The Ministry of Finance is studying a plan to cut the prices for the calculation of special consumption tax on locally made cars with nine seats or below. However, this may raise the risk of violating international commitments, according to a report from the ministry to the prime minister.

Cars and other vehicles are held up in a heavy traffic jam near downtown HCMC 

The report responds to the opinions of cabinet members on a draft Government decree that amends and supplements a number of articles of Decree 108/2015 on the Law on Special Consumption Tax.

The ministry said in the report that special consumption tax on domestically produced commodities, including cars, are based on the selling prices of producers.

To raise the ratio of local contents, lower product prices and enhance competitiveness among locally made and imported cars, the ministry has put forward a tax calculation proposal.

Under the proposal, special consumption tax on cars with nine seats or fewer will be the selling prices of automakers excluding the prices of locally made parts and accessories.

The ministry cites Article III of the general agreement on tariffs and trade by the World Trade Organization on national treatment of internal taxation and regulation, as stating that the contracting parties must recognize that internal taxes and other internal charges and laws, regulations and requirements affecting the internal sale, offer for sale, purchase, transportation, distribution or use of products, as well as internal quantitative regulations requiring the mixture, processing or use of products in specified amounts or proportions, should not be applied to imported or domestic products, thus protecting domestic production.

This means that the new tax calculation may violate commitments related to discrimination between imported and domestically produced goods, according to the ministry.

According to the ministry, some countries such as Thailand and Indonesia have also applied regulations on this tax calculation method over a short period of three to five years. If a lawsuit is brought, these regulations are also about to expire.

Therefore, the ministry pledges to continue considering the tax calculation method before submitting the proposal to the Government and the legislative National Assembly for consideration when amending the Law on Special Consumption Tax.

SGT