Vietnamese consumers are racing to buy luxury cars before taxes skyrocket under new special consumption tax rates that will come into effect on July 1.

Local car dealers reported a surge in the sale of costly sedans in April and May, three months ahead of the new tax rules.

Euro Auto, the Vietnamese BMW and Rolls Royce dealership, sold 200 BMWs last month alone, a 40 percent increase compared to May 2015, a company representative told Tuoi Tre (Youth) newspaper.

The Audi importer, Automotive Asia Ltd., also said sales in April and May of this year reached record highs in the company’s nine-year history of operating in Vietnam.

“We brought 300 Audi cars to Vietnam and sold all of them in the last two months,” a company representative said. “Even the display cars are sold out.”

Dung, a salesperson at the Vietnamese dealership of a German carmaker, said he sold ten cars in May, five times the company’s normal target.

“I raked in more than VND300 million [US$13,393] in commission, while typical commissions are around VND60 million [$2,679] if targets are met,” he revealed.

Last month Vietnam spent $195 million importing 12,000 completely built unit (CBU) cars, up 33 percent month on month, to meet the demands of consumers trying to purchase luxury cars before the tax hike.

Starting July 1, the special consumption tax for cars with an engine capacity of 2.5 liters to 3 liters will be increased to 55 percent from the current 50 percent.

The rate will go from 60 percent to 90 percent for those with a capacity of three to four liters.

Cars with an engine capacity of five to six liters will be subject to a massive 130 percent special consumption tax, and those with six-liter engines and above, 150 percent.

Under this new tax rule, a Lexus RX 350 with a 3.5 liter engine, will cost VND3.9 billion ($174,107), instead of the current price of VND3.3 billion ($147,321).

“This is a considerable difference and for vehicles with bigger engines, the additional taxes will be even bigger,” a car salesperson told Tuoi Tre.

“It makes sense that people are ‘racing’ to buy cars to avoid the hefty taxes.”

Tien Thang, a resident in District 7, said he will buy a 2.7 liter Toyota Land Cruiser Prado around the end of this month.

“I will then have to pay VND2.25 billion [$100,446] for the car, saving VND75 million [$3,348] if delaying the purchase until July.”

Contrary to the luxury segment, affordable cars with smaller engine capacity will enjoy a tax cut, also starting on July 1.

The current 45 percent special consumption tax for cars with an engine capacity of below 1.5 liters will be slashed to 40 percent in July and further to 35 percent in 2018.

However, experts say lower taxes will not necessarily result in cheaper prices.

“Demand for affordable cars will rise and prices may soar, as per the law of supply and demand,” Dr. Nguyen Duc Do, deputy head of the Institute of Economics and Finance, explained.

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