HANOI - Vietnam's legislators have voted to increase the special consumption tax on locally assembled cars from 2004 to as much as 24 percent, raising the ire of foreign automakers that fear a possible slump in sales.
A government-run Web site reported the National Assembly on Tuesday ratified that starting on Jan. 1, 2004, locally assembled cars would have special consumption taxes ranging between 7.5 and 24 percent, depending on the type of vehicle.
The current tax rate is between 1.5 percent and 5 percent. The tax will gradually increase to a ceiling of 100 percent by 2007.
The increase in the special consumption tax is one of several hikes in taxes the assembly approved this year.
Hanoi has said the rise in tax is necessary to provide state revenues ahead of the expected compliance with the ASEAN Free Trade Area in 2006 when many duties will be abolished.
Vietnam's 11 foreign joint venture automakers, which include Toyota Motor Corp. and General Motors' Daewoo, warned of dire consequences for the fast-growing industry.
"There will be some very difficult times ahead for us," an official of Vietnam Automobile Manufacturers Association, told Reuters on Friday. He said auto sales could drop by as much as 60 percent next year under the new tax.
Overseas assembled automobiles are subject to special consumption tax rates of as much as 80 percent, which remained unchanged.
The tax rise on domestically made cars would raise retail prices for a standard five-seat car by more than 20 percent in 2004 and 40 percent in 2005, the association projected.
Domestic assemblers would have to find drastic ways to cut costs to maintain its sale volume of 27,000 units recorded in 2002, the association said, though this seemed unlikely.
"We have already cut all costs that could be cut. It is impossible to cut anything anymore," said the association official.
While motorcycles are still the vehicle of choice for Vietnam's 80 million population, rising disposable incomes have spurred purchases of cars. In the first four months, sales of the 11 foreign-invested firms rose nearly 36 percent year-over-year.