Domestically assembled cars could see significant price reductions thanks to proposed new taxes.
Automotive manufacturing and assembly companies that meet production volume and localization ratio commitments will be allowed to import components with a 0% tax rate.
The Ministry of Finance has recently sought feedback from businesses and the public on a proposal to reduce import taxes on components for passenger cars with fewer than nine seats and trucks weighing 5 tons or less, under a tax incentive program from 2018 to 2022. Accordingly, the agency has proposed two tax reduction options to encourage domestic manufacturing and assembly, helping to reduce costs and selling prices to increase competitiveness with imported vehicles and boost sales volume.
Option 1 is to reduce import tariffs to 0% for 163 lines of automotive components used in assembly. Accordingly, the average tariff rate for the entire set of components would be reduced from 14-16% to approximately 7% for vehicles with fewer than 9 seats and approximately 1% for trucks under 5 tons.
Option 2 involves reducing tariffs to 0% for 19 component lines including engines, gearboxes, transmission assemblies, and high-pressure pumps for assembly (components and parts that Vietnam cannot yet produce), and reducing tariffs to 10% for 42 lines in the parts and accessories group from 15%, 20%, and 25%. Accordingly, the average tariff rate for the entire set of passenger car components would decrease from 14-16% to 9-11%, and for trucks under 5 tons, it would decrease by 7.9%.
 |
| The Ministry of Finance's proposed new tax 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 significantly with higher import tax incentives and will also make it easier to achieve the production targets set by the Program.
The drawback of both options is that companies that do not intend to expand production and assembly in Vietnam will face difficulties because they will not benefit from the 0% import tax on components for assembly. It is highly likely that these companies will gradually switch to importing complete vehicles, leading to a reduction in the number of manufacturing and assembly businesses.
In addition, to qualify for tax incentives under this program, businesses must meet conditions regarding the production and assembly volume of vehicles, as well as the percentage of domestic production value of the committed vehicle model each year.
Specifically, the commitment requirements for a business are as follows:
| Route | 2018 | 2019 | 2020 | 2021 | 2022 | Total period 2018-2022 |
| Annual growth rate | 16% | 16% | 16% | 16% | 16% | |
| Minimum overall output | 34,000 vehicles | 40,000 vehicles | 46,000 vehicles | 53,000 vehicles | 61,000 vehicles | 234,000 vehicles |
| Minimum production volume for each vehicle model and percentage of domestic production value. | 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 fewer than 9 seats, engine capacity of 2,000 cc or less, fuel consumption below 7 liters per 100km, and emission standards level 4 (2018-2021); level 5 from 2022 onwards. According to the Ministry of Finance, with this roadmap, it is likely that 3 enterprises will qualify to participate. The domestic production value ratio will reach 40% (achieving the target set by the program and the Automotive Industry Development Plan).
The introduction of minimum production output commitments aims to ensure that the domestic manufacturing and assembly industry can increase its market capacity at a certain annual growth rate, creating incentives for businesses to continue investing and developing production in Vietnam. At the same time, it encourages the development of supporting industries by increasing demand for domestically produced components.
According to VNN
| RELATED NEWS |
|---|
