Three Breakthrough Policies for Auto Industry

At the moment, MOIT is reviewing its proposal of a new project on the strategic development of Vietnam’s auto industry, based on experience from past failures.

This news was confirmed by MOIT Deputy Minister Tran Tuan Anh at the 2012 Vietnam Business Forum (VBF) on December 3.

 

Deputy Minister Tran Tuan Anh further revealed that this proposal, which covers the period from 2020-2030, is currently under review by the Ministry of Resources and Environment to determine the environmental impacts of the project, before being submitted to the Government for final ratification.

 

In the new proposal, local demand is considered top priority in identifying the product’s market segment, at the same time taking note of other factors and national economic development as a whole.

 

 “We also draft out goals, policy framework, tax, human resource, credit, technology policies and policies catering to the supply chains and support networks for the auto industry,” said Deputy Minister Tran Tuan Anh.

 

In fact, the Vietnamese auto industry is facing numerous challenges, from a weak local market to competitive pressures from the international auto industry. MOIT also understands the pressures to commit to the WTO, ASEAN and ASEAN+ regulations. Most importantly after 2018, the majority of auto products in the region will be taxed at a rate of 0-5 percent.

 

Therefore, MOIT has proposed three breakthrough policies:

First and foremost, the most important factors for investors are stability, consistency and transparency in policies, especially tax policies. There should be a policy framework to enable businesses to be more proactive in their plans, in accordance with Vietnam’s commitments. The tax rate for materials that cannot be produced locally is expected to gradually decrease to zero, or be at the price floor.

 

MOIT also supports the fact the Government’s Ministries and Departments, including the Ministry of Finance, are jointly drafting a comprehensive plan to reduce taxes by 2018 so that businesses can have their own strategic plans to manufacture and sell their products.

 

Secondly, the use of certain types of vehicles, such as buses, trucks, energy-saving and environmental-friendly cars, should be encouraged. There will probably be a request for the Government to suggest that the National Assembly reduce the VAT rate to 50 percent the current level in order to boost investment.

 

Finally, investment in auto component manufacturers should be encouraged and given favourable treatment in terms of technological transfer and management training. In addition, the manufacturing of buses and trucks using Government-sponsored credit, with a 60 percent localisation rate, should be encouraged; keeping the demand up by subsidising interest for the purchase of locally produced buses and trucks.

 

The support industry continues playing a crucial role in the auto industry. Therefore, a policy framework should be put in place to attract local and foreign investment, focusing on the participation of local companies in the supply chain.

 

At the 2012 VBF, Mr Tran Tuan Anh revealed the MOIT plan to build a support industry cluster whose main goal is to attract investment from small and medium enterprises (SME) and other industrial sectors.

 

However, according to Mr Tran Tuan Anh, in order to achieve these goals, the Government should issue specific policies to encourage investment in the metropolitan transport infrastructure and raise awareness of road safety in order to facilitate the development of the market.

 

 “We think that these issues need concerted effort from the Government. The Government and its Ministries and Departments will thoroughly review the proposal to create even more momentum to boost investment and production capacity, based on the pace of both local and international market development,” Mr Tran Tuan Anh stated.

 

Also at the 2012 VBF conference, the auto industry group led by Mr Gaurav Gupta, CEO of GM Vietnam, delivered a report detailing the existing limitations in the industry and suggestions on how to improve the status quo.

 

Apart from the suggestions that MOIT has made, the group further pointed out the need to include the auto industry in the hi-tech industry group to enjoy more favourable policies.