cars assembled domestically, and 55% of the total cars subject to luxury tax (special consumption tax). In 2007, the output of 6-9 seat cars accounted for 28% of domestically assembled cars and 49% of the cars subject to luxury tax. Meanwhile less than 5-seat cars just accounted for 20-22%.
Therefore, according to MoF, it is necessary to adjust the tax rates in order to make the rates more suitable for different car models.
MoF also said that it is necessary now to limit cars in circulation, and the most suitable way to do that is to raise the luxury tax. The import tax decreases in the first period after Vietnam joined the WTO led to the massive import of cars into Vietnam, which has led to bad traffic in the context of poor infrastructure.
MoF has suggested imposing taxes in accordance with vehicle cylinder capacity, which will be applied for less than 10 seat cars. The suggested rate for 2.0L and lower cars is 50%, while the rate for 2.0-3.0L is 60%, and for over 3.0L is 70%.
As for 10-16-seat cars, the tax rate would stay unchanged at 30% as currently, while the tax rate of 15% would be 15% for 16-24 seat cars.
According to MoF, the suggested tax rates will not much affect local manufacturing of less than 5-seat models, while helping to encourage using models that save fuel.
The models that will be affected most when the tax rate decision comes into effect are the ones with cylinder capacities of 2.0-3.0L (tax rate will be raised from 50% to 60%), and over 3.0L (tax rate will be raised from 50% to 70%).
The tax increase plan will be open for relevant ministries’ opinions until May 17 before the plan is submitted to the government in June 2008.
It is expected that the new tax rates will become valid as of January 1, 2010.
In related news, the government has agreed to the proposal on adjusting the import tax on less than 16-seat used car imports. Used cars with cylinder capacities of 5.0L and higher are being imposed the highest fixed tax rate of US$30,000.
In early April, MoF proposed that the government adjust the import tax on used cars in order to limit used imports.
MoF adjusted tax rates on used imports in March 2008. Small used cars (less than 5-seat models) with cylinder capacities of 1.0L and lower saw the tax increase of US$300/unit.
The highest tax increase was decided for medium-size models with the cylinder capacities of 2.5-.3.0L, from US$12,000 to US$15,000. Meanwhile, the tax rates on super-cars remain unchanged for 4.0-5.0L and over 5.0L, at US$26,400 and US$30,000, respectively.
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