Ministry of Finance rejects proposal of reducing import tax of agricultural products to zero

VCN - In the process of seeking opinions on the amendment and supplementation of the Preferential Import Tariff (MFN), the Ministry of Finance rejected a number of proposals to bring import tax of agricultural products to 0% from theUnited States, instead only reducing the tax as possible.
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Imported meat is cheaper than domestic meat. Photo: ST.

Consumers enjoy benefits

Contributing to the previous draft bythe Ministry of Finance, the US Embassy proposed reduction of import duties on meat and edible by-products of chickens (subheading 0207.14) from 20% to 14.5 % in 2020, and 0% in 2028.

Under the current tariff schedule, subheading 0207.14 includes chilled chicken and frozen by-products, including: chicken wings, chicken thighs, chicken livers, meat that has been mechanically removed or separated from bone andother meat. The MFN tax rate of subheading 0207.14 is 20%, which is equal to the WTO maximum commitment. The Vietnam-Korea tax rate is 7.5% for chicken wings and chicken thighs and will be reduced to 0% by 2022, the remaining types are 0%. According to statistics, the import turnover in 2018 of the group of 0207.14 reached $167 million, mainly imported from the United States reached US$88.5 million (accounting for 53%), Brazil reached $18.4 million (accounting for 21%), Poland reached $13.8 million (accounting for 8%), South Korea reached $6.5 million (accounting for 4%). Import turnover subject to MFN tax is $152 million. Compared to 2018, the amount of chicken meat imports increased in the period from April to June 2019, but has decreased gradually since June.According to the Ministry of Agriculture and Rural Development, the imports increasedbecause of African swine fever,so people shifted to consuming chicken.

Among the agricultural commodities, the chicken commodity group is always in the Vietnamese commodity group that does not commit to cut or if forced to cut will be in the final stage when implementing the commitment. Therefore, the current tariffs also basically keep the maximumcommitments before the final cut-off time due to the fact that chicken is an essential food group. Thatis also a commodity that all farmers, families and households can produce at home, thereby contributing to creating jobs and increasing incomes. With the current import tax rate of 20%, the price of imported chicken is still lower than the production cost of farmers. With that fact, the Ministry of Finance plans to reduce the import tax on chicken meat and slaughter by-products, frozen under subheading 2207.14 from 20% to 18% (the US recommends 14.5%). The 18% tax rate corresponds to the first-year cut in the CPTPP.

Consumers will be the direct beneficiaries of this tax reduction due to lower product prices.However, the domestic livestock industry will be slightly affected by competition from imported goods.At the moment, domestic chicken prices are still higher than the imported chicken prices after tax. In addition, if the tax is reduced from 20% to 18%, the budget is expected to reduce revenue by aboutVND69 billion/year. In addition, with the reduction of MFN tariffs, not only the United States will enjoy, but also the Brazilian and Polish markets will also enjoy the preferential treatment, thereby, it can lead to the increase of imports not only from the three above markets but also from other markets that have not been exported to Vietnam.

Turnover increases due to tastes, not taxes

Not only meat, the US also proposed reducing preferential import tax of fresh apples and fresh grapes from 10% to 0% by 2020.

The analysis shows that fresh apples and grapes have a MFN tax rate of 10%, in line with WTO commitments. The tax rates as committed in the first, second and third CPTPP are 10%, 5% and 0% respectively. The tax rate under the ASEAN Free Trade Agreements with Australia, New Zealand, China and South Korea is 0%.Fresh apples (code 0808.10.00) had an import turnover of $83.7 million in 2018, mainly imported from the United States was $35.6 million (accounting for 42%), New Zealand was $25.6 million (accounting for 30%), China $8.5 million (accounting for 10%), the rest was imported from France, Canada. MFN taxable turnover is $46.8 million. Fresh grapes (code 0806.10.00), import turnover in 2018 was $77 million, of which mainly came from the United States ($39.8 million) and Australia ($15.4 million). Import turnover subject to MFN tax is $54 million.

The Ministry of Agriculture and Rural Development’s report showed thatfruit production nationwide has reached more than 7 million tons/year,rising rapidly compared to 7-8 years ago. However, up to 90% of fruit production still has to rely on the domestic consumption market, so the price is low, the proportion of exported fruits accounts for only 10%, with 5-6% of fresh fruits. Due to the preference for imported fruits, the amount of imported fruits is increasing.

According to statistics of the General Department of Customs, in recent months, fruit products from the Thai market tended to decrease, while those from markets such as Chile increased by 98%, the United States increased by 90% and South Korea increased by 83%. This shows that the increase of imported fruits from non-FTA countries do not depend on import taxes but on consumers' tastes. The price ranging from 50,000 to 200,000 VND/kg of apples and grapes, this product is suitable for many Vietnamese consumers.

The CPTPP commitment, the special preferential tax rate for two items of apples and fresh grapes is 5% and is only applied to countries that have ratified the agreement. Currently, there are four countries that have not ratified the remaining CPTPP are Brunei, Chile, Malaysia and Peru still have to apply MFN tax rates.

The Ministry of Finance plans to reduce taxes on fresh apples and grapes from 10% to 8% to balance the tax reduction under the CPTPP.

In terms of impact, the reduction of import tax will reduce the price of imported goods, so it will increase the demand for imported grapes and apples from the US and Chile markets, thus reducing the demand for domestic grapes and apples causing difficult for domestic production. At the same time, the annual revenue reduction is equivalent to VND69 billion.

Similar to raisins (code 0806.20.00), the US Embassy also proposed reducing the import tax to 0% in 2020. This item is subject to a MFN tax rate of 13%, with the WTO ceiling commitment; ASEAN - Australia - New Zealand and China commitments are 0%, ASEAN - India is 10%; CPTPP commitments in the first, second and third years were 11.3%; 5.6%; 0%. Import turnover in 2018 was $9.2 million, mainly imported from the United States 40.2%, from Australia 18.5%, India 18.5%, China 12%. Therefore, the Ministry of Finance proposes to reduce the MFN tax rate for raisins (code 0806.20.00) from 13% to 12%. The reduction is higher than the ASEAN-India Agreement and is equivalent to the reduction in the first year of the CPTPP Agreement by 11.3%.

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Our country has grown grapes, but output is low. The tax reduction may affect domestic grapes but it is negligible as the consumption of fruit depends on consumer’s tastes. The reduction of raisin import tax will cause a modest reduction of revenue of about VND2.1 billion / year.

By Hong Van/Quynhlan

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