MOF rejects proposed tax incentives to national auto center

Quang Nam provincial authorities feel elated with the idea of setting up a national automobile center, while considering applying huge incentives to investors. Meanwhile, the plan has not been welcomed by many automobile manufacturers.

Under the plan, the national automobile center would be located in Tam Anh Industrial Zone and the communes of Tam Hiep, Tam Tien, Tam Hoa in the Chu Lao Open Economic Zone in Quang Nam province. The center would have the total area of 7800 hectares, including different functional areas: automobile mechanical engineering, ports and port logistics area, residential quarters for experts and workers, and entertainment area.

The automobile mechanical engineering would cover an area of 2800 hectares, which would attract the projects on manufacturing and assembling cars with the total expected capacity of 300,000 cars a year, and the factories that make car parts

The investment capital for the automobile center, not including satellite factories would be 500 dollars a year for the production capacity of 150,000 cars a year, and one billion dollars for the capacity of 300,000 cars a year. Especially, the required investment capital would be 1.5 billion dollars to churn out 500,000 cars a year.

Quang Nam plans to impose 10 percent of corporate income tax for 30 years (other enterprises in the same zone enjoy the 10 percent tax rate for 15 years), and exempt the tax for the first 10 years instead of four years. Also, the investors would also enjoy the 50 percent tax reduction in the next nine years.

The collection of other kinds of taxes, including import tax and luxury tax should be delayed for five years in 2015-2019. The State budget should support the consumption of 30 percent of products on the domestic market, which is equal to the total sum of luxury tax to be paid for 50 percent of products for five years.

The government has also proposed to give support by purchasing the cars for state agencies.

Quang Nam has also proposed to apply the regulations of export processing zone (EPZ) to Hyundai and Kia.

However, the two special preferences have been rejected by the Ministry of Finance, which has said that the suggested incentives have exceeded the incentive frame stipulated by the current laws.

For example, in order to enjoy the preferences applied to export processing zone’s enterprises, KIA will have to commit to export 100 percent of its products, not 70 percent.

The Ministry of Finance has stressed that the special consumption tax (luxury tax) law does not have any provisions on the preferences and supports to encourage production and business. The Decree No 87 guiding the Import-Export Law also shows that the projects are not the subjects to tax exemption and reduction preferences.

Meanwhile, the Vietnam Automobile Manufacturers’ Association (VAMA) keeps indifferent to the plan. An expert from VAMA said that in fact, the suggested incentives would be reserved for Truong Hai, Kia and Hyundai only. The location for the automobile center – the Chu Lai Open Economic Zone – is now also the place, where Truong Hai and Truong Hai – Kia joint venture set up their factories.

VAMA’s members would not be able to invest in the automobile center in Chu Lai, when their factories are all located far from the center, mostly in Hanoi and HCM City.

This is also the reason which explains why most of VAMA’s members have opposed the granting of such huge incentives to the auto center in Chu Lai. They believe that it would be better to let the auto center to develop in the same leveling ground like other enterprises.

Commenting about the automobile industry development, the expert said that in the coming time, after the Ministry of Industry and Trade defines the strategic car line, enterprises may want to set up the second and third auto centers, possibly in Hanoi or HCM City. – Vietnamnet

Tags: Vietnam automotive, Vietnam automotive industry, Vietnam autos market, Vietnam car imports