Name of recommendations: 5 recommended contents of the draft in the Official Document No. 10451 / BTC-CST dated August 8, 2017 of the Ministry of Finance on import tax on automotive accessories for the period 2018-2022

Status: Has not been responded

Recommended by units: Automotive Corporation TMT (TMT Corporation)

Official letter: 2360/PTM, dated: 2017-09-21

Recommended contents:

Recommended 5 contents of the draft in the Official Document No. 10451 / BTC-CST dated August 8, 2017 of the Ministry of Finance on import tax on automotive accessories for the period 2018-2022 including:

1. For tour cars:

- On general output: The enterprise agrees with the draft. The specific minimum output of a car is too high, therefore, instead of the number of tour cars being kept, it should use the three models of tour cars in order to prepare for production by enterprise.

- Roadmap for localization: agrees 20%, 25%, 30%, 35% and 40% of the roadmap as drafted.

- Subject for performance: There are 03 units that involved in the implementation be suitable, so the enterprise agrees as drafted.

2.  For trucks:

- On general output: According to the enterprise, the annual automotive production output for each enterprise is not close to the actual production, so it is necessary to allocate the quantity of each year according to actual production and demand of the market. It should adjust the number of first 3 years reduced to create conditions for enterprises to have more time for machinery investment in localization. When investment in fixed production for 02 years after adjusting the amount increased to make up for the first 03 years. Total amount of 05 years according to the Ministry of Finance's draft shall still remains unchanged at 56,000 vehicles / 5 years.

According to the company, because the investment value for production and the actual value of a mid-size heavy vehicle is actually 30-40% of the light weight, therefore, the number of vehicles with the lowest specific output are reasonable.

The enterprise thinks that it should not rigidly stipulate trucks are less than 5 tons because Vietnam is a developing country, moreover, the fact that demand in the domestic market is moving from under 5 tons to vehicles of 5 tons, the movement is about 5-7% each year. If after five years, enterprises only invest in a vehicle under 5 tons, the crisis shall be excessive, on the other hand, the other kinds of vehicles are very lacking and be imbalanced in the market. The enterprise has recognized that there are over 60% of vehicles exported to ASEAN of global brands include TÂT is the medium-heavy vehicles with over 5 tons to 34 tons. Therefore, if Vietnam has a vehicle less than 5 tons, it shall be very limited for export later.

About specific minimum output: the requirement in the draft is too high and not suitable with the actual production. In addition, from January 1, 2018, Vietnam will have to apply the regulation of emission level 4, the prices of vehicles will increase higher than the highest of level 2, which is  USD 6,000  /vehicle (for medium and heavy vehicle) and the lowest is USD 3,000 / vehicle, "for trucks over 5 tons", the market needs more time to adapt gradually.  Only this way, the new policies comes into life. If it is still the old one, there has only one motomotive model of the exported truck that has been saturated, leading to very difficult investment for enterprises. At the same time, the state receives low taxes. Therefore, the enterprise recommends that, as the same with cars for tourism, it should be allowed for a minimum of three firms should be registered, and each must register an option at least three models of truck, It can be light, medium and heavy vehicles according to the actual demand of the market, be localized and reached 40% after 5 years of the domestic production’s value. At that time, there will be nine models of exported vehicles of Vietnam that bringing tax for each model as the drafted.

According to actual production, in the first three years, the quantity is slightly lower, to create more time for the manufacturing enterprises to prepare for the localization, to prepare the infrastructure, to purchase machinery and equipment. ), so the amount is moderate. From 4th year onward, there will be more export volume to ASEAN. Therefore, the increase in quantity will compensate for the first 3 years of tax collection of the State that does not increase.

- Percentage of domestic production: According to the draft is 15%, 20%, 25%. 35% and 40%, that very close to the current situation, therefore the enterprise agrees as drafted.

3. It is recommended to add Minibus:

Time and effect of preferential import tariff for vehicles:

For tour cars, minibus and trucks, we recommend that they have been applied from January 10, 2017. As the assembled enterprises want to have vehicles for sales, they also have to import accessories; the production and the assembly will take at least 50-60 days. On the other hand, the tax on cars by ASEAN countries will be 0% starting from January 1, 2018.

The enterprise has been aware that in the world, there are not any countries when developing the automotive industry that has only one enterprise to take part in. For example, Japan over 80 years ago developed horizontal automobile production with more than 120 enterprises being involved in manufacturing. Since the Japanese government has changed its policies, up to now there are no less than 06 leading enterprises that have produced automotive for domestic market and export. Similarly, Korea over the past 50 years of developing the automotive industry with many events and Korea government has changed its policies, currently Korea maintains five major automotive manufacturing enterprises servicing domestic and export demand.

For those reasons, when considering the draft regulation in the Official Letter No. 10451 / BTC-CST dated August 8, 2017 of the Ministry of Finance from the perspective of actual production and with a desire to implement policies seriously, Automotive Corporation TMT would like to request the Ministry of Finance and related ministries to consider: If the trucking’s policy has only one enterprise, there is one type of vehicle less than 5 tons, while the demand of the market is moving strongly to medium-weight, heavy -duty vehicles, whether or not affecting interests of society, consumers and business, whether or not affecting violation of the Law on Competition, the Law on Consumer Protection and the Law on Antitrust.

According to the Company, the policy on trucks should be for at least 3 units involved in truck manufacturing, similar to the 3 units that produce the tour cars to be suitable to the reality in accordance with the rules of market economy, to ensure the realization of the strategy on development of Vietnam's automobile industry up to 2025 with a vision to 2035 promulgated by the Prime Minister.

According to the Company, the policy on trucks should be for at least 3 units involved in truck production, it is similar to the 3 units that produce the passenger cars, thus fitting the reality in accordance with the rules of business, to ensure the realization of the strategy on development of Vietnam's automobile industry up to 2025 with a vision to 2035 promulgated by the Government’s Prime Minister.

5. Regarding the plan for reduction of tax rates of MFN import tax

6. The contents of the drafted law set forth two options for lowering import tax rates on accessories of automotive assembly and production for enterprises that meet the set criteria.

- Under Option 1: Reduce only 163 import tariff lines on imported vehicles.

- Under Option 2: Reduce only 61 tariff lines for imported vehicles.

Automotive Corporation TMT found that the reduction of the import tax rate for the mentioned tariff lines as in both the above options was insufficient because in addition to the tariff lines proposed to reduce 0% under Option 1. In option 2, there are currently 47 tariff lines that are subject to the MFN tax rate of 3% to 25%.

From January 1, 2018, imported vehicles from ASEAN countries to Vietnam are subject to the import tax rate of 0%.

Thus, there are many import tariff lines that are still subject to the MFN’s tax rate (there are 47 tariff lines are subject to the MFN tax rate of 3% to 25%). The high tax rate leads to the high cost of domestic production that make domestic vehicles become to be difficult to compete with imported vehicles from ASEAN countries. In addition, the market size for the Vietnamese automobile industry is small while the underdeveloped supporting industry also makes domestic production costs higher than other ASEAN countries.

In order to create favorable conditions for the domestic automotive industry to develop, to increase competitiveness with ASEAN enterprises and to successfully export Vietnam's automobile products to ASEAN countries according to their objectives. The Automotive Corporation TMT recommends that the Government, the Ministry of Finance and other relevant ministries to consider the reduction of 0% to all tariff lines for importing accessories for domestic automotive assembly and production.