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Domestic automobile manufacturers, especially truck manufacturers, are facing a difficult situation as most incentives favor completely imported vehicles.
According to the Vietnam Association of Mechanical Engineers (VAMI), the current import tax on truck components is 24%, while the import tax on complete trucks weighing 20 tons or more is 10%-20%, and for trucks with a payload exceeding 45 tons, it is only 0%. This has created opportunities for the influx of imported complete trucks, especially from China, into Vietnam.
Imported cars are abundant thanks to tax-free and low-priced options.
Statistics from the General Department of Customs show that in January 2015, the number of complete trucks imported from China was 495 units, nearly double the number in the same period of the previous year. This figure also accounted for 22,7% of the total number of trucks imported into Vietnam from all markets. However, according to an analysis by an import-export official from the Ministry of Industry and Trade, import taxes on trucks are applied equally to all countries and do not give preferential treatment to China.
"In particular, the import tax on light-duty trucks is still quite high, possibly up to 20%. Only heavy-duty trucks enjoy a 0% tax rate. This is also reasonable because the Ministry of Finance imposes taxes to prioritize large vehicles serving production," the official further explained.
The aforementioned official also noted that the implementation of the ASEAN-China Goods Trade Agreement (2015-2018), effective from January 1, 2015, has forced domestic automobile manufacturers to accept adjustments in tariff rates. Accordingly, the tariff rate for completely assembled vehicles from China, regardless of load capacity, will gradually be reduced to 0%.
In addition, the prices of components and parts imported from China or ASEAN countries will also be adjusted. Therefore, the prices of components from markets such as Japan and South Korea will be less competitive due to the lack of tax incentives.
However, the phased adjustment of import tariffs has not yet impacted vehicle imports from China at this time. The main reason remains the lower price of vehicles from this market, which suits domestic needs. Along with signs of economic recovery, evidenced by strong growth in 2014 and the highest growth in the first quarter of 2015 in the last five years, production demand has also increased. Therefore, the demand for trucks has risen. Furthermore, despite the increased production demand, most Vietnamese businesses lack sufficient capital and require quick turnover, making them unable to access expensive vehicle models from other markets.
It can be done domestically, but…
From the business perspective, Mr. Bui Ngoc Huyen, Chairman of the Board of Directors of Xuan Kien Automobile Joint Stock Company (Vinaxuki), pointed out that the reason for the sudden increase in the number of imported trucks is that domestic assembly plants cannot meet market demand due to a lack of support from the state through credit and taxes.
"The government only provides short-term loans, but how can short-term capital support the automotive industry? Assembly businesses lack working capital. It's noteworthy that businesses importing complete vehicles can access loans, while businesses investing in manufacturing face significant difficulties," Mr. Huyen analyzed.
Furthermore, according to calculations by the chairman of Vinaxuki's board of directors, with the current import tax on components, the price of imported cars subject to a 0% tax rate will be about 20% lower than the price of equivalent cars produced domestically. For models subject to higher import tax rates, the price may be the same or slightly lower. "There are even models that could be produced and assembled domestically at a lower price, but only if we receive preferential credit conditions, while Vinaxuki itself has not been able to obtain loans for the past three years," Mr. Huyen said.
According to VAMI, in addition to tax unfairness, domestic automobile manufacturing and assembly businesses also bear many other costs such as investment in production lines, management costs, and employee training. The input costs of localized components are also high due to small production volumes. "With the above costs plus high import taxes on components, the production cost increases by about 24% for each type of vehicle," a VAMI representative pointed out.
Regarding the issues raised, representatives from the Ministry of Industry and Trade also suggested that the Ministry of Finance should shorten the roadmap for reducing import taxes on automotive components because, in principle, import taxes on components must be lower than import taxes on complete vehicles in order to stimulate production.
Sources: workers
According to the Vietnam Association of Mechanical Engineers (VAMI), the current import tax on truck components is 24%, while the import tax on complete trucks weighing 20 tons or more is 10%-20%, and for trucks with a payload exceeding 45 tons, it is only 0%. This has created opportunities for the influx of imported complete trucks, especially from China, into Vietnam.
Imported cars are abundant thanks to tax-free and low-priced options.
Statistics from the General Department of Customs show that in January 2015, the number of complete trucks imported from China was 495 units, nearly double the number in the same period of the previous year. This figure also accounted for 22,7% of the total number of trucks imported into Vietnam from all markets. However, according to an analysis by an import-export official from the Ministry of Industry and Trade, import taxes on trucks are applied equally to all countries and do not give preferential treatment to China.
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The aforementioned official also noted that the implementation of the ASEAN-China Goods Trade Agreement (2015-2018), effective from January 1, 2015, has forced domestic automobile manufacturers to accept adjustments in tariff rates. Accordingly, the tariff rate for completely assembled vehicles from China, regardless of load capacity, will gradually be reduced to 0%.
In addition, the prices of components and parts imported from China or ASEAN countries will also be adjusted. Therefore, the prices of components from markets such as Japan and South Korea will be less competitive due to the lack of tax incentives.
However, the phased adjustment of import tariffs has not yet impacted vehicle imports from China at this time. The main reason remains the lower price of vehicles from this market, which suits domestic needs. Along with signs of economic recovery, evidenced by strong growth in 2014 and the highest growth in the first quarter of 2015 in the last five years, production demand has also increased. Therefore, the demand for trucks has risen. Furthermore, despite the increased production demand, most Vietnamese businesses lack sufficient capital and require quick turnover, making them unable to access expensive vehicle models from other markets.
It can be done domestically, but…
From the business perspective, Mr. Bui Ngoc Huyen, Chairman of the Board of Directors of Xuan Kien Automobile Joint Stock Company (Vinaxuki), pointed out that the reason for the sudden increase in the number of imported trucks is that domestic assembly plants cannot meet market demand due to a lack of support from the state through credit and taxes.
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Furthermore, according to calculations by the chairman of Vinaxuki's board of directors, with the current import tax on components, the price of imported cars subject to a 0% tax rate will be about 20% lower than the price of equivalent cars produced domestically. For models subject to higher import tax rates, the price may be the same or slightly lower. "There are even models that could be produced and assembled domestically at a lower price, but only if we receive preferential credit conditions, while Vinaxuki itself has not been able to obtain loans for the past three years," Mr. Huyen said.
According to VAMI, in addition to tax unfairness, domestic automobile manufacturing and assembly businesses also bear many other costs such as investment in production lines, management costs, and employee training. The input costs of localized components are also high due to small production volumes. "With the above costs plus high import taxes on components, the production cost increases by about 24% for each type of vehicle," a VAMI representative pointed out.
Regarding the issues raised, representatives from the Ministry of Industry and Trade also suggested that the Ministry of Finance should shorten the roadmap for reducing import taxes on automotive components because, in principle, import taxes on components must be lower than import taxes on complete vehicles in order to stimulate production.
Sources: workers
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