The Ministry of Finance has asked the Government to amend its laws to eliminate the special consumption tax on locally manufactured auto parts and components, a move which could reduce prices of locally assembled cars.

The request is part of a ministry document (655/BTC-CST), which supplements and revises several articles of another document (108/2015/ND-CP), was recently sent to the Prime Minister.

In the document, the ministry stated that the current calculation of the special consumption tax on cars depends on the automakers’ selling price under the current law; therefore, if the tax is eliminated for locally manufactured parts, it would be necessary to adjust relevant parts of the Law on Special Consumption Tax.

"To encourage enterprises to raise the localisation rate [local part supply rate], lower product prices and improve the competitiveness of domestic automakers against imported ones, the ministry has proposed a special consumption tax calculation for locally assembled cars with nine seats or fewer that will be based on the automakers’ selling price, but with the value of locally manufactured parts subtracted,” the ministry said in its document.

The ministry was careful to note that eliminating the special consumption tax could violate the World Trade Organisation (WTO)’s General Agreement on Tariffs and Trade, which prohibits discriminating between imported and domestically produced goods. However, the ministry said some other countries, including Indonesia and Thailand, had already applied regulations to deduct the value of locally manufactured parts or give tax incentives to locally assembled cars over the next three to five years as preferential provisions.

The ministry said it was still researching this issue to submit a proposal to the Government and the National Assembly for consideration when revising the Law on Special Consumption Tax.

Domestically built cars of automakers such as Truong Hai, Toyota, Honda and Mitsubishi are subject to a special consumption tax. Cars with nine seats or fewer assembled locally are taxed at rates ranging from 35 to 150 per cent.

Competition between local automakers and importers has become fierce after the import tax of automobiles from ASEAN countries was decreased from 30 per cent to zero early last year. If this proposal is approved, it could inspire domestic enterprises to increase localisation rates, lower product prices and enhance competitiveness.

Previously, the Ministry of Industry and Trade (MoIT) also proposed to exempting locally made auto parts from the special consumption tax to promote the domestic industry. The ministry said the localisation target for cars with nine seats or fewer was set at 40 per cent by 2005 and 60 per cent by 2010; however, the rate has reached an average of just 7-10 per cent so far.

The MoIT has acknowledged that the domestic auto industry still has a low localisation rate. — VNS