Automakers prepare plans to leave Vietnam

Enterprises said that corporate income tax (CIT) support is still unattractive and they are ready to abandon assembly production and switch to importing complete units for sale from 2018.

Not satisfied

The draft law amending and supplementing a number of articles in tax laws, recently announced by the Ministry of Finance, shows that domestic automobile manufacturing and assembly will enjoy a 10% corporate income tax rate for 15 years from the time the project makes a profit. Projects will also be exempted from tax for 4 years and have 50% of the corporate income tax payable reduced for the next 9 years, from the date of licensing and operation.

Automobile manufacturing projects with capital of VND6,000 billion (USD300 million) or more, disbursed within 3 years from the date of licensing, will receive investment incentives.

However, according to automobile enterprises, this preferential policy is not enough to eliminate the difference in production costs in Vietnam compared to other countries in the region. They believe that if only corporate income tax incentives are given while large investments are required, there will certainly not be enough profit to enjoy tax incentives in the beginning.

In addition, the reduction of special consumption tax for vehicles with cylinder capacity of 2,000 cm3 or less to 40% and 30% will also benefit completely imported vehicles; thus, it only helps increase the scale of the automobile market and does not provide incentives for domestic automobile manufacturers.

Automobile assembly production in Vietnam costs 20% more than production in Thailand, Indonesia, etc. due to low output and localization rate.

Enterprises also explained that investing in a large-scale project of 300 million USD with only high corporate income tax incentives like that is not attractive enough. The supporting industry in Vietnam is too weak, the localization rate is low, it will be very difficult to create a competitive advantage with imported cars in the domestic market as well as towards exporting products.

According to auto companies, currently, car assembly and production in Vietnam costs 20% more than production in Thailand, Indonesia, etc. due to low output and localization rate.

However, because the import tax rate for completely built-up cars from the ASEAN region to Vietnam is currently at 50%, domestically assembled cars still have an advantage. However, this advantage will soon disappear because the import tax rate will gradually decrease to 0% in 2018. At that time, domestically assembled cars will be more expensive than completely imported cars and will not be able to compete.

In order to maintain domestic automobile production, recently, enterprises have proposed to the Government a series of policies, such as supporting the difference in value between domestic production and imports, reducing special consumption tax only for small-capacity vehicles produced and assembled domestically, etc. However, the above proposals did not receive consensus.

Hard to get a chance?

In addition, businesses also proposed to reduce the special consumption tax rate to 30%, only for domestically assembled cars, not for imported cars. But so far, this seems to have not come true.

If special consumption tax and import tax are reduced, businesses expect imported cars to be affected by many other "barriers". However, this is not certain. On the contrary, there is a lot of information that makes them more worried.

For example, the Ministry of Finance estimates that when special consumption tax is reduced for cars with a capacity of 2,000 cm3 or less, starting in 2017, the budget will lose 1,200 billion VND/year in revenue. At that time, the increase in the number of cars consumed is expected to offset this shortfall. If domestic cars cannot meet demand, the door will be opened for imported cars to flood in to replace them. If so, there will be no "barrier" to prevent imported cars.

Thus, from January 1, 2016, the import tax rate for completely built-up cars imported from ASEAN to Vietnam will be reduced to 40% compared to the current 50%. Next, from July 1, 2016, cars with cylinder capacity from 2,000cm3 may have their special consumption tax reduced. At that time, domestic automobile enterprises will be unable to react in time.

Currently, automobile companies have poured money into projects with potential to increase the localization rate, such as Toyota Vietnam, which is researching and developing an environmentally friendly car line, which is a car with 5 seats, an engine capacity of less than 1.5L, meeting Euro 4 emission standards. In the coming time, the company plans to focus its current production capacity on 1 or 2 of these car models to achieve high output, thereby helping to localize more components.

Or, Mazda automobile corporation (Japan) plans to put the Mazda passenger car factory in Vietnam into operation in 2017, reaching a localization rate of 40% after 1 year.

Hyundai Thanh Cong has also completed phase one of its automobile manufacturing and assembly plant in Ninh Binh, with automatic frame welding and painting lines, and is investing in phase two with a body stamping workshop.

However, auto companies said that if production costs in Vietnam were as low as in Thailand, they would be able to continue investing and producing there. Currently, companies are still maintaining the production and assembly of competitive car models, and when they are no longer available, they will switch to importing for distribution.

According to Zing.vn