Vietnam May Cut Tax on Imported Auto Parts

HANOI, July 5 Asia Pulse - The Vietnamese Ministry of Finance said it was reviewing current import tax policies on auto parts and may lower rates to encourage local auto manufacturing.

An expert from the ministry's Tax Policy Department who requested anonymity explained that the ministry has since January 1 calculated import taxes based on individual vehicle parts rather than on a proportion of CKD (complete knock-down) vehicles as previously.

The new method was intended to encourage domestic automobile manufacturers to use locally made car parts to replace imported products as the average tax rates on individual car parts were lower than the previous CKD tax calculations.

For example, the CKD tax rate on vehicles of more than 16 seats was 15 per cent, while the vehicle manufacturer would only pay 14.56 per cent based on the new tax scheme on individual car parts.

The rates for vehicles of 8-16 seats went from 25 per cent to 19-22 per cent, and for 7-8-seat cars, from 25 per cent to 19-20 per cent. Imported part sets for CKD sedans were liable to a 25 per cent duty, while the average tax rate on individual car parts for such vehicles was only 20-22 per cent.

For lorries, the expert said the new average tax rate imposed on separate parts is 7-12 per cent for lorries of more than 10 tonnes, much higher than the previous rate of 3-5 per cent applied under CKD calculations.

Moreover, import tax rates on individual lorry parts are nearly equal to the tax rates on lorries stipulated in the special preferential tariffs granted by ASEAN and China under the Common Effective Preferential Tariff (CEPT).

Medium and heavy lorry manufacturers have reported that the high tax rates on truck parts have made it difficult for them to compete with cheap products imported from China, South Korea and other ASEAN countries, as well as secondhand vehicles.

The manufacturers said that the current tax scheme, therefore, would discourage investors from assembling medium and heavy lorries in Vietnam.

Among the changes being considered by the Ministry of Finance were:

* For trucks of 10-20 tonne capacity, the ministry would lower import tax rates on parts that cannot be made domestically from 10-35 per cent to 5-20 per cent.

The ministry explained that the Government was encouraging the production of some types of parts and said that, if the ministry set tax rates too low, enterprises would find it easier to import than to produce domestically.

* As for trucks of more than 20 tonnes capacity, it is expected that the tax rate on parts would be lowered to 3 per cent, while the rates on imported parts that could be obtained domestically would remain unchanged, at 5-30 per cent.

(VNA)

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