Sales in Vietnam of vehicles with an engine size less than 1.5 litres are expected to increase amid planned tax cuts, according to a report by the Vietnam News. The government plans to reduce luxury tax on cars with an engine size less than 1.5 litres to 40% from 45% from 1 July. This is expected to fall further to 35% by 2018. Meanwhile, the tax rate for cars with an engine size of 1.5–2.5 litres will remain unchanged at 45–50%, while for cars with engines of 2.5–3.0 litres it will increase from 50% to 55%, and for cars with engines bigger than 3.0 litres it will rise to 90–150%. Furthermore, the expected growth in sales of small cars in Vietnam has encouraged automakers to expand their assembly operations in the country. Truong Hai Auto Corporation (THACO), which assembles Mazda, Kia, and Peugeot models, plans to invest VND30.11 trillion (USD1.33 billion) to expand its assembly and retail activities in the country over the next three years. Hyundai Thanh Cong, which assembles and imports Hyundai cars, has completed construction of the first stage of a plant in the northern Ninh Binh province and accelerated work on the second stage.
Significance: The planned reduction in luxury tax will reduce the prices of small cars by around USD1,000, according to the report. The move is in line with the government's efforts to develop the country's automotive industry by 2020 and provide a vision to 2030. Meanwhile, the Vietnamese new vehicle market has been posting strong growth this year, mainly thanks to favourable business and macroeconomic conditions . The luxury tax cut will further increase demand for passenger cars in the country. IHS Automotive expects that sales of passenger cars in the country will grow by 22.8% year on year (y/y) to 174,845 units in 2016. The B-Car category will remain the best-selling segment this year with sales of 38,680 units (up 22.1% y/y) and a market share of 22.1% in the passenger car segment, followed by the A-Car segment with sales growth of 12.1% y/y to 32,942 units and market share of 18.8%. Passenger car sales in the country will be led in 2016 by the Toyota Vios (B-Car segment) with 14,742 units, up 7.1% y/y. The Toyota Vios will be followed by the Kia Morning (A-Car segment) with sales growth of 43.9% y/y to 14,239 units this year. We also forecast that production of passenger cars in the country will grow by 11.4% y/y to 147,525 units in 2016.
