Revising Localisation in Auto Industry

Revising Localisation in Auto Industry

"The protection tax rate for cars with less than six seats is highest at 260 per cent while that of 24-seat vehicles is only 100 per cent. This policy must be reconsidered," asserted Mr. Quach Duc Phap, the head of the Tax Policy Department under the Ministry of Finance.

What is the import tax on auto parts?

The present tax rates are applied for CKD and IKD parts and also for complete cars. Meanwhile, tax rates for auto parts are much lower than for complete cars. If this tax policy continues, Vietnamese enterprises will have no incentive for the localisation of their products. Likewise an increase in tax rates on imported parts would not solve the problem and could even adversely affect the negotiation process with the WTO.

How can impacts on the market be avoided when devising new tax rates?

To keep the market stable, it is necessary to ensure that the new average tax rates on auto parts do not differ too much from the present tax rates on CKD parts, especially on automobiles with special consumption tax.

What do you think about the taxation of specific auto parts?

Indeed, the taxation on specific auto parts would cause new problems in control and inspection as well as technical control by customs officials. However, it is hoped and expected that the relevant authorities will find a solution.

It is arguable that Vietnam has failed to localise auto manufacturing. What are the reasons for this?

The failure to achieve a satisfactory proportion of locally produced components is due to a number of problems, including the incomplete implementation of the policy. The highly protective policies without specific binding conditions have facilitated enterprises to make big profit while the interests of the consumers have been ignored.

What is the government's plan?

The government's new plan will clearly define which auto parts Vietnam should invest in so as to develop its comparative advantages. Concerned enterprises should concentrate on particular auto parts in order to avoid inefficient investment.

Estimated investment in the auto industry:

2001-2010:  VND16,000-18,000 billion mobilised from enterprises, loans from commercial banks, foreign investment and credits from the State Development Fund (including important projects approved by the Prime Minister).

2010-2020: VND35,000-40,000 billion mainly from enterprises and commercial and foreign loans.

(Sources: Industry Ministry)