Auto firms ask to lower component import taxes
In this article (5)
High import taxes on auto components and parts, packaging and logistics expenses are major reasons behind locally-assembled cars costing 10-20 per cent higher than imports from Thailand and Indonesia.
As such, these are also factors hindering growth of the domestic automobile industry, the automobile working group said at the Vietnam Business Forum (VBF) 2017 recently.
At the forum, a meeting between the Vietnamese Government and the business community held in Ha Noi, the group said higher prices made local automakers less competitive than imports from ASEAN members, and the situation will worsen when import taxes drop to zero per cent in the region next year.
Sumito Ishii, general director of General Motors Viet Nam and head of the VBF automobile working group, said major automakers and auto part suppliers felt the local automobile industry was operating on a small scale, so it had not attracted the participation of sufficient global part suppliers.
“The global suppliers will not invest if there is no clear business plan – whether automakers maintain or raise production in Viet Nam or not,” Ishii said.
Of the current part suppliers in Viet Nam, more than 90 per cent are foreign-invested businesses, and the majority of auto components, parts and materials are imported.
To help expand domestic auto production, the Government team currently in charge of the automobile industry should have auto assemblers and part suppliers participate in the process so they can understand the industry’s current situation better, the group said.
The team should organise monthly conferences to discuss policy drafts for the industry and keep the Prime Minister informed.
Policy makers should also continue working with businesses to build measures that will help cut production costs, reducing the pressure of competition on local automakers from 2018. Programmes have to be developed to connect businesses in the sector.
“The connection between foreign investment businesses and domestic businesses is ineffective because there is no available database relevant to domestic parts and component suppliers. If we have a database, businesses can compare and contact local part suppliers easily,” Ishii said.
He said foreign investment businesses should provide the list of auto parts and components that need to be localised with more details so as to help local suppliers prepare the necessary technologies.
Meanwhile, local part suppliers would need to focus on meeting production demands, including quality, costs and delivery, and step up co-operation with foreign suppliers.
“As for the automobile industry, the top priority is to build up a sustainable growth market. Relevant long-term, stable policies are needed to help businesses set up their plans,” Ishii said.
Large output
“The global suppliers will not invest if there is no clear business plan – whether automakers maintain or raise production in Viet Nam or not,”
Deputy General Director of the Truong Hai Automobile Company (Thaco), Pham Van Tai, said industry needed an output large enough for businesses to invest in technology, machines and equipment to increase the localisation rate (or the rate of parts that are produced locally) and reduce production costs.
Tai and representatives of other domestic automakers asked the Government to issue policies protecting the local auto market to help local auto and support industries to develop in a sustainable manner.
Tai drew attention to proposals made by the Ministry of Industry and Trade (MoIT) recently, noting that they contained effective solutions.
In the proposal, the MoIT asks the Government to cut import taxes on auto parts and components not produced locally to zero per cent from current 15-20 per cent.
Meanwhile, import duties on components and parts that are being produced domestically should be maintained at the highest possible level to local production and create stable jobs for more than 120,000 workers in the auto industry, they said.
“To encourage development of the support industry, the Government needs to exempt it from special consumption tax on locally-produced components and parts, contributing to decreasing the prices of cars in Viet Nam,” said Tai.
The group also proposed that the Government takes measures to control trade fraud, strictly examine certificates of origin and create a healthy and fair environment for all businesses.
Deputy MoIT Minister Tran Quoc Khanh said the Government gave a lot of importance to the auto support industry.
It has issued Decree 111/2015/ND-CP and Decision 68/2017/QD-TTg on a 10-year (2016-2025) plan to develop the support industry, he noted.
“Apart from the ministry’s measures and proposals from auto businesses, the ministry is willing to discuss the industry’s difficulties in order to ensure sustainable development in the future,” Khanh said.
Earlier, in an evaluation on the country’s automobile industry after 20 years of development, the MoIT had said the industry had failed to reach its set targets, especially a 40 per cent of localisation rate for cars with nine seats or less by 2005 and 60 per cent by 2010. The current rate is between seven and 10 per cent.
The quality of local autos has improved but it is yet to match that of imported ones. Prices still remain higher than other countries in the region. Production stagnates at the basic assembly stage of four steps: welding, painting, assembling and examination.
Besides low market capacity, the ministry said policies on taxes, fees and infrastructure lacked stability and there was no high consensus among State management bodies. These factors have led to a failure in creating favourable conditions for businesses in the auto industry.
Questions & Answers
Q.What is the primary reason for locally-assembled cars being more expensive than imported ones from Thailand and Indonesia?
What is the primary reason for locally-assembled cars being more expensive than imported ones from Thailand and Indonesia?
High import taxes on auto components and parts, along with packaging and logistics expenses, are identified as major reasons. These factors contribute to local cars costing 10-20 per cent more than imports, hindering the domestic industry's growth and competitiveness.
Q.Why is it difficult for global auto part suppliers to invest in Vietnam's automobile industry?
Why is it difficult for global auto part suppliers to invest in Vietnam's automobile industry?
Global suppliers are hesitant to invest due to the industry's small scale, which fails to attract sufficient participation. They require a clear business plan regarding whether automakers will maintain or increase production in Vietnam before committing investment.
Q.What specific tax reduction proposals have been made to help the domestic auto industry?
What specific tax reduction proposals have been made to help the domestic auto industry?
The Ministry of Industry and Trade proposed cutting import taxes on non-locally produced auto parts to zero per cent from 15-20 per cent. They also suggested maintaining high import duties on components already produced domestically to support local manufacturing and employment.
Q.What issues were identified by the Ministry of Industry and Trade in its evaluation of Vietnam's automobile industry after 20 years?
What issues were identified by the Ministry of Industry and Trade in its evaluation of Vietnam's automobile industry after 20 years?
The industry failed to meet localisation rate targets, with current rates at 7-10 per cent compared to a 2005 target of 40 per cent. Quality and prices are still inferior to imports, and production remains at a basic assembly stage. Inconsistent policies and low market capacity were also cited.
Reader pulse
Will proposed tax cuts boost local auto production?
18,141 votes so far