50% Registration Fee Reduction Proposed for Domestically Manufactured, Assembled Automobiles

The Office of the Government of Vietnam recently issued Official Letter 4174/VPCP-KHTH which assigned the Ministry of Finance to lead and work with relevant agencies to urgently draft a decree of the Government on registration fee reduction for domestically manufactured and assembled automobiles. The government aims to bring this into force from July 1, 2023. Previously, according to Official Letter 4019/VPCP-KTTH of the Office of the Government, Deputy Prime Minister Le Minh Khai agreed on the decree drafting according to the simplified order and procedures.

The registration fee reduction is expected to have positive impacts on consumers, domestic automobile manufacturers and assemblers and socioeconomic performance

The Ministry of Finance sent Official Letter 5836/BTC-CST to relevant ministries, central agencies, People’s Committees of provinces and cities, and the Vietnam Chamber of Commerce and Industry (VCCI) to collect opinions on the governmental decree on registration fees for domestically manufactured and assembled automobiles. The ministry proposed that the Government reduce by 50% the registration fee on domestically manufactured and assembled automobiles, trailers or semi-trailers towed by cars, and similar domestically manufactured and assembled vehicles.

Removing difficulties for enterprises

According to the Ministry of Finance, this year so far has seen continued challenges for Vietnam's socioeconomic performance, and the automobile industry is no exception. According to the Vietnam Automobile Manufacturers Association (VAMA), automobile sales dropped, especially in the last months of 2022, showing unusual and ominous signals for carmakers. Auto sales plunged steeply in November and December of 2022 and plummeted 44% year on year and 51% month on month in January 2023. Total sales by VAMA members slumped 34% year on year to 42,000 vehicles in the first four months of 2023.

To stimulate consumption and remove difficulties for domestic automobile manufacturers and assemblers, continuing to reduce the registration fee for domestically manufactured and assembled automobiles is one of the necessary solutions. The Ministry of Finance submitted to the Government the first registration fee reduction for cars, trailers, or semi-trailers pulled by automobiles and similar vehicles which are domestically manufactured and assembled, cutting 50% of the registration fee specified in Decree 10/2022/ND-CP of Government dated January 15, 2022 on regulations on registration fee and current resolutions of the Provincial/Municipal People’s Councils or current decisions of the Provincial/Municipal People's Committees on local registration fee rates. The decree will be effective from the date of entry into force to December 31, 2023. From January 1, 2024, the registration fee will continue to be governed by Decree 10/2022/ND-CP and current resolutions of the Provincial/Municipal People's Councils or current decisions of the Provincial/Municipal People's Committees on registration fee rates in localities.

Boosting domestic consumption

The Ministry of Finance said that the continued registration fee reduction will have positive impacts on consumers, domestic automobile manufacturers and assemblers and socioeconomic performance. However, the revenue of the State Budget will be decreased by VND8,000 - 9,000 billion due to the registration fee reduction. In 2020 and 2022 due to supply chain disruptions, the demand for automobiles remained high, unaffected by inflation. Thus, the 50% reduction in registration fees on domestically manufactured and assembled automobiles encouraged manufacturers and distributors to resume supply chains to meet the demand. As a result, the State Budget revenue from registration fee, special consumption tax and VAT offset the policy-driven reduction in registration fee revenue.

Currently, the purchasing power and sales have changed as the demand for automobiles may be lower. Therefore, in this context, if a policy is in place to increase the special consumption tax and VAT revenue, the amount may not be enough to compensate for the reduction in the registration fee. In addition, a 50% reduction in the registration fee rate on domestically manufactured and assembled automobiles may affect the balance of local State Budget revenue. According to the State Budget Law, registration fee revenue belongs to the local budget. The reduction will increase automobile consumption and registration, so the amount of registration fee, VAT and excise tax revenue may increase. Nevertheless, in reality, VAT and excise tax revenue is concentrated in only eight provinces and cities (Vinh Phuc, Hai Duong, Hai Phong, Ninh Binh, Da Nang, Quang Nam, Binh Duong and Ho Chi Minh City - where manufacturers are located) and the amount of registration fee grew in only 11 localities, while 52 remaining localities suffered revenue decrease from this policy. In fact, localities requested the central budget to compensate for this revenue shortfall to ensure their budgetary balance.

Moreover, this policy will affect international commitments to which Vietnam is a member. In theory, Vietnam can consult and complain, but in reality, the possibility of being sued is not high because the lawsuit is only aimed at terminating the measures in place, not at a measure that ended in the past while the effective duration of the decree was short.

Regarding Decree 70/2020/ND-CP and Decree 103/2021/ND-CP, they were issued by the Ministry of Finance in 2020 and 2022 respectively. Decree 70/2020/ND-CP helped increase the first-time registration of domestically manufactured and assembled cars to 209,584 vehicles in the effective period (June 28, 2020 to December 31, 2020), or an average of 34,930 vehicles a month, an increase of 2.03 times compared to the first six months of 2020. Decree 103/2021/ND-CP helped increase the first-time registration of domestically manufactured and assembled cars to 398,177 vehicles in its effective period (December 1, 2021 to May 31, 2022), an increase of 1.2-2 times over the same period of 2021 and accounting for nearly 50% of total domestically produced and assembled cars registered in 2022. The budget revenue dropped VND16,041 billion after two reductions in the registration fee.

By Le Hien, Vietnam Business Forum