More and more cars fill the streets of Cambodia. The vast majority of cars in Cambodia are sold on the grey market – not only to the disadvantage of licensed car dealers but apparently also the consumers and the Cambodian government, according to the Cambodia Automotive Industry Federation (CAIF). Post Plus spoke to CAIF’s president Peter Brongers and vice president Pily Wong who are also the CEOs for BMW and VW in Cambodia. We wanted to hear their arguments for stricter regulation in favour of licensed distributors and how consumers already benefit from buying ‘white cars’.
What is CAIF’s main objective on the agenda?
Brongers: Essentially, it’s to grow the industry of the automotive business using the proper distribution channel. For the moment, the members of CAIF are composed of official distributors of different brands. First, we created the federation to create more synergies, and we would also like to see growth in terms of sales. We also want to have a more level playing field. There is a lot of unfair competition with outside garages. Some people smuggle cars, but [official car dealers] all need to pay taxes.
Wong: When it comes to taxation, the really important thing are VIT [Vehicle Industry Tax] numbers. If we are paying our VIT numbers completely correctly, and [grey market dealers] are not paying anything at all, even when the prices would be the same, we are at a 10 per cent disadvantage because we are paying the taxes. And the Cambodian government is loosing hundreds of millions of dollars every year.
Other than loosing this 10 per cent advantage, do you also have a chance to compete in other ways, like by giving warranties?
Wong: When [your purchase] is official, like with us, we give them a two-year warranty. But warranty, in general, is a concept that for most Cambodians was completely alien and they didn’t know what it was. We have to advocate and push the customers and try to explain to them why they should buy from the official dealer.
Do other Southeast Asian countries already have stricter import regulations?
Brongers: Only in Cambodia we have imports on used cars. Even in Laos, they stopped that. And all of those countries have seen their tax collections picking up like crazy. A lot of people will say if tomorrow the government decided to ban the importation of secondhand cars, how will people be able to buy all new? But it’s not true. Some people have bought new cars from us then they have to resell their cars. That’s a secondhand car market right there.
What keeps the government from coming forward with this regulation?
Brongers: I think the car importation tax represents one-third of the tax from the industry. And that’s a lot. So, government officials are also very careful, and if they adjust something, it’s a big target for the tax revenue they get. That’s why they have a very conservative approach. At the end, we have our neighboring countries which are doing it a different way.
Are you lobbying the governement for change in regulations?
Brongers: I wouldn’t say lobbying, but I think we are working hand in hand with them and are gathering information to show them that it’s working in other countries.
Do you generally think that taxes on cars should be higher?
Wong: Road tax (the sticker you have to pay for the car) could be higher, and import tax should be lower. Road taxing is one of the lowest in the region in Cambodia. If it were to increase, it would double the money.
At the moment, many cars are being brought in without the proper import duties tax being charged. The government is loosing a lot of tax income. If we completely block the import of used cars and only allow official imports of new cars, and we reduce the import duties by 50 per cent, all the cars would be more affordable. If you do all these things, you can reduce the import taxes and excess taxes by 50 per cent, which is a lot of money.
Do you think that’s going to happen?
Brongers: I think in terms of traffic safety, if the government can stop all the importation of rubbish cars, then it will definitely help a lot.
With safety becoming an increasing concern in various ways, do you see people coming to official dealers because you have more safety to offer?
Brongers: It’s progressing but very, very slowly. Brand is still their main concern, so often they’ll go to outside garages and compare prices. And garages will say, ‘Ah, don’t worry, it’s all the same thing.’ Then, they’ll sell to them.