Expectation for a Price Reduction

Under a new Ministry of Finance policy, taxes are reduced 50 percent for seven groups of essential goods, including beef, pork, milk and domestic fowls, with current tax at 5 percent to 50 percent from 8 August. This brings consumers hope for a price reduction in consumer products. However, after one month of enforcement, goods prices, except for automobiles and gas, is still high.

The automobile market has long been known for high prices, often serving only high-income consumers, so the price fluctuation of such goods has less influence on daily life. However, this market has made the quickest response to tax reductions. After the Ministry of Finance tax reduction for used cars on 8 August, many leading international automobile brands in Vietnam cut prices, for example BMW dropped US$1,500- 3,000 on average per car.

 

After that, Huyndai Vietnam (HMV) declared price cuts. Price cuts on cars distributed by HMV will be 5- 10 percent, but not applied for all cars. Particularly, the price of the Crossover Veracruz recently launched on the market has been cut from US$68,000 to US$66,500 for gas engines and from US$75,000 to US$72,900 USD for diesel engines. Mercedes-Benz has officially reduced prices US$1, 000 – 3,000 per car. This will lead to a wave of car price reductions by automobile companies in the coming time. Another important commodity essential for students and the economy, gas, has been officially lowered VND500 / 1 litre since 16 August.

After one month of tax policy implementation for price adjustment, other essential goods have been at high price levels without change. In Hanoi markets, the beef price remains unchanged, even in some supermarkets, the price of raw meats from America or Australia is at a standstill. In some wholesale markets such as Long Bien, Den Lu, Hang Be and Hom, prices of some food products has stopped increasing, but remains at a high level. While the price of pork and beef is steady (VND 60,000 / 1 kg griskin, VND70,000-80,000 / 1kg), the price of seafood including shrimp, river fish, sea fish and cuttle-fish, with increasing supply, has been slightly reduced by a few thousand VND (VND 60,000 / 1kg water-fresh shrimp). However, domestic fowl prices, especially VND 80,000/ 1 kg chicken, are likely to go up. Domestic milk products have been reduced, while foreign ones are still at high levels. Milk products of New Zealand cost VND20,000 / 1 liter, S26 milk of Australia costs VND260,000 per can. In the season of construction, increasing demand for building materials pushes up the price of some goods, such as roof-covers, paint and cement.

 

According to the analysis of Truong Chi Trung, deputy minister of Finance, dependent on the specific tax cuts, prices of many goods will be reduced but not immediately. He added that by lowering import tax 10 percent, goods prices will be reduced from 5-6 percent at the beginning and more after that. However, facing increasing fuel prices, some goods prices are unchanged.

Nguyen Tien Thoa, Head of the Price Control Department under the Ministry of Finance, said that pressure of tax cuts does not force other goods to be at current prices, but mentions other factors concerning the relationship among government, entrepreneurs and consumers to reach a more reasonable price.

 

Need to Reduce Production Costs of Entrepreneurs
Recently, the Ministry of Finance has carried out closer inspection of steel products, milk and gas, finding that enterprises are taking advantage of market turmoil to enact unreasonable price increases. It is shown that the increasing prices of such goods results from growing world prices, for example, the price of steel rising nearly 20 percent since the end of 2006, price of ingredients of powdered milk rising 25-97 percent and gas rising 8 percent. Nevertheless, the costs of management, marketing and sales, which may be cut in the remaining four months of the year, are still at high levels.

 

Thoa uncovered that based on information from inspections, gas entrepreneurs have made a commitment for price cuts of VND2,000-3,000 per tank. Vietnam-Australia Steel has reduced prices by VND200/kg and Thai Nguyen Steel has cut VND150-200/kg in the Central Region. Other steel, milk and gas companies have signed agreements about production costs for price stabilisation till the end of this year.

 

After tax cuts, the price of goods, though not being remarkably lessened, is now at a more acceptable level. Along with a preliminary estimate, inspectors will check the process of posting figures into accounts for enterprises having tax incentives. In case such enterprises still have not cut prices in response to the tax reduction, the Government will confiscate the profit gained from tax incentives.

 

Enterprises providing yearly stable-price products have to request Ministry of Finance permission to increase price. Other ministries will continue inspection and control in other regions. The State inspectors are only in charge of conducting surveys on some kinds of goods, and controlling tax in mainly Hanoi and Ho Chi Minh City.

 

According to the Ministry of Finance analysis, tax reduction on 18 imported goods will cut VND1,000 billion from the national budget. Moreover, if lacking consistent measures to control price and organize distribution channels, the tax cut policy may cause adverse impacts on both consumers and the entire economic system.