VietNamNet Bridge - Will Phu Thai Holdings give up a plan to assemble Volkswagen cars in Vietnam? The Ministry of Finance (MOF) has said it cannot satisfy the requirements to be able to enjoy low car part import tariffs.

The MOF’s Tax Policies Department has given an official answer to Phu Thai Holdings on the tax policies to be applied if the group assembles and sells Volkswagen cars in Vietnam.

Phu Thai Holdings announced the plan to assemble Volkswagens and distribute the cars in Vietnam in early October, which made the announcement at a time when Volkswagen had fallen into an escalating crisis.

According to MOF, Phu Thai would import 14 sets of car parts to assemble domestically. However, the 14 sets of car parts to be imported cannot satisfy the requirements on the separate levels of car parts stipulated in Circular 05 released by the Ministry of Science and Technology (MST).

As Vietnam encourages automobile manufacturers to increase their localization ratios in car products, it taxes car part imports based on the separate level of the car parts. The more separate car parts are, the lower tax the manufacturers will enjoy.

In case the separate level of import car parts cannot satisfy the requirements because of the changes in the car parts or automobile manufacturing technologies, or because of specific automobile structures, the separate levels must be accepted by MST.

In Volkswagen case, Phu Thai can only meet one requirement and it needs to meet one more one to be able to enjoy the tax rates applied to car parts. It needs have enough conditions as set by the Ministry of Industry and Trade to be the automobile manufacturer and assembler; or have contracts with these enterprises.

If Volkswagen car parts to be imported can only satisfy one of the two conditions or cannot satisfy any conditions, they will bear the tax rates applied to CBU imports (complete built units), not car parts.

A representative of Phu Thai Holdings said Volkswagen appointed Dutch PON Group to assist Phu Thai to survey the market and make a master plan allowing Volkswagen’s products to penetrate the Vietnamese market.

Volkswagen’s plan to assemble cars in Vietnam, a small market, has raised big doubts. Some analysts commented that the automobile manufacturer wants to make simple assembling in Vietnam to be able to enjoy the low import tariffs and have benefits when the import tariffs on ASEAN’s cars are cut to zero percent by 2018.

At present, Volkswagens can only penetrate the Vietnamese market through official imports. Volkswagens are imported under the mode of CBU, and therefore, bear a high tax rate of 70 percent.

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