Increasing the value of domestic production and promoting the automobile supporting industry must not depend on foreign direct investment (FDI) firms.

Vietnam needs a reasonable policy to protect and develop domestic automobile industry

Removing import tax

According to an evaluation report of the Ministry of Industry and Trade, the average localisation rate in the domestic automobile industry is only 7-10 per cent, much lower than the 65-70 per cent in regional countries and 80 per cent in Thailand.

Economist Ngo Tri Long said: “Foreign invested firms in this segment receive many incentives, but the country’s automobile industry gets nothing if we depend on them.”

Currently, CBU (Completely Built Up) imports from the ASEAN bloc have been increasing after the import tax was removed. Expert Nguyen Minh Dong said that stopping manufacturing and strengthening imports is an inevitable goal of foreign invested firms.

“Without incentives, automobile brands will not invest in Vietnam. They will pour money to expand factories in Thailand, Indonesia, and India, which have developed automobile and supporting industries,” added Dong.

In fact, had the government not issued Decree No.116/2017/ND-CP, CBU vehicles would be massively imported into Vietnam. Earlier, in the last months of 2017, at international seaports—the main points of entry of imported cars—thousands of cars arrived but failed to start import procedures to wait for the removal of the import tax in 2018.

Then, Decree 116 came into effect from January 1, 2018 without delay, while importers did not have all the required documents to import vehicles. Until the last two days of 2017, automobile enterprises had to pay 30 per cent tax for cars under nine seats, and 5 per cent for vans.

Currently, Vietnam is considering approving automobile firms to enhance car imports and removing the Vehicle Type Approval (VTA) certificate and other tight requirements.

At a February 26 meeting with relevant agencies, not only foreign invested firms under the Vietnam Automobile Manufacturers' Association (VAMA), but also US and Japanese firms also spoke to ease importing conditions.

In order to develop the automobile industry, Dong said that Vietnam needs a strategy to protect the domestic industry while limiting car imports.

Tax policy is key

As imported CBU cars will be very difficult to import from 2018, Toyota Motors Vietnam (TMV) plans to transfer assembly of its Fortuner model to Vietnam, which it has been importing as CBU units from Indonesia since January 2017.

"If it becomes easier to import cars, we will cancel assembly in Vietnam, because importing cars is cheaper," noted Kinoshita, general director of TMV.

According to Dong, Vietnam should prescribe that foreign automobile makers assembling products in Vietnam and manufacturing qualified components will receive a 10-year exemption from value-added tax. This would promote investment instead of tightening import conditions.

Huyndai Thanh Cong also recommended removing special consumption tax from automobiles manufactured domestically.

"This measure has been applied by regional countries such as Malaysia, Indonesia, and India to promote investment in the support industry among domestic manufacturers, raising the localisation rate and reducing sales price," Le Ngoc Duc, general director of Huyndai Thanh Cong, confirmed.

With the exception of under-seven-tonne trucks and over-25-seat passenger cars, the localisation rate of automobiles in Vietnam is low, thereby it is very difficult to export cars and parts to other countries. Tax policy is key to overcome the problem.

The representatives of Vinafast also confirmed purchasing domestically-manufactured components and spare parts as well as support and collaborate with manufacturers and part suppliers to develop the automobile industry of the country.

VIR