Developing the automotive industry: Continuously "perfect and support" tax and financial policies

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The seminar was organized by the Central Institute for Economic Management, in collaboration with the Ministry of Industry and Trade, with the participation of representatives of the National Institute for Finance - Ministry of Finance, VAMA, and VASI. At the seminar, the Ministry of Industry and Trade's representative did not attend but gave a presentation. Photo Nguyễn Hà

Speaking at the opening of the seminar, Ms. Nguyen Thi Tue Anh, Deputy Head of CIEM, said there had been many seminars on policies to support the automotive industry, which was one of six industries selected by the Government to prioritize development. However, this was an urgent and essential topic. The reason is that this issue is a concern for industries, associations and businesses and considered a key element to promote the automotive industry. Therefore, any support related to tax and financial policies needs to be reviewed and finalized.

Referring to this issue, according to Ms. Nguyen Thi Hai Binh from the National Institute for Finance under the Ministry of Finance, there have been many priority policies improving the development of the supporting and automobile manufacturing industry in Vietnam. In Binh’s presentation, she enumerated a number of regulations and policies to prove this. However, after 20 years of development, Vietnam’s automobile industry is behind other countries in the region. The automobile supporting industry is "near zero" because only a few simple details of more than 30-40,000 automobile assembly parts are produced domestically.

Nevertheless, Binh also said the preferential policies for the development of supporting industries as well as automobile production were scattered in many different documents and regulations with a lack of uniformity in some policy guidelines.

In particular, the tax policy, especially the tax policy for components, changes quickly, which poses problems.

Domestic automobile production is growing fast. Photo Nguyễn Hà

On behalf of automobile manufacturing enterprises, Mr. Nguyen Trung Hieu, Head of Policy Department at the VAMA, analyzed the reasons why Vietnamese automobile manufacturing enterprises reached a localization level of only 20%.

According to Hieu, the small market size, lack of high quality materials, dependence on imports, low production level, and lack of management experience are disadvantages for enterprises producing spare parts for automobile assembly and manufacturing.

However, the VAMA’s representative said Vietnamese enterprises should not ignore the available advantages such as cheap labor, proficient skills for simple production, available mechanical enterprises, and high growth of the automotive industry to promote the production of spare parts and components for automotive assembly.

According to Hieu, automobile manufacturing and assembling enterprises also have mechanisms, policies and activities to support enterprises producing spare parts to invest in their production. However, the State has foundational policies to overcome the disadvantages in order to accelerate the localization.

The domestic automobile market grows 10-20% per year, but 40% is complete-built products. Imported vehicles (enjoying a 0% import tax) are fiercely competing with domestically produced ones. Photo Nguyễn Hà

At the seminar, many suggested that there should be specific financial and tax support to promote the development of the automotive industry.

Ms. Nguyen Thi Hai Binh said the Ministry of Finance needed to review all taxes; the Ministry of Industry and Trade needed to review the priority lists in the field of automobile production; and the tax administration mechanism, and tax administrative procedures should be clear and support well for investors and businesses.

In order to attract investment, it is necessary to amend tax policies such as excise tax, corporate income tax and other Government’s supportive incentives to attract investment projects to produce electric cars (including policies for buyers).

To increase the localization rate through the exemption of excise tax on domestically produced spare parts and components; reduce tax on locally produced spare parts; increase import tax incentives for raw materials, supplies and components to produce priority products for the development of the automotive industry.

In developing spare parts, financial policies should be a focus to develop automotive industrial parks in accordance with the value chain.