Vietnam’s “strategic” car line will enjoy tax incentives

The Ministry of Industry and Trade has submitted a plan to the Prime Minister to choose the 6-9 seater MPV with cylinder capacity of less than 1.5L that are able to meet Euro 2 standard on exhaust fumes as the strategic car line.

After a lot of arguments among automobile manufacturers on which vehicles should be chosen as the strategic vehicle to be given priority for development in Vietnam, the Ministry of Industry and Trade (MOIT) has selected the 6-9 seater MPV as the strategic car line.

This vehicle line does not directly coincide with any models currently made by domestic manufacturers.

Once the proposal by MOIT is approved, the vehicle line will receive tax incentives to develop. MOIT has proposed to apply the lowest luxury tax rate of 30 percent on the car line (the rates on other car lines are 45-50-60 percent).

The car line may also have an ownership registration tax of two percent and VAT of five percent (10 percent is imposed on other kinds of vehicles). The luxury tax rate will be lowered in accordance with the localization ratio of the cars.

The manufacturers of the strategic car line and the manufacturers of supporting car parts will enjoy either the corporate income tax reduction or exemption and also will enjoy the zero percent tax for imported machines and equipment for production of the strategic car line.

The necessity of choosing a strategic car line to be prioritized for development was first advanced by Toyota Vietnam in June 2009.

MOIT organised meetings to discuss the issue. The problem was that all automobile manufacturers wanted their car models to be chosen as the national strategic car line.

With MOIT’s selection, the strategic line will be a completely new vehicle in Vietnam, and no manufacturer can accuse MOIT of unequal treatment.

Explaining its decision, MOIT said that the strategic line must fit the taste, demand and financial capability of Vietnamese consumers. Reasonable prices are also necessary because cars will need to be competitive with foreign autos bearing no tariff by 2018.

Domestic automobile manufacturers worry that the import tariff on ASEAN cars will be lowered to 0-5 percent in nine years under AFTA/CEPT (ASEAN Free Trade Area/ Common Effective Preferential Tariff) commitments, which will lead to an influx of foreign-made cars in Vietnam.

The 6-9 seater cars fit the taste of Vietnamese consumers because they can carry many people and are multi-purpose (going out, going to work, carrying people and goods). MPV sell very well in Vietnam.

Therefore, the car line is believed to be attractive enough to encourage production and draw car part manufacturers to Vietnam, helping to raise the locally-made content ratio.

With a small cylinder capacity of less than 1.5L, the vehicles will be fuel efficient and thus protect the environment while being economical in an age of fuel price increases.

MOIT also believes that the Vietnamese products with have the competitive edge and expects to declare the strategic car line at the end of 2009, after approval by the Prime Minister.