Vietnam – Motorcycle – 2015

1. Vietnam – Motorcycle - 2015
Overview
Motorcycles have consistently been serving, on average, over 60% of travel needs in
Vietnam; according to statistics there are now over 30 million motorcycles in the country.
Vietnam is also currently the 4th largest market for motorbikes in the world (after China,
India and Indonesia) and it is still growing strongly and steadily, both in terms of size and
quality. Whilst in many other neighbouring countries, the demand for motorbikes is saturated;
the demand for motorcycles in Vietnam is expected to remain high in the future. According to
statistics, more than 2.8 million motorcycles were sold in Vietnam in 2013, a 10% decrease
from 3.1 million sales in 2012, but a staggering more than 20% increase compared to 2.26
million sales in 2009. This is due to the fact that economic difficulties have resulted in low
consumption needs and due to strong actions from Government to resolve traffic jams in big
cities. The increase of taxes and fees on motorcycles has also discouraged new purchases.
According to the Ministry of Planning and Investment (MPI), there are more than 60
enterprises engaged in the industry, of which some 50 are directly involved in production,
while the remaining ones are assemblers. However, only about 10 of those are strong enough
to compete in the market, including giant players from Japan (Honda, Yamaha, and Suzuki),
Italy (Piaggio), and Taiwan (SYM). As income rises, the demand for motorbikes also rises
and there is currently a move towards more modern and fashionable motorcycles such as
scooters. According to statistics, the growth rate for automatic scooters has been around 70%
per annum in recent years. New models with additional functions and modern designs are
launched in much shorter time than previously, and investments in Research and
Development (R&D) by manufacturers are increasing.
The third manufacturing plant that Honda Vietnam announced to invest in 2011, thereby
increasing production capacity to 2.5 million units annually for local need and exportation,
will open soon. An engine manufacturing plant with full-capacity of 300,000 units annually,
which Piaggio Vietnam announced to invest in 2012, has been put into operation since early
2013. Such investments and commitments have contributed greatly to the local economy by
generating jobs for the local population, transferring technology and know-how, and
increasing revenues. In brief, the Vietnamese motorcycle market will remain a promising
industry for manufacturers with high growth rates both in terms of revenues and consumption
in the future, particularly if supported by a clear and transparent development strategy from
the Vietnamese Government.
Number Plate Fee Increase in Big Cities
Relevant State authorities: Ministry of Finance (MOF), Ministry of Transport (MOT),
Hanoi's People Committee
Issue description

2. Through Decision 46/2011/QD-UBND dated 22 December 2011 (subsequently replaced by
Decision 62/2013/QD-UBND and Decision 40/2014/QD-UBND) based on the decision from
the Government to resolve the traffic jam issue in big cities, the People’s Committee of
Hanoi issued a regulation implementing the increase of number plate fees in three categories
of motorcycle (of value above VND 40 million; of value from VND 15 million to VND 40
million; of value below VND 15 million). Accordingly, the highest rate of VND 4
million/per motorcycles is imposed upon motorcycles with a value above VND 40 million.
Potential gains/concerns for Vietnam
We believe that limiting the number of motorcycles circulating on the road by imposing a
significantly higher number plates fees upon only motorcycles with the value of over VND
40 million, is not an effective resolution to the traffic jam problem. Actually, since this policy
is applicable, the traffic situation in Hanoi, has not improved much. This is because the
majority of motorcycles circulating in Hanoi do not belong to the VND 40 million bracket.
Recommendations
This issue has been raised since 2013; however, we have not got any feedback from the
relevant authorities. Therefore, we would like to reiterate this issue with a recommendation
for a short¬term solution: the highest fees should not be imposed on motorcycles with a
value of VND 40 million or more. In addition, we strongly recommend the Government to
work on more sustainable solutions such as through the development of public transportation
means, road infrastructure in big cities, as well as education on good traffic practices for
traffic users that will effectively resolve the traffic jam problems in the long-term.
Taxation issues
Relevant Ministries: Ministry of Finance (MOF), National Assembly (NA), Ministry of
Planning & Investment (MPI)
We would like to draw the Government’s attention to the following tax issues:
1. SPECIAL CONSUMPTION TAX (SCT)
Issue description
According to the Law on Special Consumption Tax No. 27/2008/QH12 passed by the
National Assembly on 14 November 2008, effective from 1 April 2009, a Special
Consumption Tax (SCT) of 20% was introduced for motorcycles with a capacity of over
125cc.P
[71
P This has had a significant negative impact on manufacturers that offer over-125cc
motorcycles. Since 2008 until now, the economic and social conditions of Vietnam have
developed; under the current economic and social conditions, a motorcycle, especially 150cc
motorcycles, are not considered as a luxury goods, but just a popular private mean of
transportation. We note that a 150cc scooter is not much different from a 125cc scooter,
except for its engine size. The use of 150cc scooters is quite similar to 125cc scooters.

