Tax Hike May Signal End of Cheap Used Cars

When Sok Siswann looked through a used-car lot on Russian Boulevard last year, a little Korean-made Daewoo Tico caught her eye. She liked the design, the color and, most of all, the price.

“It looked nice and comfortable to drive,” Sok Siswann, 23, re­called. “And the Tico would cost me $5 a week. A different car would cost $10 per week.”

Chan Sy, a fellow Tico-owner, agreed. The 28-year-old student at the National Institute of Man­age­ment bought his Tico in 1998 for less than $2,000.

“It uses less gasoline, it’s of fair quality, it’s small, it’s safe and it looks attractive,” Chan Sy said of his Tico. “And it’s about the same price as a motorbike.”

The used compact Korean cars have swamped the market in the past few years, with an estimated 400 to 500 Ticos imported each month. Many university students prefer the affordable cars because they offer better safety and gas efficiency than motorbikes.

After last week, however, the Tico—and every other used car—became more expensive. When cars are imported, whether used or new, customs officials calculate the tariff based on the car’s value—a set amount determined by the car’s age and model. The Finance Ministry increased the set value of all used cars on Oct 1, effectively raising the tariff amount without raising the tariff rate.

“The increase was taken as an anti-dumping measure,” Finance Minister Keat Chhon said last week, noting that beaten-down used cars are frequently imported. “We have all seen that sometimes motorbike and used-car drivers need to push-start their vehicles to start the old engines. It’s a waste of time.”

Though the government said limiting the number of used cars may increase productivity, many said it will simply increase the price of cars by between $200 and $500—a heavy burden for a population whose average income is less than $1 per day.

“Countries that raise tariffs as an anti-dumping measure do it to protect domestic markets against foreign markets,” said Kim Young Moo, a South Korean Embassy official. “Here there is no automobile industry to protect. So wheth­er the car is new or foreign, raising the tariff just raises the prices.”

Importers and shippers agree. They said the price increase will have a large impact on the economy, especially for provincial businesses that do not make as much money.

“I’ve never seen a tough raise like this,” said Bun Horv, an im­port­er with a shop on Russian Boule­vard. “I don’t understand why the Finance Ministry decided this. It will have a huge effect on my business. Our clients are poor farmers and shippers who can’t afford to pay much money for a vehicle.”

Dealers said used Ticos run from between $1,200 and $2,600, with most selling for around $1,800. On average, dealers sold between two to five cars per day in the past few years. The tariff rate for Ticos, and similarly sized cars, is about 115 percent.

While car industry officials say the cost will be passed on to customers, Se Ha Yoo, president of the Korean Traders Association, said the government may be right when it says certain countries, including South Korea, dump their used cars here.

“Very few countries will accept old used cars,” he said. “Most countries, including Vietnam, will not take cars made before 1997. Cambodia doesn’t have any restrictions.”

The country will continue to import used cars from South Korea because its cars are the cheapest, Yoo said. He said that because the price is low and many people want to buy the cars, sales won’t change significantly.

“The Koreans send better cars to Africa and Latin America,” Yoo said. “The low-quality cars they send to Cambodia.”

Most Ticos have been driven for between five and seven years before being shipped here, dealers said. Besides Ticos, many used Korean buses, minibuses, rental cars and small trucks are imported every month.

Though Yoo says he thinks sales will continue despite the higher tax, several importers said they would reduce the number of cars they import if the tax is too high.

“Whenever the tax is high, the price increases, so the local people cannot afford to buy,” said Heng Ma, a local used-car dealer. “Ko­re­an cars are good for poor people.”

In addition to fighting dumping, Keat Chhon said the tax increase was meant to help the environment. He added that rich families should build roads, schools and pagodas before spend­ing money on modern technological equipment.

“Though official reports have said pollution in Phnom Penh is low, when I am behind used cars, the smoke and smell affects my nose,” said Keat Chhon, who is driven around town in a Toyota Land Cruiser. “I think if all students drive bicycles or walk, it will be the best.”

 

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