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Old rules may hinder VN’s automobile industry development

The Ministry of Finance (MOF) wants to apply regulations for the automobile industry which existed 17-18 years ago, but the Ministry of Science and Technology (MST) wants to remove them.

MOF has asked MST to extend its Circular 11/2022/TT-BKHCN for fear that there might be a void in applying tax calculations for the automobile industry.

Circular 11 was issued by MST on August 10, 2022 to remove MST’s previous legal documents on the method defining localization ratios of cars, including Decision 28/2004/QD-BKHCN, Decision 05/2005/QD-BKHCN and Circular 05/2012/TT-BLKHCN.

These regulations are the legal basis for the import tax policy for automobile manufacturing and assembling.

According to MOF, the removal of these legal documents will lead to businesses importing sets of car parts with low separability rather than investment in production lines and higher localization ratios.

Also, this will create trouble during the implementation process, because the provisions on the separability of sets of car parts are also regulated in government decrees on preferential import/export tariffs which serve as the basis for tax calculation, and which are still valid. 

Therefore, MOF proposed that Circular 11/2022/TT-BKHCN's validity date be delayed until after the government’s new decree on preferential import/export tariffs takes effect. It is drafting the decree to submit to the government in October.

Another option, according to MOF, is that MST could delay the validity date of the removal of the regulation on the separability degree of import sets of car parts in Circular 05/2012/TT-BKHCN until the new government decree on preferential import/export tariffs takes effect.

However, MST wants to remove these documents because their legal validity has expired. Though the documents expired in 2014, MST decided to remove them until August 2022.

What do enterprises say?

As for MOF’s draft decree on preferential import/export tariffs, Thaco Auto said that MOF’s proposal doesn’t remove difficulties or create favorable conditions for auto manufacturing and assembling enterprises, and doesn’t create a momentum to develop domestic production amid the fierce competition with CBU imports from ASEAN countries (import tax down to zero percent since 2018).

In the near future, taxes on imports from Japan, Mexico and the EU will also fall to zero percent under CPTPP (The Comprehensive and Progressive Agreement for Trans-Pacific Partnership) and the EU-Vietnam Free Trade Agreement (EVFTA).

According to automobile manufacturers, automobile technology is developing rapidly, while features and car parts are increasingly new and modern. They account for an increasingly large proportion of the value of cars, especially high-end products.

The automobile industry is shifting from a traditional automobile industry (using mechanical engineering car parts, fossil fuel), to a smart automobile industry (using electronic components with high technology content, friendly to environment). This will lead to major changes in the composition of electric cars. For example, they will have no clutches and possibly no gear boxes.

Cars are assembled from 30,000 components. Vietnamese automakers want to remove the regulations on separability of imported car parts. 

It would be better if management agencies don’t interfere with enterprises’ specifications, quantity and degree of separability. 

If so, enterprises would be exempted from taxes which are no longer suitable.

Thaco Auto said the removal of the regulation on the degrees of separability of imported car parts (which enterprises must satisfy to be able to enjoy preferential taxes to manufacture and assemble cars) won’t cause the loss of revenue to the state budget. 

It will help increase the numbers of domestically made products, thus helping increase revenue for the state budget.

Luong Bang

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