VietNamNet Bridge – If having the locally made content ratios of 40 percent or higher for less-than-9-seat cars, automobile manufacturers would enjoy the 70 percent luxury tax.

The government of Vietnam, while affirming its determination to develop the automobile industry, has announced that in order to encourage the production, it would offer big investment incentives to the manufacturing of less than 9 seaters with the cylinder capacity of less than 2.0 L and the minimum localization ratio of 25 percent.

Vietnam would also gather strength to develop the strategic car lines which aims to create a market large enough to facilitate the development of supporting industries. It is considering cooperating with big automobile manufacturers in the world and the AFTA regional countries to step by step be able to join the global automobile manufacturing chain.

A senior official of the Ministry of Industry and Trade MOIT said of the three tax incentive options suggested by the ministry, competent agencies have come to an agreement that the luxury tax and vehicle ownership registration tax reductions would be offered to the strategic car lines.

The luxury tax and ownership registration tax incentives would vary depending on the localization ratios. The biggest tax reduction of 70 percent would be offered to the car models which have the locally made content ratios of 40 percent or higher. The lower tax reductions of 25-40 percent would be assigned to the lower localization ratios.

The solution has reached a high consensus from the management agencies, including the Ministries of Finance, Planning and Investment, Transport, and from some foreign invested automobile manufacturers, including the Japanese ones and Vietnamese Truong Hai, Vinaxuki.

Nevertheless, other foreign invested automobile manufacturers have expressed their disagreement on the solution.

The enterprises want the government to offer the 50 percent luxury tax and ownership registration tax reductions for the less than 9 seaters with the cylinder capacity of less than 2.0 L, to be applied to both domestically made and the imports under the mode of CBU (complete built units), with no discriminatory treatment.

The enterprises which disagree with the plan on offering incentives based on the localization ratios are the ones which cannot expect the tax preferences, due to the low locally made content ratios.

Analysts have commented that the automobile manufacturers cannot obtain the locally made content ratio of 25 percent by 2015, and 40 percent by 2018 to be able to enjoy the preferences.

Therefore, they would rather to see the 50 percent tax reductions for both the CBU imports and domestically made products. If so, they would rather import cars from AFTA zone to sell domestically instead of making investments to develop their production bases in Vietnam.

The analysts have also noted that the enterprises have not made big investment in Vietnam recently. They have only been trying to launch more car models into the market to boost sale instead of focusing on some models to increase the localization ratios.

The tax incentives, if approved, would be applied for 10 years at least, including the years after 2018, when the CBU import tariff on the imports from AFTA zone is cut to zero percent. By that time, CBU imports would still bear the luxury tax and ownership registration tax higher than that imposed on the strategic car lines made domestically.

Tran Thuy