3. Motorcycles with a cylinder volume of 150cc are considered as transportation means with
advanced technology, comfortable to use and environment friendly. However, since the SCT
has been applied, customers have become less willing to buy 150cc scooters which are, in
fact, ergonomically suitable for the Asian community. Prior to the issuance of the
aforementioned Law on SCT, Piaggio’s 150cc model contributed to a major part of the
company’s sales (more than 60% in 2008). After the SCT Law was applied, sales have
dropped significantly (less than 10% in 2010 and 2011), and this has affected the firm’s
revenues and business in Vietnam in very negative ways.
Potential gains/concerns for Vietnam
We feel that the application of the SCT Law puts pressure on locally produced vehicles and
domestic manufacturers. This impacts the industry’s growth and development potential.
Many Vietnamese end-users will lose the opportunity to own the advanced 150cc scooters
they love. Vietnamese manufacturers will also not be encouraged to invest in and develop
this business segment with modern and high technology.
Recommendations
Given the abovementioned developments, we would again strongly recommend the National
Assembly and/or Ministry of Finance to reconsider the issue, in the process of its
amendment/ issuance of a revised or new Law on SCT, so that this tax will not apply to
motorcycles of 150cc or more. No SCT tax should be applied to motorcycles at all; or at
least, it could be envisaged to reduce the SCT rate for scooters over 125cc for several years,
and motorcycles over 125cc should then finally be removed from the list of goods subject to
SCT.
2. CORPORATE INCOME TAX (CIT) INCENTIVES FOR EXPANSION
PROJECTSBEFORE1 JANUARY 2014
Issue description
On 19 June 2013, the National Assembly passed Law No. 32/2013/QH13 on Amendment and
Supplement to a number of Articles of the Law on Corporate Income Tax, effective from 1
January 2014. Decree No. 218/2013/NB-CP and Circular No. 78/2014-/TT-BTC providing
detailed guidance to the new Law were also adopted by the Government and the Ministry of
Finance, respectively on 26 December 2013 and on 18 June 2014. Accordingly, any
enterprise with a project for investment and development, currently operating in a sector or
geographical area entitled to Corporate Income Tax (CIT) incentives as prescribed in these
regulations, may choose tax incentives in accordance with the currently operating project for
the residual term (if any), or be entitled to exemption or reduction of tax on the part of the
increased income due to the investment expansion. This is subject to certain conditions
prescribed in the regulations. The duration of tax exemption and reduction applicable to
increased income from investment expansion shall equal the duration of tax exemption and
reduction applicable to new investment projects in the same sector [or] geographical area of
CIT incentives.

