VAMA Petitions Government on Draft Auto Parts Tariffs Bill

Chairman of the Vietnam Automobile Manufacturers Association (VAMA), Makoto Sasagawa, on September 20 sent petitions to the Ministry of Finance (MoF), Ministry of Industry, and other relevant state bodies over the draft bill on import tariffs on separate automobile components and spare parts, aiming to develop Vietnam’s auto industry.

VAMA was delighted with MoF’s decision to abolish the plan of raising taxes on imported automobile components by five per cent annually. However, it said, the draft bill remained much inadequate in comparison the current CKD/IKD auto parts import tariffs policies. Mr. Sasagawa hoped the MoF would reconsider the draft to make it a legal document for protecting the rights and benefits of auto producers.

According to Mr. Sasagawa, the Vietnamese government should be very careful when it issues the alternative because the bill will have a great impact on the automobile industry and on the growth of the country’s economy. “We think that the government should devise a complete solution for the development of the auto industry rather than only using tax tools,” Mr. Sasagawa said.

Import taxes on separate automobile components are only suitable for developed auto industries, which have a high localization parts ratio and needing to import only a few kinds of auto parts, he said. In the current situation of Vietnam’s auto industry, the CKD/IKD auto parts import tariffs policies are still appropriate.

Furthermore, based on the government’s requirements, all 11 VAMA members had to heavily invest in manufacturing facilities such as production lines of forming, welding, painting and assembling. Those requirements will be eliminated under the draft bill, bringing about many advantages for newly established manufacturers. In addition, with a small tax rate differential of only five per cent, auto manufactures will import CKD auto component sets for local assembly instead of investing in production lines. VAMA was concerned over the outbreak of such “auto manufacturers” as once happened with the country’s motorbike industry.

Besides, the forthcoming import tariffs policies [on separate automobile components] will result in huge amounts of paperwork for both auto producers and the relevant government bodies, causing a waste of time and labour and creating unnecessary costs for the economy.

The draft has delineated only 19 lines of taxes for 19 groups of major components out of over 30,000 parts forming an automobile. As a result, there will be disputes between importers and customs officials in classifying auto parts into groups and defining which tax lines should be applied. Previously, the Vietnamese government faced many difficulties when building import tariffs for 2,500 components and spare parts of motorbikes.

Other ASEAN countries apply an import tariff policy on separate automobile components, however, they still allow auto producers to import CKD component sets for assembly. Auto manufacturers can choose one of two ways to ensure the lowest business costs. According to VAMA, this is good solution that Vietnam can apply.

Under VAMA’s initial calculation, the new bill will raise tariffs of auto components by 5-10%, even higher depending on the kind of car. This will go against the ministry’s plan of “ensuring the average tax rate of all automobile components and spare parts is unchanged.”

To solve these impediments, VAMA proposed some measures as follows:

First, Vietnam should apply the two policies of import tariffs: on separate components and completed knock down sets of components. Second, the import tariffs policy on separate automobile components must be as simple as possible. For example, the government can apply one tax rate for all kinds of components of an automobile in order to reduce costs for producers and the government itself. Third, import tax rates on separate components must be equal to or lower than current rates applied for CKD sets of components for the same kind of automobile. Fourth, policies must be more detailed and broader in scope to boost the development of the country’s fledgling auto industry in line with the development of other subsidiary industries.

• Doan Phuong