Domestically assembled cars could see sharp decline thanks to new tax proposal
Automobile manufacturing and assembly enterprises that meet the committed output and domestic rate will be allowed to import components with 0% tax.
The Ministry of Finance has just solicited opinions from businesses and people on the proposal to reduce import tax on components for passenger cars with less than 9 seats and trucks with a capacity of 5 tons or less under the tax incentive program from 2018 to 2022. Accordingly, this agency has proposed two tax reduction options to encourage manufacturing and assembly businesses, helping to reduce costs and selling prices to increase competition with imported cars as well as increase consumption output.
Option 1 is to reduce to 0% the tax rate on 163 imported auto parts for assembly. Accordingly, the average tax rate of the entire set of parts will be reduced from 14-16% to about 7% for cars with less than 9 seats and about 1% for trucks under 5 tons.
Option 2 is to reduce to 0% the tax rate for 19 components such as engines, gearboxes, transmissions, high-pressure pumps for assembly (components that Vietnam cannot yet produce) and reduce to 10% the tax rate for 42 components and accessories from the rates of 15%, 20% and 25%. Accordingly, the average tax rate for the entire set of car components will decrease from 14-16% to 9-11% and trucks under 5 tons will decrease by 7.9%.
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| The Ministry of Finance's new tax proposal aims to support the domestic automobile manufacturing and assembly market. |
The Ministry of Finance believes that option 1 will help businesses reduce input costs more with higher import tax incentives and also make it easier to achieve the Program's output target.
The downside of both options is that companies that do not intend to expand production and assembly in Vietnam will face difficulties because they will not enjoy a 0% tax rate when importing components for assembly. It is very likely that these companies will gradually switch to importing complete vehicles, causing the number of manufacturing and assembly businesses to shrink.
In addition, to enjoy tax incentives under this program, businesses must ensure conditions on vehicle production and assembly output as well as the domestic production value ratio of the committed vehicle model each year.
Specifically, the roadmap for commitment conditions for a business is as follows:
| Route | 2018 | 2019 | 2020 | 2021 | 2022 | Total period 2018-2022 |
| Growth rate/year | 16% | 16% | 16% | 16% | 16% | |
| Minimum overall output | 34,000 vehicles | 40,000 cars | 46,000 vehicles | 53,000 vehicles | 61,000 vehicles | 234,000 vehicles |
| Minimum individual output per vehicle model and domestic production value ratio | 20,000 vehicles and 20% | 23,000 vehicles and 30% | 27,000 vehicles and 30% | 31,000 vehicles and 40% | 36,000 vehicles and 40% | 137,000 vehicles and 40% |
This roadmap applies to passenger vehicles with less than 9 seats, capacity of 2,000 cc or less, fuel consumption of less than 7 liters per 100km, emission standards level 4 (2018-2021); level 5 from 2022 onwards. According to the Ministry of Finance, with this roadmap, there will likely be 3 eligible enterprises participating. The domestic production value ratio will reach 40% (achieving the target set by the program and the Automobile Industry Development Plan).
The provision of conditions for commitment on minimum common output aims to ensure that the domestic assembly industry increases its market capacity with a certain annual growth rate, creating motivation for businesses to continue investing and developing production in Vietnam. At the same time, it encourages the development of the supporting industry through increasing demand for domestically produced components./.
According to VNN
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