The government of Vietnam does not intend to give up the dream of developing an automobile industry, even though it has failed to do so in the last two decades.
Under the draft tax law being compiled by the Ministry of Finance (MOF), operational and newly invested automobile projects would enjoy many preferences.
Analysts commented that the draft tax law shows that the automobile industry is an important part of the national economy and that the government is determined to develop the industry despite failed efforts.
MOF proposed to apply the preferential corporate income tax rate of 10 percent for 15 years for some automobile projects, and a four-year tax exemption and 50 percent tax reduction in the next four years.
The projects also need to satisfy some requirements as follows.
First, they include products encouraged by the government and satisfy requirements of capital, labor force and investment disbursement stipulated in the Special Consumption Tax (luxury tax) and Corporate Income Tax.
Second, they are newly invested projects that make important sets of car parts, including engine and gear boxes.
An MOF senior official said the ministry was amending the two tax laws per the request of the government.
On July 18, 2015, the Government Office released Notice No 229 requesting MOF and relevant ministries to build up plans to amend the two laws. The amendment will have to:
First, cut the luxury tax rates on car lines the government encourages to produce.
Second, apply high and especially high luxury tax rates on car models with up to nine seaters and the cylinder capacity of over 3.0L.
The models consume much fuel and have a large size which do not fit Vietnam’s current infrastructure conditions and the income of the majority of people. They also have a large volume of emissions and high value.
Third, as for large-scale production projects for encouraged car models and important sets of car parts, the corporate income tax rates will be more preferential than the current ones. The preferences for projects will be specifically decided by the Prime Minister.
According to MOF, under free trade agreements (FTAs), the import tariffs on complete built unit (CBU) cars from ASEAN countries will be cut to 0-5 percent, while car part imports from Japan and South Korea will be taxed 20-25 percent from 2018.
ASEAN countries tend to apply lower luxury tax rates to car models with small cylinder capacity in an effort to save fuel.
The tax rate on less than 2,000 cubic meter models is between 15 percent and 30 percent.