VietNamNet Bridge - At a workshop held on the automobile industry recently, a representative from the Vietnam Auto Manufacturers Association (VAMA) cited difficulties of the Vietnam industry – the small market, small output and high production costs, which all make it more costly to manufacture car parts in Vietnam.

Because of the weak support industries in Vietnam, most car parts need to be imported, for which automobile manufacturers have to pay additional fees such as packaging, transportation and import tax. This raises the total production cost of a car in Vietnam, more than that in Thailand and Indonesia.

“In a word, the production costs of cars in Vietnam are higher than CBU imports. From 2018, the import tariff on CBU imports from ASEAN will be cut to zero percent, but car parts imports will still be higher than zero percent. Therefore, it will be very difficult for Vietnam automobile industry to compete and exist,” a representative of VAMA said.

Because of the weak support industries in Vietnam, most car parts need to be imported, for which automobile manufacturers have to pay additional fees such as packaging, transportation and import tax.

VAMA has proposed cutting or removing the import tax on CKD car parts for all automobile and car part manufacturers with no requirement on output and localization ratio.

The association has also proposed giving preferences to domestic manufacturers to encourage them to maintain domestic production when the market is not large enough.

The Ministry of Finance (MOF) has recently submitted to the government a plan to cut the import tax on car parts to zero percent to help auto manufacturers reduce production costs. The zero percent tariff would be applied to car parts which cannot be made in Vietnam.

However, the preferential tariff will only be applied to manufacturers which can satisfy three requirements on the growth rate, general annual output, and output of the registered car models and their localization ratios. The general annual output must be 38,000 products at a minimum from 2018.

In reply to the VAMA proposal, Nguyen Thanh Hang, deputy director of MOF’s Tax Policy Department, said: “We are here to hear useful solutions which could be a breakthrough for the auto industry. But we still have not heard any.”

“I personally feel happy that automobile manufacturers are determined to build an  automobile industry. However, I am disappointed about the solutions suggested by VAMA is mainly a tax cut proposal,” she said.

She said she doesn’t support a tax cut with no requirement on localization ratio on auto manufacturers, as this would not maintain the auto industry.

“Our purpose is to reduce taxes conditionally,” she said.

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