The Ministry of Finance (MoF) plans to cut import taxes on automobile parts in line with WTO rules, according to the Vietnam News Agency (VNA).

Vietnam’s WTO commitments require it maintain a tax level on imported auto components of between zero and 30 per cent. Officials say the changes will also serve domestic interests.

Deputy Minister of Industry and Trade Do Thang Hai was quoted by VNA as telling a press conference at Smart Industry World 2017 in Hanoi last week that the import tax cuts would bolster auto production in Vietnam by leveling the playing field between imported vehicles and vehicles made in the country with imported parts.

“Automakers said that they had not received much support from the State, but the government’s upcoming document will create fair play for businesses,” Mr. Hai said. “Automakers and auto assemblers only need to be treated as fairly as auto importers.”

Automakers have invested thousands, and even tens of thousands of billions of VND but there is still an unreasonable issue: import taxes on auto parts are higher than for completely-built-up (CBUs) units, he said.

In a draft document currently before relevant ministries, sectors, and associations to collect opinions, MoF presents two methods for implementing the tax cuts, which will apply to parts that are used to assemble cars with nine seats or less and trucks with capacity of five tonnes or less. The document will be submitted to the Prime Minister for approval in the future and will become effective from January 1, 2018 to December 31, 2022.

In the ministry’s first proposed method, import tariffs on 163 auto parts will be cut to zero per cent. The average tariff on auto components would be reduced from 14-16 per cent to 7 per cent for nine-seat cars and to 1 per cent for trucks.

In the second method, the ministry wants to cut import tariffs on 19 components, including engines, gear boxes, automatic transmissions, and fuel injection pumps, which are not produced in Vietnam, from 3-50 per cent currently to 0 per cent. Under this plan, the average import tax on components would fall from 14-16 per cent to 9-11 per cent for cars and to 7.9 per cent for trucks.

According to the finance ministry, both methods encourage businesses to manufacture and assemble automobiles locally. Officials say the cuts would increase competitiveness with imported cars, support local industry, increase domestic consumption, and promote exports.

Comparing the two methods, the ministry said the first would help automakers cut costs more significantly than the second.

The first method would cut total import taxes on components for both types of vehicles by an estimated VND5.23 trillion ($229.79 million) and result in VND535 billion ($23.5 million) more in corporate income as production increases. As for the second method, total import taxes would be reduced by VND3.5 trillion ($154 million) and corporate income would increase by VND535 billion ($23.5 million).

To benefit from the tax cuts, the ministry said that automakers would have to reach an annual growth rate of 16-18 per cent and 40 per cent of production value must accrue locally, in line with the national automobile industry development program. Automakers that don’t hit the targets will pay higher taxes on imported components.

Manufacturers must record annual growth of 16 per cent, with a minimum output of 34,000 units by 2018. Output must rise steadily each year to hit 61,000 units by 2022. 

With this requirement, the ministry said three automakers may already qualify to join the program. According to the Tien Phong (Vanguard) newspaper, they are Toyota Motor Vietnam, Hyundai Thanh Cong, and the Truong Hai Automobile Corporation.

As for trucks, the ministry requires that manufacturers achieve annual growth of 18 per cent, with a minimum output of 8,000 units in 2018, raised to 15,000 by 2020. There may be only one business qualified under these regulations, according to the ministry. 

Automobiles must also meet emissions and fuel consumption standards. Cars are required to have engines of 2,000 cc or less, meaning they must be relatively fuel efficient. They must also have economy of seven liters per 100km, and both cars and trucks must meet strict European exhaust emission standards.

VN Economic Times