The Draft Decree to amend Decree 125/2017/ND-CP amending and supplementing the Government’s Decree No. 122/2016/ND-CP on the Export Tariff, Preferential Import Tariff, List goods and absolute tariffs, mixed taxes, and non-quota import duties has been formally completed. A notable content in this draft is the amendment and supplement of the regulations on preferential import tax rates for raw materials, supplies and components to manufacture supporting products prioritized for the development of the automotive industry in the period 2019-2023.

Support domestic enterprises

According to Ms. Tran Thi Bich Ngoc, Head of Import-Export Tax Policy, Department of Tax Policy, Ministry of Finance, the Ministry of Finance continuously collects comments on the draft Decree amending and supplementing Decree 125 for some new additional contents compared to the draft submitted for comments last April. In this draft, the Ministry of Finance has supplemented regulations on preferential import tax rates for raw materials, supplies and components to manufacture supporting products prioritized for the development of the automotive industry in the period 2019-2023 in order to implement policies and orientations for supporting industries prioritized for development of the Party and State.

In the draft, the Ministry of Finance stated that it was necessary to develop such preferential import tax rates to remove the bottlenecks in the development of target industries and promote the existing strengths of the supporting industry to increase the localization rate, meeting the necessary and sufficient conditions in the development of the supporting industry.

Supporting industry enterprises are mainly small and medium enterprises with small scales and capacities. Of about 1,800 enterprises manufacturing spare parts and components, only 300 Vietnamese units have participated in the production network of multinational corporations. Although they face limitations, Vietnamese supporting industry enterprises have good capacity in some areas. These products meet domestic demand and are exported to many countries around the world. Domestic supporting industry enterprises were able to supply a number of plastic and rubber parts and accessories for electronic products, vehicles, aluminium and metal spare parts and components for cars, motorcycles, machinery and equipment.

In order to help supporting industry enterprises, thereby prioritizing the development of the automobile manufacturing and assembly industries, the Ministry of Finance plans to supplement the import tax incentive program for domestic raw materials, supplies and components that have not yet been produced in the period of 2019-2023 and the preferential import tax rate will be 0%.

Commitment is required to get incentives

According to the provisions of the draft, at the registration time of customs declaration, the customs declarants base on the actual import goods to declare goods codes, to pay taxes according to the ordinary import tax rates or preferential import tax rates or special preferential import tax rates according to the current regulations, and not yet apply the preferential import tax rate of 0% from the supporting industry’s tax incentive program. The subjects of application are enterprises operating in manufacturing automobile components and parts.

In order to strictly implement the program, enterprises must commit to import raw materials, supplies and components to produce and assemble products named in the list of products of supporting industries prioritized for development for the automobile manufacturing and assembly industry as prescribed. They must have sales contracts with automobile manufacturers and assemblers that meet the conditions of the tax incentive program stipulated in this Decree. In addition, enterprises must have production facilities, ownership or use rights for machinery and equipment at production facilities in the territory of Vietnam; raw materials, supplies and components which cannot be produced domestically because enterprises directly import them to produce and assemble supporting industry products prioritized for development. The determination of raw materials, supplies and components that have not yet been produced domestically shall be based on the regulations of the Ministry of Planning and Investment on the list of locally produced materials, supplies and semi-finished products.

Regarding the reduction of taxes on raw materials, supplies and components to manufacture supporting industry products, according to the Ministry of Finance, it is possible to reduce revenue from import tax on raw materials, components and supplies in the short term. However, it will contribute to promoting supporting industry enterprises, thereby increasing other domestic tax revenues such as corporate income tax and value-added tax, contributing to creating jobs, ensuring social security, attracting investment for supporting industries, improving the trade balance, while spreading and promoting other industries to develop.

According to regulations, no later than 30 days from June 30 or December 31 annually, enterprises send their official dispatch to customs authorities to apply the preferential tax rate of 0% according to the supporting industry tax incentive program. The proposed period of 0% tax rate of enterprises must not exceed 6 months from January 1 to June 30 or from July 1 to December 31 every year. In the examining process of the application dossier for the 0% tax rate, in case that the dossiers have not yet completed the prescribed components, the customs office shall send a written request for the enterprise to supplement it. In case the Customs agency has doubts about the accuracy of the dossier components, the inspection shall be conducted at the customs office or the office of the taxpayer under the law on tax administration.

By the end of July 2019, Vietnam imported 88,000 completely built cars of all types, worth 1.94 billion USD, up 365.6% in volume and 319.4% in value compared to the same period in 2018. This amount of imports will narrow the market share of domestic car manufacturers and assemblers, so these enterprises will face more difficulties in the context of no tariff barriers and technical barriers. Foreign businesses are gradually shifting to importing commercial business instead of automobile production and assembly. Therefore, the Ministry of Finance found it necessary to have timely policies for automobile manufacturing and assembling enterprises to maintain and develop their production and create jobs for workers.