Ahead of ASEAN tax cut, proposals for local auto

The Ministry of Finance (MoF) has submitted to the government a proposal on reducing import tariffs on auto parts and components to 0% in an attempt to help locally-based car production and assembling businesses to save on production costs and enhance their competitiveness with imported vehicles.

The move came in light of the 0% import tariffs set for 2018 on completely built-up units (CBU) imported from ASEAN following the Agreement on the Common Effective Preferential Tariff Scheme for the ASEAN Free Trade Area.

To enjoy the tariff reductions, auto firms must satisfy three conditions related to their growth rate: the firm’s production capacity during the year; the production volume of registered car models; and the localisation rate.

The minimum car production volume is 34,000 units beginning in 2018.

When MoF’s tax policy on the importation of auto components will approved and become effective, however, remains a mystery.

To ensure the auto market’s sustainable growth, transparency, and environmental cleanliness, in May of this year the Ministry of Industry and Trade submitted a draft decree regulating the conditions on the production, assembly, import, and trade of car warranty and maintenance services. The draft decree has yet to be approved, though the enforcement date set in the decree was July 2017.

Commenting on how to push up the development of the auto industry, representatives from Truong Hai Auto Corporation (Thaco) – a leading local car production and assembling unit – and Toyota Vietnam both stress the need for stable policies in auto and supporting industry development to attract investors.

According to Pham Anh Tuan, head of the Policy Division under the Vietnam Automobile Manufacturers’ Association (VAMA), the production cost of locally-produced cars is currently higher than those imported into Vietnam in CBU form.

This has put the local auto industry into a tight corner. Starting next year, the import duties on cars imported from the ASEAN region into Vietnam in CBU form will fall to 0%, while local firms still incur duties when importing components for production.

VAMA has, therefore, proposed reducing or removing import duties on complete knock-down (CKD) components without any conditions in terms of production output or localisation rate, paired with other incentives to support local producers.

Nguyen Thanh Hang, deputy head of MoF’s Tax Policy Department, disagreed, arguing that without such conditions, firms may cash in on current tax incentives by importing disassembled components without worrying about the localisation rate or the development of supporting industries.

“During the 20-year development of the auto industry, tax policies have proven very supportive. The tax imposed on component imports is far lower than that levied on CBU imports. Car firms need to support and call on supporting industry businesses to supply them the necessary components,” Hang said.