VietNamNet Bridge - While car imports are likely to be barred from Vietnam by technical barriers, domestic automobile manufacturers have been given preferential treatment. 

Domestic products are expected to become cheaper by 2018.

Some analysts said that imports will be restricted by Decree 116 on manufacturing, assembling and importing cars and providing maintenance services. The decree sets strict technical requirements on importers. 

Meanwhile, sources said the taxable prices of some import models are likely to be raised. All these factors make analysts think that CBU imports will not become cheaper as expected.

While car imports are likely to be barred from Vietnam by technical barriers, domestic automobile manufacturers have been given preferential treatment.

From 2018, the import tariff on car part imports from ASEAN will be cut to zero percent in accordance with the FTA. Auto joint ventures now import 70-80 percent of car parts they need from ASEAN and the remaining 20-30 percent from non-ASEAN markets. This means that they will bear tax on 20-30 percent of car parts.

As such, the average import tax rate for the set of car parts will be 5 percent from 2018 instead of 14-16 percent now.

MOF is considering cutting the import tariff on sets of car parts to 7-11 percent, to be applied to all sources of imports. This will also help lower production costs of domestically made cars.

Some agencies have proposed not to impose luxury tax on the domestically generated value, which is considered a big advantage for domestic manufacturers. The enterprises which use a high percentage of domestically made car parts will get big benefits.

The agencies have also proposed adjusting the corporate income tax rate on large-scale manufacturing and assembling projects.

All the tentative policies aim to help boost the domestic automobile industry and force car prices down.

An auto expert estimates that the luxury tax exemption alone would drop domestic car prices significantly.

A 2.0L car will have the luxury tax of 40 percent from 2018. An imported car with the import price of $10,000 will bear tax of $4,000. A car to be assembled in Vietnam with import components, valued at $8,000, would be taxed $3,200.

The tax on domestic manufacturers would be even lower if they have a high localization ratio. For example, if they only import 50 percent of car parts, the tax would be $1,600.

Therefore, the expert estimates that the price of domestic cars may fall by 20 percent, which would make them competitive to CBU imports.

He went on to comment that the government has finally decided to support the domestic automobile industry. The policies would encourage domestic manufacturers to make heavy investments and scale up production.

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Tran Thuy