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Vietnam Proposing Tax Cuts On Locally Made Auto Parts

February 2019

The Ministry of Finance in Vietnam has sent in a ministry document (655/BTC-CST) to the prime minister requesting a change in laws to remove the special consumption tax on locally made auto parts and components. The move could cut prices on cars assembled locally.

As per the current law, the automaker’s selling price defines the calculation of the special consumption tax on cars. Cars with nine seats or fewer assembled locally are subject to a tax rate ranging from 35 – 150%.The elimination of such a tax would imply adjustments to the Law on Special Consumption Tax.

The proposal aims to increase the localization rate, lower product prices and enhance the competitiveness of local manufacturers against international ones. It proposes a special consumption tax for locally assembled cars with nine seats or less based on the automaker’s selling price, minus the value of locally manufactured parts. The proposed changes come at a time where competition between importers and local automakers is intensifying, especially with the deduction from 30 % to 0%  of the import tax for automobiles from ASEAN countries.

The special consumption tax may conflict with the World Trade Organisation’s General Agreement on Tariffs and Trade which bans making distinctions between imported and domestically produced goods. Nonetheless, other countries in South-East Asia, such as Thailand have already come forward with regulations that favor locally assembled cars.

The Ministry of Industry and Trade had an ambitious localization target of 60% by 2010 for cars with nine seats or less, but until now the average rate has been around the 7-10% mark. With the approval of this proposal, the government might be able to stimulate the localization rate for locally manufactured auto parts, boosting the domestic industry.

(Source: Vietnam News)