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Car sales sputter on tax hike

A person looks at a display car in a Phnom Penh Ford dealership in 2013.
A person looks at a display car in a Phnom Penh Ford dealership in 2013. Vireak Mai

Car sales sputter on tax hike

Authorised dealerships of new cars and trucks have said a recent increase in the specific tax on vehicle imports has put a dent in profits, with some dealers claiming sales have slowed since the tax hike went into effect in April.

The increase in the specific tax raised this category of excise tax from 50 per cent, to as high as 65 per cent on larger vehicles, pushing the aggregate levy on some new vehicles to nearly 140 per cent.

“The tax increase is discouraging some buyers to buy new cars,” said Seng Voeung, Ford division manager of RMA Cambodia, adding that sticker prices increased between 10 and 20 per cent depending on the size and model of the vehicle.

According to Voeung, RMA reported increased sales numbers during the first half of the year as many Ford customers had signed purchasing contracts prior to the tax increase. The company initially absorbed the costs of the increased tax, which reduced its profit margin.

But with the tax now reflected in the price of vehicles, buyers could be looking to reduce costs by purchasing their vehicles on the grey market, where the specific tax also applies but vehicles are taxed more favourably under the regular tax regime.

“We are concerned that customers who previously considered buying a new car will now turn to buying second-hand cars, whose prices are much lower,” Voeung said.

Pily Wong, CEO of Hung Hiep (Cambodia) Co Ltd, the authorised distributor of Volkswagen in Cambodia, said the number of vehicles sold at his company had declined significantly as a result of the tax increase.

“The outlook on car sales for the second half of the year is very negative,” he said. “I don’t foresee good sale numbers.”

He added that the company was turning less profit and consequently unable to hire more staff.

Antoine Jeanson, operation director of Automotive Asia (Cambodia) Ltd, Audi’s local authorised dealership, said with the recent tax increase the total tax bill on some newer car models exceeds 137 per cent.

He said retail numbers at the dealership have fallen since prices were adjusted to reflect the specific tax hike.

According to the Cambodia Automotive Industry Federation (CAIF), the private industry body representing authorised vehicle dealers, new cars accounted for just 10 per cent of the estimated 45,000 cars imported last year.

While its members claim their sales numbers have fallen as a result of the higher specific tax, grey market auto dealers report no significant change in buyer behaviour.

Pov Sovannarith, general manager of Rich Auto Imports Cars 89, which imports and sells second-hand vehicles imported from the US, said the special tax increase added between $700 and $1,000 to the price of his vehicles. However, he said this did not affect sales as it represents just a small increase in overall vehicle cost.

“I have observed that customers seem to care little about the increased tax because car prices are only slightly higher,” he said. “It does not affect their decision to buy a car.”

Sovannarith said the tax was not necessarily to blame for lower sales, arguing instead that it was more likely because now is the traditional low season for car sales.

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