Two way street in auto tax news

In its recent report, the Ministry of Finance (MoF) said auto industry tax policies would be cautiously devised and still put manufacturers under high pressure to lower selling prices while still ensuring consumer interests.

The MoF has recently issued circulars promulgating special preferential tariffs with diverse tax rates in three years from 2012 to 2014 for the auto industry in light of Vietnam’s trade agreements with the international community.

Under the MoF’s stipulations, from 2015 onwards, Vietnam will need to seek comments from relevant state agencies and business associations and submit to the prime minister for approval before making public auto industry import tariffs.

As regards to tax reduction roadmap following Vietnam’s World Trade Organization (WTO) commitments, the MoF said it had strictly abided by these tax reduction commitments and made public announcements annually.

The MoF said it would be firm on its stance that passenger cars subject to usage restrictions, and those with up to nine seats will still incur high tax rates.

Accordingly, the current import tax rate of 74 per cent  on brand-new cars will be eased gradually to 47 per cent for under-2,500 cylinder capacity (cc) vehicles and 52 per cent for 2,500cc plus by 2019.

The MoF unveiled the import taxes on component kits would be maintained at current levels even after brand-new cars import duties fell to such levels.

The current import duties on component kits and spare parts for passenger cars of up to nine seats are on the range of 18-20 per cent against 15 per cent rate five years ago when brand-new cars import duty fetched 100 per cent.

The main reason, according to the MoF, is Vietnam-based manufacturers have mainly imported completely knocked down (CKD) components and spare parts with low breakdown levels, resulted in low localisation rate.

Ceiling levels will be imposed on import tax rates for used cars, according to the MoF.
The MoF argued lower import duties on component kits would fail to encourage firms to invest in hiking current low localisation rate as well as boosting supporting industries development as committed by the government.

Accordingly, component kits and spare parts for vehicles of up to nine seats will basically be retained at ceiling regulated levels as per WTO commitments.

The components specified in the list of supporting industries approved by the prime minister in Decision 1483/QD-TTg dated August 26, 2011 will have import duties upwardly revised to ceiling levels under WTO commitments.

Decision 1483 specifies the list of supporting industry products to be prioritised for future investment.

According to the MoF, the auto industry currently reports very low domestic production value with up to nine-seat cars featuring rather low localisation rate of 15 per cent and other cars fetching localisation rate from 30-40 per cent against the set goal of 50-60 per cent.