Will reducing import tax on auto parts reduce car prices in Vietnam?

The Ministry of Finance hopes that adjusting import taxes on auto parts will encourage auto manufacturing and assembly enterprises in Vietnam to reduce vehicle prices.

Expectations to increase competitiveness for domestic cars

The Ministry of Finance is drafting a Decree to replace Decree No. 122/2016/ND-CP on the list of export tariffs, preferential import tariffs, list of goods and absolute tax rates, mixed taxes, and import taxes outside tariff quotas.

The objective of amending Decree No. 122/2016 is to unify the implementation of the ASEAN Harmonized Tariff Schedule version 2017 according to the commitment within ASEAN as well as to resolve problems and difficulties for businesses arising in the past and the impact of eliminating import tax according to the commitment in the Free Trade Agreements that Vietnam has signed from 2018 onwards.

Especially the impact of reducing import tax on imported cars from ASEAN countries to 0% from January 1, 2018.

The Ministry of Finance hopes that adjusting import tax on auto parts will increase the competitiveness of domestic cars.

A particularly noteworthy content in this draft Decree is the import tax on auto parts; the tax adjustment objective is to ensure the harmony of interests of the State, enterprises and consumers. For the State, it contributes to promoting the development of the auto industry and supporting industries; creating jobs and income for workers; contributing to increasing state budget revenue and contributing to limiting the import surplus of cars;

For supporting enterprises, adjusting import tax on auto parts will increase demand for domestically produced parts and components. For manufacturing and assembling enterprises, it will help the auto market grow steadily, maintaining production with price competitiveness compared to imported cars.

Along with that, for consumers, this will contribute to creating a market of cheap, high-quality cars.

At the same time, maintain a stable growth rate of production and assembly for the two vehicle groups of the Program in the period of 2018-2022 at 16%/year (vehicles with less than 9 seats) and 18%/year (for trucks); Increase the ratio of the number of vehicles produced and assembled compared to domestic demand for the two vehicle groups of the Program in the period of 2018-2022 to 80% or more.

The Ministry of Finance also expects that the tax adjustment will develop the supporting industry by achieving a domestic production value ratio of 40% of the demand for components and spare parts for domestic automobile assembly production from 2022 onwards for both vehicle groups of the Program (for committed vehicle models belonging to the group of vehicles with less than 9 seats: 20% in 2018; 25% in 2019; 30% in 2020; 35% in 2021; 40% in 2022; For committed vehicle models belonging to the truck group: 10% in 2018; 15% in 2019; 2020: 20%; 2021: 25%; 40% in 2022).).

2 tax reduction options

To realize the above expectations, the Ministry of Finance proposed two tax reduction options. Accordingly, option 1 is to reduce the MFN import tax rate of 163 tax lines of imported auto parts to assemble for 2 groups of vehicles to 0%. Accordingly, the average tax rate of the entire set of components will be reduced from 14-16% to about 7% for vehicles with less than 9 seats and about 1% for trucks under 5 tons.

As for option 2, the MFN import tax rate of 19 tax lines of components such as engines, gearboxes, transmissions, high-pressure pumps for assembly for 2 groups of vehicles will be reduced (from levels of 3%, 5%, 10%, 15%, 18%, 20%, 25%, 30%, 32%, 45%, 50% to 0%).(Because these are some components and spare parts that Vietnam cannot produce in the coming period)) and reduce the tax rates of 42 tax lines in group 8708 (auto parts and accessories) for assembly for the above two groups of vehicles from 15%, 20% and 25% to 10%.

Accordingly, the average tax rate of the entire set of components will be reduced from 14-16% to 9-11% for vehicles with less than 9 seats and 7.9% for trucks under 5 tons.

Up to now, Ms. Hang said, the Ministry of Finance has received many comments from businesses and associations on this proposal. Among those comments, it is emphasized that import tax on components should be reduced for vehicles with cylinder capacity of over 2,000cc, not just for vehicles under 2,000cc as in the draft, because this is the mainstay of ASEAN countries such as Indonesia and Thailand.

Therefore, if Vietnam only focuses on tax incentives for these types of cars, it will be difficult to compete. Even if it encourages more cars with a cylinder capacity of 2,500cc, Vietnam can export cars to ASEAN countries.

According to Ms. Hang, in the feedback to the Ministry of Finance, there was also a suggestion to add other vehicle lines besides trucks under 5 tons such as buses, medium and heavy trucks and a proposal to expand the tax reduction to 0% for all types of auto parts, not just 163 tax lines as proposed./.

According to VOV