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Vehicle sales in the slow lane despite impending tax hike

A potential buyer views a BMW on display at Aeon Mall in May 2014.
A potential buyer views a BMW on display at Aeon Mall in May 2014. Hong Menea

Vehicle sales in the slow lane despite impending tax hike

Automobile dealers who expected a surge in sales ahead of a scheduled April 1 tax hike on new and used car imports have said that vehicle sales have been surprisingly flat this month.

Pily Wong, CEO of Hung Hiep, the authorised distributor of Volkswagen in Cambodia, said yesterday there had been no noticeable increase in car sales at his showroom despite the impending tax, which will tack an additional 13 per cent onto the total tax bill of new vehicles.

“It’s curious that sales haven’t gone up,” he said. “Even I asked some colleagues in the industry and they also don’t see a surge in people coming to buy cars because of the [imminent] tax increase.”

Wong surmised that the general public was largely unaware of the government’s plan to increase the “specific tax”, a form of excise tax.

According to a sub-decree issued by the Customs and Excise Department in January, the specific tax on imported new and used cars is set to rise on Friday.

Authorised dealers fear the tax hike, which stacks on top existing taxes on imported new vehicles – currently up to 123 per cent – will drive more people to purchase cheaper cars on the grey market.

“I actually don’t know why the government has taken this measure to make the tax even more favourable to used cars, as if we don’t have enough used cars in the market,” said Wong, adding that taxes are highest on newer vehicles with higher engine capacities.

Seng Voeung, general manager of the Ford division of RMA Cambodia, said that he noticed a few customers who had planned to buy a car regardless of the new tax sub-decree made sure that they purchased the vehicle before the deadline. However, he said the increase in sales had not been significant.

He also expressed concern that the higher taxes would discourage people from purchasing new cars.

“It gives the opportunity to the grey market, especially people who have enough money to buy now, but not enough to buy after the tax increase,” Voeung said. “So a portion of our customers will be lost based on the government increasing taxes. Those people for sure will buy a car, but they will go to second-hand dealers.”

Peter Brongers, president of the Cambodia Automotive Industry Federation (CAIF) and CEO of BMW Cambodia, said that with taxes on some new cars set to exceed 136 per cent, he expects that after tax comes into effect, sales will decline.

“I think imports will go down, but the import duties are going up,” he said. “If there is an increase [in imports,] it will be a small one.”

Brongers said new cars were among the highest taxed items in Cambodia, contributing about a third of total tax revenue in 2015. Although the revised specific tax will be imposed on both new and used vehicles, he said the tax increase would have a greater impact on licensed dealers of new cars.

“It’s all a matter of supply and demand, and people have a limited budget,” he said. “If our prices go up and grey market prices do not go up [as much], people take the risk to buy [second-hand cars].”

Brongers added that in an attempt to not shock the market, dealerships would gradually increase prices of cars to absorb the tax.

“We don’t want to increase the price overnight because it will have a very bad effect on the market,” he said.

Yeab Ratana, owner of Ratana Auto, a second-hand car dealership in Phnom Penh, said that her sales had been unseasonably low and that it was difficult to sell cars given the current import tax rate. However, she also recognised the burden on authorised car dealers of new cars.

“If the government wants to push new cars they should maintain the same import tax, but ban cars made in 2005 or earlier and only allow cars made from 2006 and up [to be imported],” Ratana said.

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