Tax news fails to brighten ingot makers' moods
30-SEP-2008 Intellasia | Vietnam Investment Reviews page 8
Sep 30, 2008 - 7:00:00 AM
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Despite a slash in steel ingot export taxes, local manufacturers are finding it hard to keep their heads above water.
The Ministry of Finance (MoF) early last week cut the tax from 20 to 10% 'as Vietnam's steel industry's stockpiled steel ingot volumes become bloated and unable to be sold domestically due to falling consumption.
Recently, the Ministry of Industry and Trade asked the MoF to cut the export tax on steel ingots from 20 to 2% in a bid to help local producers survive.
"The proposal aims to address enterprises' financial pressures," said Nguyen Tien Nghi, Vietnam Steel Association (V SA) vice chair.
According to the VSA, the MoF's tax reduction to 10% would not change the bitter situation that local steel ingots faced because the global prices were being dramatically slashed day-by-day.
Nghi said enterprises would continue to suffer losses despite the tax reduction due to high domestic production costs. Furthermore, the global steel ingot prices have declined by more than 30%, to less than US$650 per tonne.
VSA statistics show that the industry's stockpiled steel ingot volume was more than 500,000 tonnes.
Meanwhile, local steel ingot consumption has fallen from 250,000 tonnes in July to 110,000 tonnes in September and is expected to continue falling over the next months due to a reduction in the number of construction projects following the government's direction since April to control inflation and stabilise the economy.
"Steel ingots also cannot be exported due to a high export tax," said Nghi.
VSA said in May and June, when global prices remained high at US$1,150-US$1,200 per tonne, ingots were massively exported and caused concern over a possible grave shortage for the remaining months of 2008 and 2009. As a result, the steel ingot export tax was increased from 2% to 10% and then 20% in early August.
However, according to the government requirements, steel ingot producers still have had to ensure production to contribute to the nation's targeted economic growth, expected to touch 6.5-7% this year.
"In fact, when the tax was raised to 10%, producers were facing losses because their production costs were equal to the global steel ingot prices," Nghi said.
Meanwhile, most local steel ingot producers depend on bank loans with interest rates reaching 21% per year or 1.7-1.8% per month.
Nguyen Quoc Roan, general director of Van Loi Steel Group, said his group like other producers, had struggled to minimise production costs. "But, the situation has not improved," Hoan said.
"Export tax needs to be removed. For the time being, it needs to be reduced to 2%, which will make it easier for us to export steel ingots," he said.
Nghi said many steel ingot producers have halted production, which meant thousands of employers had been suffered.
"A number of producers still have to go on with production scaled down. Many are on the brink of bankruptcy," he said.
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