Under its commitments to the Protocol of Common Effective Preferential Tariff (Cept), Vietnam’s import tax on motor vehicles will be cut to 50 percent in 2014 and to zero percent in 2018, which will seriously affect the development of Vietnam’s automobile industry and domestic market.
Since 2012, local auto makers have seen a sharp decline in sales revenue. There is growing concern that manufacturers will be more likely to import cars instead of producing them in Vietnam. If this happens, the strategy to develop a Vietnamese automobile industry will be a flop.
How to rescue the market?
At a recent seminar held during the Vietnam International Automobile Support Industries Exhibition & Conference (Vietnam Auto Expo 2012) in Hanoi, experts said producing more parts locally to reduce costs is key to developing Vietnam’s automobile market.
They said the government’s recent policies will help domestic auto makers through a hard time and gradually increase car sales.
The Ministry of Industry and Trade (MoIT) has proposed slashing the value-added tax (VAT) and special consumption tax on motor vehicles by 50 percent.
According to the MoIT, this will benefit both manufacturers and customers, and also meet the requirements for growth rates as mentioned in the plan for auto industry development until 2020.
Do Huu Hao, Chair of the Vietnamese Society of Automotive Engineers, said Vietnam should have clear-cut policies and suitable mechanisms. He said the automobile tax on customers should be reduced to 20 percent, while taxes on imported luxury vehicles should be sharply increased.
However, the lack of uniform management is putting a damper on the development of the automobile industry, Hao said, recommending that the government needs to find an effective solution to the problem.
Pham Dinh Thi, deputy director general of the Ministry of Finance’s Department of Tax Policy, said any adjustments to automobile tax policies should take multifaceted socio-economic impacts into consideration.
They should help to reduce the cost of production and price of automobiles, improve the quality of service, and ensure consumer rights, along with the goals of expanding the market and developing the transport system.
Localisation in focus
In an effort to improve the domestic automobile industry’s competitive edge, the MoIT is working on a plan to develop the sector until 2020.
Ngo Van Tru, deputy director general of the MoIT’s Heavy Industry Department, said increasing the proportion of locally-produced parts and cutting production costs are the main targets of the sector’s development strategy.
However, the weak development of support industries in the country is a negative factor behind the failure of locally-made cars to compete with tSTC imported from other Asean countries, which will enjoy a zero percent tax rate as of 2018.
Vietnam now has only 50 businesses involved in support industry, to compare with 2,500 in Thailand, 400 in Malaysia and 250 in Indonesia, he cited.
Truong Thi Chi Binh, director of the Support Industry Development Centre under the MoIT Industrial and Strategy Institute, said there is a plan afoot to develop a new line of car production using locally-made parts.
Although the Cept will take effect in the next two years, experts are very confident about opportunities for Vietnam’s automobile industry sector to grow and flourish either sooner or later.
They have proposed that the government and related ministries and agencies persist in a long-term strategy and policies to encourage local parts production and attract more foreign investment in the sector.
This will help Vietnam’s automobile industry secure a firm foothold in the market despite tough competition from imports after 2018, they said.