CPTPP: Import tax on second-hand cars?

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The Special Preferential Import Tariffs for the CPTPP implementation for the 2019-2022 period clearly defines contents related to tax on cars. Photo: H. Linh

According to the Agreement, Vietnam is obliged to implement zero percent tariffs for cars imported from Japan and Canada in the seventh year from the signing year of the agreement. Specifically, cars imported from these two countries that meet conditions of origin, the tax will be 0% according to the tax cut roadmap of each year. It has not mentioned other strict conditions to achieve the tax rate of 0%. For example, cars must be made in the local country, so if cars are Japanese, but are made in Thailand, those cars will not be subject tax reduction. In addition, Vietnam will abolish import tax in the thirteenth year for new cars. Particularly, small cars with capacity of 3,000 cc or more, shall be subject to the tax cut roadmap in the tenth year.

Vietnam will also apply a tariff quota on second-hand cars, with a first quota of 66 units, and the quota will gradually increase and reach 150 units in the sixteenth year. At the same time, the tax quota will fall to 0% in the sixteenth year, and quota taxation will follow the import-export tax rate.

In order to concretize the above mentioned tax commitments, the Ministry of Finance has just completed the draft Decree on the Preferential Export Tariffs, the Special Preferential Import Tariffs to implement CPTPP for the 2019-2022 period, which stipulates quite clearly the contents related to tax on cars.

Accordingly, special preferential import tariffs on second-hand cars are in the headings 87.02, 87.03 and 87.04, in the tariff quota as follows: For imported second-hand cars in tariff quota to implement CPTPP, preferential import tax is a compound tax rate, including: Tax rate (%) and flat tax rate for second-hand cares prescribed in the List of goods and special preferential import tariffs, stipulated in Appendix II, issued together with the draft Decree at the registration time of customs declarations.

The tax amount when applying the calculation method of compound tax for second-hand cars is the taxable price on second-hand cars in accordance with the law, multiplied by the tax rate of the tax line on second-hand cars of the same type at the registration time of customs declarations, and plus the flat tax rate of corresponding second-hand cars at the registration time of customs declaration.

The list of goods and special preferential import tariffs on second-hand cars subject to tariff quotas under the CPTPP Agreement, is fully listed under commodity groups. It can be mentioned as: Golf car; ambulance car; small racing cars; ATV terrain cars; mobile housing cars; cars for funeral; cars carrying prisoners; armored cars for carrying valuable goods; slurry trucks with removable bins; tank trucks; cement tank trucks; garbage truck; refrigerated tank truck, dump truck and so on.

The lowest relative tax rate on cars is 4%, and the highest is 65.6%. The lowest flat tax rate is US$ 7,500 / unit, and the highest is US$ 14,063 / unit, which is classified according to the application periods.

For second-hand cars out of tariff quotas under CPTPP Agreement, import tax is applied in the Decree No. 125/2017 / ND-CP of the Government amending and supplementing a number of Articles of Decree No. 122/2016 / ND-CP.

Vietnam now permits the import of second-hand cars under WTO commitments. Second-hand cars under 5 years old that are imported into Vietnam, and over 5 years old are banned from import. In the commitments with CPTPP members, the tax rate is the same with a limited volume of imported cars and tax cut roadmap (both relative tax and flat tax) for each year.

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Because the CPTPP Agreement takes effect in Vietnam from January 14, 2019, the Ministry of Finance drafted regulations on tax treatment for customs declarations registered from January 14, 2019, to the date earlier than the effective date of the Decree, if they meet the conditions to enjoy special preferential export tax and special preferential import tax.