A special consumption tax exemption should be subject to locally-manufactured auto parts
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Under a written document sent to the Ministry of Finance (MoF) recently, MoIT suggested MoF to add some proposals made by the Hyundai Thanh Cong Vietnam Auto JSC in its Draft Law amending and supplementing five tax laws, including laws on Value Added Tax, Corporate Income Tax, Special Consumption Tax, Personal Income Tax and Natural Resources.
Accordingly, an exemption of special consumption tax should be subject to locally-manufactured auto parts. The policy should be also applied on materials for part and components manufacturers who invest in Vietnam, which should be in association with their commitment on long-term investment, volume of products, technology transfer and use of local labor force.The MoIT also recommends the application of a tax payment guarantee for a period of eight months instead of the current 30 days.
Previously, at a review conference of the industry and trade sector last month, Le Ngoc Duc, General Director of Hyundai Thanh Cong, proposed that the MoIT, in co-ordination with the finance ministry, consider several recommendations as those mentioned above to make domestically assembled cars more competitive than completely-built-up (CBU) cars to be imported from other ASEAN countries.
According to Duc, the Government wants the local auto industry to become a major sector which can meet domestic demand. Besides, the auto sector will serve as a driving force for other industries, and improve its competitiveness to become a provider of parts and accessories in the global auto production chain.
Therefore, the Government has issued Decree 116/2017/ND-CP on auto manufacture, assembly, import, maintenance and warranty services, and Decree 125/2017/ND-CP exempting auto producers from paying import tariffs on auto parts to fulfill the target.
Duc said these policies are aimed at encouraging local auto producers to make big investments in the short- and long-term periods to boost output of domestically assembled vehicles, and localization, as well as export cars to neighboring countries.
However, he said the incentives provided in Decree 125 are not strong enough to create distinct advantages for domestically assembled autos compared to CBU cars imported from other ASEAN countries. Instead, according to him, they solely help shorten the competitiveness gap between them.
He said prices of locally assembled autos can fall 12-15% at best in line with Decree 125 while import tariffs on CBU cars from ASEAN countries are down to zero from the previous 30%, leading to their prices dropping 23-25%.
Local investors shoulder numerous costs in the process of developing and operating their factories and warehouses, and in the promotion and distribution of their products, he added.
Given those difficulties, he suggested, the Ministries of Industry and Trade and Finance should work together to amend relevant tax and fee policies.
He said Malaysia, Indonesia and India have long used this method to prop up their auto industry, encouraging enterprises to make heavy investments in supporting industries and raising the ratios of local content.
A MoIT report showed that the price of an automobile in Vietnam is currently high in the region but its quality is lower than an imported one because of a low localization rates.
According to the report, the localization rate of new autos is only between 7% and 10% on average (compared to the target of 40% in 2005 and 60% in 2010). Currently, locally-produced products with very low technological content are tubes, tires, chairs, mirrors, cables, plastic products and batteries.
MoIT has on numerous occasions warned that if such privileges and incentives were not approved, the domestic automobile industry would find it difficult to compete with imported cars.
