1-7-2023 (HANOI) Starting from July 1, cars in Vietnam will benefit from a 50% reduction in registration fees, as Deputy Prime Minister Le Minh Khai signed a decree on June 28 to implement the fee cut for domestically manufactured and assembled automobiles.
The decree, based on a proposal by the Ministry of Finance, aims to provide support to enterprises in the domestic automobile manufacturing industry. These companies have been grappling with surplus inventory, limited access to capital, high interest rates, exchange rate fluctuations, and inflation.
The fee reduction will be effective from July 1 to December 31. From January 1, 2024, the registration fee will be governed by Decree 10/2022/NĐ-CP and the existing resolutions of the Provincial/Municipal People’s Councils or decisions of the Provincial/Municipal People’s Committees regarding registration fee rates in different localities.
The Vietnam Automobile Manufacturers Association (VAMA), the Vietnam Association of Mechanical Enterprises (VAMI), and the People’s Committees of Quang Nam and Ninh Binh provinces jointly sent a letter to the Prime Minister, the Ministry of Industry and Trade, the Ministry of Finance, and other relevant agencies. In the letter, they put forward recommendations and proposals to stimulate demand in the automobile market.
The Vietnam Automobile Importers Association (VIVA) also submitted a petition to the National Assembly, the Ministry of Industry and Trade, the Ministry of Finance, and the Government Office, suggesting preferential registration fee rates for imported cars.
The Ministry of Finance projects that a 50% reduction in fees for domestically manufactured cars could lead to an increase in sales volume, subsequently boosting VAT and excise tax revenues. However, the main beneficiaries of these tax collections are eight specific localities where manufacturing and assembly companies are located, including Vinh Phuc, Hai Duong, Hai Phong, Ninh Binh, Danang, Quang Nam, Binh Duong, and HCM City.
According to a report by VAMA, the total car sales in the market for the first four months of 2023 amounted to 92,801 units of all types, reflecting a 30% drop compared to the same period last year. Despite dealers consistently offering promotions to stimulate demand, the impact has been less than desired.
The sales volume of domestically assembled cars reached 50,017 units, showing a 39% decrease compared to the same period last year. Sales of imported cars also experienced a decline of 16% compared to the first four months of 2022, reaching only 42,784 units by the end of the second quarter.
In May alone, car sales, including non-VAMA manufactured imported cars, witnessed a year-on-year decline of 52.7%, with sales reaching 20,726 units. Cumulative sales for the first five months of this year were down 35.7% compared to the same period last year, totaling 113,527 units.
The weakened purchasing power in the market is considered one of the reasons affecting both domestic car production and the importation of fully built vehicles from abroad in recent months.
Previously, the government implemented a similar registration fee reduction for domestically assembled cars in 2021 and 2022 as a measure to support the recovery of industrial enterprises affected by the Covid-19 pandemic.
The Ministry of Finance believes that the continuation of the registration fee reduction will have positive impacts on consumers, domestic automobile manufacturers, assemblers, and overall socioeconomic performance. However, it is estimated that the State Budget revenue could decrease by VNĐ8-9 trillion (US$340-$382 million) due to the fee cut.
While the fee reduction could provide short-term relief to the automobile industry, it also poses risks to the fiscal balance of localities and the central government budget. Furthermore, it may have implications for the country’s commitments as a member of various international trade organizations and Free Trade Agreements (FTAs), as the reduction only applies to domestically manufactured and assembled cars.
In 2020 and 2022, the demand for automobiles remained high and unaffected by inflation. The 50% cut in registration fees encouraged manufacturers and distributors to resume their supply chains to meet the demand. Consequently, the State budget revenue from special consumption tax and VAT offset the revenue loss from the policy-driven reduction in registration fees.
