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Vietnam reconsiders luxury tax to lower car production costs

VietNamNet Bridge - If the luxury tax on domestically made car parts is removed, production costs could be considerably lower and the low-cost car dreams would be within reach.

VietNamNet Bridge - If the luxury tax on domestically made car parts is removed, production costs could be considerably lower and the low-cost car dreams would be within reach.


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Vietnam wants to develops automobile industry


A source told VietNamNet that the Ministry of Finance (MOF) has sent a document to the PM on luxury taxes on domestically-made cars with fewer than nine seats. Under the ministry’s proposal, the taxable price would equal the selling price minus the value of domestically-made car parts.

The imposition of luxury tax, or special consumption tax (SCT) as it is called in Vietnam, is stipulated in Law No 106/2016/QH12 that amends and supplements several articles of the VAT, SCT and Tax Management Law.

Under the law, the SCT taxable price is the selling price set by manufacturers. 

Therefore, if Vietnam wants to remove SCT on car parts made domestically, it will have to amend Article 6 of the SCT Law.

Vietnam wants to develop an automobile industry of its own, and in order to do so, it needs to encourage domestic production. However, the suggestion was rejected by MOF one year ago.

MOF has proposed the new tax calculation tax to pave the way for automobile manufacturers to lower their production costs, a move towards protecting local production.

Citing provisions on national treatment stipulated in GATT of the World Trade Organization (WTO), MOF showed concern that the new way of defining taxable income may violate the commitments on discriminatory treatment between imports and domestically made products.

However, the ministry affirmed that other countries also apply the same tax calculation method, or give preferential luxury tax rates to domestically manufactured products for a short time of three to five years.

Two of the countries are Thailand and Indonesia, which have developed automobile industries.

The government and relevant ministries will have to consider this thoroughly before amending the tax law.

Offering preferences to domestically made products with high localization ratios was the measure suggested by the Ministry of Industry and Trade (MOIT).

Vietnam wants to develop an automobile industry of its own, and in order to do so, it needs to encourage domestic production. However, the suggestion was rejected by MOF one year ago.

Le Ngoc Duc, general director of Hyundai Thanh Cong told VietNamNet that this was bad news. He said his company might have to reconsider investments and would only invest in making low-value car parts which do not require big investments.

If other companies do this, Vietnam’s policy on raising localization ratios will fail completely.

Tran Ba Duong, president of Truong Hai Automobile, said current policies are not enough to improve the competitiveness of Vietnam-made cars and that the MOF’s proposal is worth consideration.


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