Auto makers are in a massive spin

There are allegations that policy makers have made many concessions to foreign auto makers

The Vietnam Automobile Manufacturers’ Association (VAMA) has sent a document to the ministries of Finance (MoF), Industry and Trade (MoIT) and Science and Technology (MST) proposing the MoF not impose the complete built unit (CBU) rate of 82 per cent on VAMA member companies’ imported parts, if only some parts fail to meet breakdown level requirements in the MST’s Decision 05/2005/ BKHCN.

Decision 05, issued in 2005 to guide the localisation ratio calculation, stipulates automobile parts’ specific breakdown levels. Details on import tax rates are provided in the MoF’s Circular 184/2010/TT-BTC dated November 15, 2010.

The circular stipulates that if at least one part in the imported set of components has a breakdown level lower than that prescribed in Decision 05, the set would be subject to import tax rates applied to CBU. The tax rates for parts and CBUs are 0-27 per cent and 82 per cent, respectively.

“VAMA member companies are serious investors who have invested hundreds of millions of dollars in vehicle manufacturing and assembling in Vietnam for many years. The application of Circular 184 has caused tremendous difficulties to VAMA members. A number of members are facing shutting down production. This is because if we open customs declarations, all imported kits shall be hit with an import duty of 82 per cent,” said VAMA’s chairman Akito Tachibana, who is also Toyota Motor Vietnam’s general director.

In a bid to protect local production and encourage localisation, tax policies have been designed in a way to encourage importing automobile parts rather than sets of parts, and the parts with higher breakdown levels can enjoy lower tax rates.

Authorities required Ford Vietnam to pay tens of billions of dong in tax arrears, after discovering it had made incorrect tax declarations. Some other automobile manufacturers like Toyota Motor Vietnam, South Korean-backed Vidamco and Japan’s Honda Vietnam are also facing accusations of tax evasion.

For example, Hai Duong province’s Customs Agency in April, 2011 discovered that the breakdown level of Ford Vietnam’s imports was lower than that declared. Thus, the tax rate applied to Ford’s imports must be that applied to CBU.

Specifically, based on Ford Vietnam’s four declarations, it had to pay only VND4.83 billion ($233,500) for four consignments of imports in that month. However, the customs agency has later asked the firm to pay VND17.94 billion ($867,000) more.

Ford had to temporarily stop operations for days as it could not open new customs declaration, because if the declaration was opened, all imported kits would be applied import duty of 82 per cent.

Vidamco said it might have to shut down production in the coming days, leaving thousands of employees jobless due to the current legal regulations.

The MST, MoIT and the Ministry of Transport has  established a team to examine  the breakdown levels of the sets of imported components, to later decide whether Decision 05 should be revised. “Pending the examination results, importers are allowed to continue getting customs clearance with the tax rate in line with what they declared. However, importers have to make written commitments with customs agencies that they will have to obey final conclusions by authorised agencies about imported components,” said MoF Deputy Minister Do Hoang Anh Tuan.

However, Central Institute for Economic Management economist Nguyen Tu Anh said Decision 05 should not be revised as “it has been going well since 2005”. “Automobile makers just want to enjoy lower taxes to benefit themselves via a revised decision. VAMA is strong, which can force ministries to make concessions,” Anh said.

There are accusations that concerned ministries have made many concessions in policies towards automobile assemblers in Vietnam. Some observers even raised questions on policy corruption.