Auto makers in a massive spin

Black clouds are hovering over scores of Vietnam-based automobile makers facing troubles with import taxes.

The Vietnam Automobile Manufacturers’ Association (VAMA) has sent a document to the Ministry of Finance (MoF), the Ministry of Industry and Trade (MoIT) and the Ministry of Science and Technology (MST) proposing that the MoF does not impose the 82 percent complete built unit (CBU) tax rate on automobile parts imported by VAMA member companies. The rate should only be imposed if some of the parts fail to meet the breakdown level requirements outlined in the MST Decision 05/2005/ BKHCN.

Decision 05, issued in 2005 to guide the calculation of the localization ratio, stipulates the specific breakdown levels of automobile parts. Details on import tax rates are provided in MoF Circular 184/2010/TT-BTC, dated November 15, 2010.

The circular stipulates that if at least one part in the imported set of components has a breakdown level lower than that prescribed in Decision 05, the set would be subject to import tax rates applied to the CBU. Tax rates for parts and CBUs are 0-27 percent and 82 percent, respectively.

“VAMA member companies are serious investors who have invested hundreds millions of dollars in vehicle manufacturing and assembly in Vietnam for many years. The Circular 184 has caused tremendous difficulties to VAMA members and a number of members are facing shutting down production. This is because if we open customs declarations, all imported kits will be hit with an import duty of 82 per cent,” said VAMA Chairman Akito Tachibana, who is also General Director of Toyota Motor Vietnam.

In a bid to protect local production and encourage localisation, tax policies have been designed to encourage importing automobile parts rather than sets of parts, and the parts with higher breakdown levels will enjoy lower tax rates.

Authorities required Ford Vietnam to pay tens of billions of dong in tax arrears, after discovering it had made incorrect tax declarations. Other automobile manufacturers like Toyota Motor Vietnam, the Republic of Korean-backed Vidamco and Japan’s Honda Vietnam, are also facing accusations of tax evasion.

For example, in April 2011 the Hai Duong province Customs Agency discovered hat the breakdown level of Ford Vietnam’s imports was lower than declared, therefore, the tax rate applied to Ford’s imports must be the same as that applied to the CBU.

Based on Ford Vietnam’s four declarations, it had to pay only VND4.83 billion (US$233,500) for four consignments of imports in April. However, the customs agency later asked the firm to pay an additional VND17.94 billion (US$867,000).

Ford had to temporarily stop operations for days as it could not open a new customs declaration because, if the declaration was opened, all imported kits would have an import duty of 82 per cent applied to them.

Vidamco said that, due to the current legal regulations, it might have to shut down production in the coming days, leaving thousands of employees jobless.

The MST, MoIT and the Ministry of Transport have established a team to inspect the breakdown levels of the imported component sets to decide whether Decision 05 should be revised. “Pending the results of the inspection, importers are allowed to continue getting customs clearance with the current tax rate according to what they declared. However, importers have to make written commitments with customs agencies that they will obey the final conclusions of authorised agencies on imported components,” said MoF Deputy Minister Do Hoang Anh Tuan.

Central Institute for Economic Management economist Nguyen Tu Anh said Decision 05 should not be revised as “it has been going well since 2005.” “Automobile makers just want the decision to be revised so they can enjoy lower taxes to benefit themselves. VAMA is strong, and it can force ministries to make concessions,” he said.

There are accusations that concerned ministries have already made many concessions in policies towards automobile assemblers in Vietnam, and some observers have even raised questions about policy corruption. – VOV

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