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Vietnam mulls local-car tax breaks

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A worker inspects a new car in Thanh Cong Hyundai in Gian Khau Industrial Park, Gia Vien, Ninh Binh province, Vietnam. VIETNAM NEWS AGENCY

Vietnam mulls local-car tax breaks

The Vietnamese Ministry of Finance has proposed slashing registration fees for locally built cars by 50 per cent until May 2022, to increase sales and encourage recovery in the automobile industry.

According to the ministry, cutting registration fees for domestically assembled automobiles will stimulate consumer demand and promote domestic manufacturing and assembling enterprises. This fee reduction may reduce tax revenue in the short term, but if the number of vehicles sold increases as a result, total revenue can be maintained or even increase.

Over 102,900 domestically produced automobiles were registered in the first half of last year. That number doubled in the second half of the year, when the fee was halved in a similar way to the latest proposal. As a result, tax revenue increased by 14.11 trillion dong ($620 million).

In the draft, the ministry acknowledged challenges when applying preferential policies, even if they are in response to the Covid-19 pandemic. The concern is that Vietnam may not fully comply with the provisions of the World Trade Organisations General Agreement on Tariffs and Trade (GATT) if preferential treatment is given to local manufactures. Vietnam has already received requests to rethink from some manufacturers that do not have domestic production and assembly activities in Vietnam.

On October 25, 11 foreign automobile firms that do not manufacture in Vietnam, including Audi, Volkswagen, Subaru, Volvo, Jeep, and Porsche, called on the Vietnamese government to apply the registration fee cut to imported vehicles too.

They said the government should not only be giving incentives to domestically assembled automobiles and proposed the reduction in registration fees be applied to imported vehicles too.

These car importers argued that it would be unfair to give preferential registration fees on cars locally manufactured and assembled only. The Covid-19 pandemic had affected all auto businesses, both assembling and importing, not only those produced locally.

However, the reduction policy is proposed to only last for six months, as a short-term measure to reduce difficulties in the domestic manufacturing industry as it recovers from the negative impacts of the pandemic.

As well as this, many major international car companies, such as Toyota, Mazda, Hyundai, and Kia, have their assembly plants in Vietnam. This means that any preferential policies to promote domestic production will benefit the international companies operating in the country too.

Neighbouring countries like Indonesia and Malaysia have also offered preferential treatment to their domestic automobile industry amid the Covid-19 outbreaks.

In the draft proposal, the ministry has not stated a reason for not applying tax reduction to imported cars.

Since the beginning of this year, the number of cars imported into Vietnam by these 11 importers accounted for only eight per cent of the total imported cars in the country. Currently, car importers and showrooms employ 3,000 people. Their income largely relies on revenue generated by sales.

The Vietnam Automobile Manufacturers Association (Vama) has also called on the ministry to make similar cuts on both local and imported products, but the ministry rejected it as not appropriate.

The association said its members sold 170,073 vehicles in the first nine months of this year, a year-on-year decrease of one per cent. The numbers do not include sales of Audi, Jaguar-Land Rover, Subaru, Volkswagen, Volvo and some others, who did not reveal their numbers.

According to the General Statistics Office, Vietnam imported 112,000 pre-built vehicles in the first nine months of this year, up 67.9 per cent.

Economist Ngo Tri Long said a reduction in registration fees would stimulate consumer demand while boosting production and circulation of goods, encouraging economic growth.

However, the reduction of registration fees for locally assembled vehicles should be carefully considered to create a fair business environment and avoid discrimination between imported and locally-made cars.



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