4. However, such treatment under these regulations is applicable to (i) expansion projects
implemented before 31 December 2008 for which the operation started before 2009; (ii)
projects invested after 1 January 2014 and (iii) projects before 1 January 2014, but starting
operation and generating revenue from 1 January 2014.
Potential gains/concerns for Vietnam
Given that the new Law and its implementing regulations do not allow investors to enjoy tax
incentives for project expansions which have been implemented during the period from 1
January 2009 to 31 December 2013, investors might find the business environment
confusing. We would like to particularly ascertain old investment expansion projects during
such period, which meet the criteria for tax incentives entitlement and have been contributing
to the development of the economy of Vietnam, but are not entitled to incentives, while the
new investments from 1 January 2014 are entitled to CIT incentive.
Investors may find such inconsistencies in the treatment of investment projects as unfair and
they may feel unprotected. This could seriously impact the confidence of investors when they
plan to invest in Vietnam.
Recommendations
In light of the above, we request the Vietnamese Government to allow tax incentive
entitlement for investment expansions which have been implemented during the period from
1 January 2009 to 31 December 2013, if all criteria for tax incentives are met.
3. CORPORATE INCOME TAX (CIT) INCENTIVES FOR PROJECTS INVESTING IN
SUPPORTING INDUSTRIES Issue description
Currently, the MOIT is working on a draft Decree on development of supporting industry in
Vietnam. Accordingly, CIT incentives shall be given to projects investing in supporting
industry that meets the conditions as stated in the draft Decree. Supporting industries are
industries that are involved in the manufacture of spare parts, parts, components and
materials to supply for the manufacturing industries, as well as industries that are involved in
the assembling of completed products that are materials for manufactures of consumer
products. We expect that under the new draft Decree, this definition shall also cover
supporting industries for motorcycle manufacturing.
The draft Decree is intended to be issued and come into force in 2014 (it remains to be seen
whether it will come into force by the end of 2014). However, it is not clear in the draft
whether incentives will be retroactively applicable to projects which were granted investment
certificates or operated before the effective date of the new Decree.
Potential gains/concerns for Vietnam
The incentives given to the supporting industry are a very good encouragement from the
Government for the development of this industry. However, if the new Decree and its
implementing regulations do not allow investors to enjoy tax incentives for projects invested

5. and operated before the effective date of the Decree, investors might deem the business
environment as unfair and inconsistent. Since those investors have invested a lot of money
and efforts into the project, they should enjoy the same treatment as other investors investing
in the same sector in a different period of time.
Recommendations
The Decree should also be applied to projects meeting conditions to enjoy incentives but
operated before the effective date of the Decree (provided that those projects are still running
in the period for enjoying tax incentives).
Industry Development Strategy
Relevant State authorities: Prime Minister, Government Bureau, Ministry of Transport
(MOT)
Issue description
Further to Decision No.356/QD-TTg dated 25 February 2013 (Road Transportation Plan or
Decision 356) providing for a limitation of the number of motorcycles circulating on the road
(also referred to as 'Units in Operation' (UIO) motorcycles) to 36 million units by 2020, on
27 January 2014, the Prime Minister sent Letter No. 148 to the five big cities (Hanoi, Hai
Phong, Da Nang, Can Tho and Ho Chi Minh city) requiring them to submit goals to limit the
number of vehicles and plans to develop public transportation in accordance with Decision
No. 356 and to develop suitable transportation means in big cities in Vietnam. We know that
authorities of the five big cities are working on setting goals/implementing a schedule to limit
personal vehicles as requested.
Potential gains/concerns for Vietnam
As a result of the above, the motorcycle industry is facing difficulties in developing its
strategy for the future. The limitation of vehicles circulating on the road under Decision 356
seems to neither encourage nor support the development of the motorcycle industry.
Recommendations
We would like the competent authorities to consider the following factors when working on
their goal/schedule:
• Big immigration numbers in big cities;
• People's travel demands;
• A mechanism to manage the exact number of motorcycles circulating on the road; and
• The effects on the local economy
These elements could be taken into account in order to build effective objectives and
implement the relevant roadmaps on 'Decision No. 356’, and for the 'development scheme of

6. suitable transportation means in big cities in Vietnam’, in order to minimise the negative
impacts on society and the motorcycle industry.
Please contact Oliver Massmann under Uomassmann@duanemorris.comU if you have any
questions.