Import Tax Rise on Fibres: Pressure on Vietnamese Garment and Textile Industry

 

The Vietnam Textile and Apparel Association (Vitas) has sent a document to the Ministry of Finance to ask for the delay of the import tax rise on four products in the group of polyester fibre. According to Vitas, the application point on September 15 is too early for garment and textile companies to prepare, especially those importing high volumes of fibre materials from September to December of this year.

 

Mr Le Quoc An, chairman of Vitas, analysed that the Ministry of Finance’s decision to apply tax rise on fibre products is aimed to prepare for the WTO entry and realise the commitments of removing the protection of the garment and textile industry. However, the very decision of the Ministry of Finance is against the rule of the global integration process which applies lower tax rates not higher ones. Furthermore, according to reports of polyester fibre producers, the domestic fibre production capacity is now capable of meeting only 40 per cent of the national demand. Consequently, the imposition of this tax rate will raise difficulties to Vietnamese companies as the rate is irrational, An emphasised.

 

Vitas said the new tax rate will raise the production costs by 3.5-4 per cent and this may lead to loss of clients and export markets of domestic fibre companies. After Vietnam joins the WTO, the protection barrier for the garment and textile will no longer exist. In addition, WTO entry will force Vietnam to cut the current import tax rate of 50 per cent on apparels, 40 per cent on cloth and 0-5 per cent on fibres by a third. As a result, Chinese cloth will overflow into Vietnam as the import tax stands only at 10 per cent. On the other hand, the competitive edge of Vietnamese companies against rivals in material-abundant areas like China, India and several ASEAN countries will be blunted.

 

Mr Nguyen Duc Hoan, Chairman of Ho Chi Minh City Textile, Garment, Embroidery and Knitting Association, said: After the decision was publicized, his association received a lot of complaints from companies in Ho Chi Minh City, especially textile firms. After generalising opinions of local companies, we found that garment and textile businesses are facing more difficulties while fuel and transport costs are on the continuous rise.

 

Vietnamese garment and textile companies absolutely support Vietnam’s commitments in the process of integrating into the global economy. However, the Ministry of Finance and relevant bodies should delay the application schedule, probably a point after the WTO entry. This both ensures the Vietnamese commitments to the WTO and helps domestic companies to gradually adapt to the new decision and minimise negative impacts, An proposed.

 

After receiving the requests of Vietnamese garment and textile companies, the Ministry of Finance had positive feedbacks. The Ministry of Finance said upon the direction of the Deputy Prime Minister Nguyen Sinh Hung, the ministry will explain thee reason for the tax rise on polyester fibres to Vitas. Before that, the ministry will collect opinions from ministries, branches and enterprises about the tax rise policy and many supported a reasonable protection tax rate.

 

The Ministry of Finance will also reconsider adjusting the 5-per cent tax rate if it is deemed irrational. The import tax rise on polyester fibres certainly affects domestic garment and textile companies in the near future. Thus, the ministry is considering lowering the rate to 2-3 per cent because the domestic supply has not been able to satisfy the market demand.