VietNamNet Bridge - The Ministry of Finance (MOF) is considering cutting the corporate income tax as a way to encourage the domestic automobile industry. However, manufacturers still say the promised tax incentives are not attractive.

 

 

 

Under a draft on amendments to the tax law, which has been opened by the MOF for public opinion recently, domestic automobile manufacturing would enjoy a preferential corporate income tax rate of 10 percent for 15 years from the first day that enterprises make a profit. 

The four-year tax exemption and 50 percent tax reduction in the next nine years from the licensing day are also mentioned.

Tax incentives will be offered to projects with investment capital of VND6 trillion, or $300 million and more, and a disbursement period over three years from the licensing day.

However, automobile manufacturers say that the incentives are not good enough to clear the gap in production costs between Vietnam and other regional countries. 

The manufacturers said they have to make heavy investments in Vietnam while the government only offers corporate income tax incentives. Meanwhile, they cannot make profits in the first years of operation to pay tax.

In fact, MOF has also promised to cut the luxury tax on car models with cylinder capacity of 2,000 cm3 and higher to 40 percent and 30 percent. However, the manufacturers said the tax cut has also been offered to CBU (complete built unit) imports as well.

They went on to say that it is unreasonable to spend $300 million on one project just to get such modest incentives, especially when the domestic supporting industries are weak. Investors find it difficult to localize their products because of an absence of locally made components to minimize production costs.

An analyst noted that it is 20 percent more costly to manufacture and assemble cars in Vietnam now than in other regional countries. However, it is still profitable to make cars domestically because CBU imports from ASEAN are taxed 50 percent.

However, it is foreseeable that automobile manufacturers will take losses once the tax is cut to zero percent by 2018 as planned.

Toyota Vietnam is developing an environmentally friendly 5-seater model with the cylinder capacity of 1.5L and Euro 4 emission standard. 

Hyundai Thanh Cong has started the second investment phase of the project in Ninh Binh province.

However, they all said that they will only continue investments if the production costs in Vietnam can be as cheap as in Thailand.

Tran Thuy