Proposal to reduce special consumption tax on domestic cars
The determination of new tax prices is said to encourage assembly production and increase the localization rate of domestic automobiles. However, this proposal has also received many opposing opinions.
The Ministry of Finance recently reported to the Prime Minister regarding the reception and explanation of Government members' opinions on the draft Decree amending and supplementing a number of articles of Decree 108.
In this document, the Ministry of Finance mentioned the proposal to amend the Tax Law in the direction that "the price for calculating special consumption tax on domestically produced automobiles with 9 seats or less is the price sold by the manufacturing facility minus the value of domestically produced components and spare parts".
The Ministry of Finance said that the content of regulations on prices for calculating special consumption tax on domestically produced goods is currently stipulated in Law 106/2016/QH12 amending and supplementing a number of articles of the Law on Value Added Tax, the Law on Special Consumption Tax and the Law on Tax Administration.
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| If the special consumption tax price does not include domestically produced components, domestic cars will have the opportunity to reduce prices compared to the present. |
Pursuant to the provisions of this Law, the price for calculating special consumption tax on domestically produced goods subject to special consumption tax (including automobiles) is the price sold by the manufacturing establishment.
"Therefore, in case of amending the regulations on prices for calculating special consumption tax on automobiles in the direction of not calculating special consumption tax on domestically produced spare parts, the regulations in Clause 1, Article 6 of the Law on Special Consumption Tax must be amended," said the Ministry of Finance.
To encourage businesses to increase the localization rate, reduce product costs and enhance competitiveness between domestically produced cars and imported cars, in the draft Law amending and supplementing a number of articles of the Law on Special Consumption Tax, the Ministry of Finance has researched and proposed a plan for calculating special consumption tax on domestically produced cars with 9 seats or less, which is the price sold by the manufacturing facility minus the value of domestically produced components and spare parts.
The Ministry of Finance also cited the national treatment rule stated in Article III of the GATT Agreement of the World Trade Organization (WTO), stating that in the case where the price for calculating special consumption tax is deducted from the value of domestically produced components, "it may violate the commitment to distinguish between imported goods and domestically produced goods."
However, the Ministry of Finance said that some countries also apply regulations to deduct the value of imported components or special consumption tax incentives for domestically produced cars for a short period of 3-5 years. The purpose is that in case of lawsuits, "the preferential regulations will also expire" similar to the cases of Thailand and Indonesia.
For that reason, the Ministry of Finance said that it is continuing to research to submit to the Government and the National Assembly for consideration and decision when amending the Law on Special Consumption Tax.
Previously, the Ministry of Industry and Trade also proposed to change the way of calculating special consumption tax on domestically produced vehicles according to the localization rate (ie components and spare parts produced domestically are exempt from special consumption tax). According to the Ministry of Industry and Trade, the localization rate for 9-seat vehicles was targeted at 40% in 2005 and 60% in 2010, but so far it has only reached an average rate of 7-10%.
In a later announcement by the Government Office regarding the conclusion of Deputy Prime Minister Vuong Dinh Hue at a meeting on the proposed amendments and supplements to a number of articles of tax laws, the Deputy Prime Minister requested the Ministry of Finance to consider and study the opinions of the Ministry of Industry and Trade regarding the price for calculating special consumption tax on cars with 9 seats or less.
However, this proposal has received mixed opinions. Even the Vietnam Automobile Manufacturers Association (VAMA), whose members are mostly foreign automobile manufacturers, is concerned that this policy will create an uneven playing field for automobile manufacturers in general and will not comply with Vietnam's commitments to the WTO.
The Ministry of Planning and Investment acknowledges that determining the tax price as above will encourage assembly production, increasing the localization rate of domestic automobiles. However, the Ministry suggests that the above regulation should be studied to avoid violating the WTO non-discrimination principle and the trade agreements that Vietnam has signed, especially the effective agreements related to the automobile sector.