VietNamNet Bridge – As the ministries of Finance and Industry and Trade still disagree on tax policies, automobile manufacturers have no other choice than to keep a wait-and-see attitude.

The new automobile industry development strategy has come out after many delays.

However, automobile manufacturers still cannot figure out their production plans, because they still do not have information about the tariff cut plan to be applied to cars from ASEAN by 2018. And they do not know if Vietnam has imposed a new luxury tax on automobile products.

The Ministry of Industry and Trade (MOIT) believes that the import tax on complete built unit (CBU) cars sourced from ASEAN countries needs to be maintained at 50 percent from now to 2017 before it falls to zero percent in 2018.

It is clear that MOIT wants to maintain a high tax rate on imports in order help domestic automobile manufacturers hold their advantages over imports. This will help manufacturers gather strength to prepare for a complete tax cut by 2018.

As for small-size cars with the cylinder capacity of 1.5L and smaller, MOIT has suggested lowering the import tariff to 20-25 percent, aiming to make these cars cheaper, and therefore, affordable to Vietnamese.

This will help expand the domestic automobile market, an important factor for automobile manufacturers to scale up their production and increase the localization ratio.

However, the Ministry of Finance (MOF) advocates a gradual tax cuts on imports from now to 2018, the deadline for the complete tax cut.

This means that the tax should be lowered step by step from 50 percent in 2014 and 2015 to 40 percent in 2016, then to 30 percent in 2017 and zero percent in 2018.

MOF believes that the roadmap will help domestic automobile manufacturers gradually adapt to the new circumstances, when the tariff falls to zero percent by 2018, saying that the sudden tax cut in 2017-2018 may cause a shock to the manufacturers.

MOF has also disagreed with MOIT that it is necessary to cut the luxury tax, because this will badly affect the source of revenue for the state.

It is obvious that once Vietnam implements the commitments on lowering tax on CBU imports, the revenue from tax collection will decrease significantly. Meanwhile, the corporate income tax is expected to fall to 20 percent from the current 25 percent by 2016.

As such, the situation will be even worse if the luxury tax on small-size cars also decreases.

MOF, which has studied luxury tax policies being applied in other regional countries, has found that the 45 percent luxury tax rate on cars with fewer than nine seats and cylinder capacity of 2,000 cubic meters applied in Vietnam is the average level in the region, lower than Malaysia and Laos, and equal to Singapore and Cambodia.

Meanwhile, though Indonesia taxes 20 percent only, it imposes very high vehicle ownership registration and tolls (2 percent on VAT-included selling prices).

Bui Ngoc Huyen, general director of Vinaxuki, a 100 percent Vietnamese automobile manufacturer, said manufacturers have no other choice than wait for the final decision from appropriate agencies, and for the time being, keep a wait-and-see attitude.

Tran Thuy