Tax reduction, domestic cars have a sharp price reduction

It is likely that many imported auto parts will enjoy import tax incentives for a period of 5 years (from 2018 to the end of 2022). If special consumption tax and corporate income tax are further reduced, the prospect of domestic cars being cheaper than imported cars may become a reality.

Reduce import tax on components

The Ministry of Finance is consulting with authorities and businesses on a plan to amend import tax policies on auto parts and components before submitting it to the Government.

Specifically, many imported auto parts will enjoy import tax incentives for a period of 5 years (from the beginning of 2018 to the end of 2022). To enjoy this incentive, auto manufacturing and assembling enterprises must register for the 5-year import tax incentive program, period 2018-2022.

However, to enjoy import tax rates of 0% or 10%, depending on each component, enterprises must commit to 3 criteria: achieving minimum general output and minimum specific output for the committed vehicle model; achieving localization rate for the committed vehicle model according to the roadmap; the committed vehicle model here is a passenger car with less than 9 seats, with a cylinder capacity of 2,000 cc or less, fuel consumption of less than 7 liters/100km and a truck with a load capacity of 5 tons or less.

To get a reduction in component tax, businesses must meet many standards on vehicle output and localization rate.

All vehicle models must meet level 4 emission standards for the 2018-2021 period and level 5 for the 2022 period.

Specifically, for passenger cars with less than 9 seats, enterprises must have a total output of 34,000 vehicles in 2018, 40,000 vehicles in 2019, 46,000 vehicles in 2020, 53,000 vehicles in 2021, 61,000 vehicles in 2022, and a total of 234,000 vehicles in 5 years.

With the specific output and localization rate for the committed car model, in 2018 it will reach 20,000 and 20%, in 2019 it will reach 23,000 vehicles and 25%, in 2020 it will reach 27,000 vehicles and 30%, in 2021 it will reach 31,000 vehicles and 35%, in 2022 it will reach 36,000 vehicles and 40%. The total output is 137,000 vehicles.

For trucks, the total output must reach 8,000 vehicles in 2018, 9,000 in 2019, 11,000 in 2020, 13,000 in 2021 and 15,000 in 2022. The total output will reach 56,000 vehicles after 5 years.

With the specific output and localization rate in 2018 must reach 4,000 vehicles and 15%, in 2019 reach 5,000 vehicles and 20%, in 2020 reach 6,000 vehicles and 25%, in 2021 reach 7,000 vehicles and 35%, in 2022 reach 8,000 vehicles and 40%. Total specific output reaches 30,000 vehicles after 5 years.

If the total output, total output and localization rate of at least 40% are not achieved, by December 31, 2022, the customs authority will collect the full import tax for 5 years (from 2018-2022) on all imported auto components that have enjoyed tax incentives.

If they meet the requirements, businesses will be refunded the tax arrears for the years they failed, according to the annual audit results.

The Ministry of Finance requests that competent agencies and enterprises give their opinions to complete and submit the above draft to the Government.

Domestic cars will be discounted

However, according to some automobile enterprises, with such conditions, if there are no other preferential policies attached, it is still not attractive enough for production and assembly activities. Because from January 1, 2018, completely built-up cars imported from ASEAN to Vietnam will enjoy a 0% tariff, only on the condition that the localization rate within the bloc is 40%.

Domestically assembled car prices will be cheaper from 2018.

Currently, import tax rates for many types of auto components from ASEAN to Vietnam have decreased to low levels, so even if import tax on all components is reduced to 0%, the price of domestically assembled cars will only decrease by about 3-4% in 2018.

Meanwhile, imported cars will be 15-20% cheaper than domestic cars. Therefore, there needs to be other incentives to fill the gap between domestically assembled cars and imported cars, commented the director of an FDI car company.

“We know that the Ministry of Industry and Trade has proposed not to impose special consumption tax on domestically purchased components, in addition to reducing income tax for automobile manufacturing and assembly enterprises, along with other support in terms of infrastructure, bank loans, etc. Only then will domestically manufactured and assembled cars be competitive enough with imported cars,” said a representative of an automobile manufacturing enterprise.

A domestic automobile manufacturing and assembling enterprise calculated that by 2018, a car with a cylinder capacity of less than 1.5L, imported from ASEAN to Vietnam, will cost about 7,500 USD, subject to 0% import tax, 35% special consumption tax, 10% VAT, and sold at 350 million VND or more. If a similar domestic car enjoyed the above incentives, its price would be at 330 million VND or less, which would be competitive enough with imported cars.

According to VNN