New regulations on import tax of automobile components

VCN – The Government has just issued Decree No.57/2020/ND-CP, amending and supplementing a number of articles of the Government’s Decree No. 122/2016/ ND-CP on the Export Tariff, Preferential Import Tariff, list of goods and the absolute tax, mixed tax, import tax outside the tariff quota and Decree No. 125/2017 / ND-CP providing new regulations on import duties on automotive components applied from January 1st 2020.

new regulations on import tax of automobile components
There are 27 product codesadded to assemble for gasoline cars and 30 codes to assemble for electric cars into the tax incentives. Photo: HP

More components are eligible for tax incentives

Regarding the addition of components eligible for the 0% tax rate of heading 98.49, Decree No. 125 specifies automobile components and spare parts eligible for the 0% preferential import tax rate at heading 98.49. Previously, a domestic automobile manufacturer asked the drafting agency to add 27 product codes to assembly for gasoline cars and 30 products to assembly for electric cars into 98.49 because they are not yet produced inour country.

Based on the fact, Decree No. 57/2020 / ND-CP has added one item code 3926.30.00 with a detailed description “Car body accessories (coachwork) except for screws and bolts, feather, nut, square head screw, screw, rivet, locking nut, locating pin, plastic washers”.

The remaining products are not specified as parts and accessories of the vehicle and the separation of utility will be difficult to control, so it is not added to heading 98.49. At the same time, through review, the drafting agency also added three product codes for motor vehicles to heading 98.49 including: item code 8302.30.10 – hinges for keychains (Hasps) for motor vehicles; item code 8527.29.00 – radio receivers cannot operate without an external power source, a kind used for motor vehicles/other types; item code 8527.21.00 – radio receivers cannot operate without an external power source, a type used for motor vehicles/in combination with a sound recording or reproducing device, as this is also a product.

Among the 30 codes of automotive components for assembling electric vehicles, including components for electric cars, such as motors for electric vehicles (heading 85.01), electric vehicle batteries (heading 85.06), there are 14 codes with the current import tax rate of0% so it does not need to be added in heading 98.49; nine product codes are electric motors and batteries, parts of batteries are specialized parts of electric cars that have been supplemented and modified to be included in Decree No. 57/2020 / ND-CP with tax rate of 0%.

Maintaining preferences for components that can’t be produced domestically

Regarding the import tax incentive program for automotive components, in the past, Deputy Prime Minister DinhDinh Hue suggested considering and evaluating two options for imported automobile components including maintenance of the tax incentives program for components that cannot be produced domestically and reducing import tax to match import tax on complete cars. In order to encourage enterprises to make investments, expand production scale, overcome the situation that enterprises only enjoy tax incentives but do not invest in expanding production in Vietnam. Decree No. 125 has established a preferential tax program for the manufacture and assembly of cars, in which the enterprise that meets the conditions of the program is subject to the 0% import tax rate for imported automotive components that cannot be produced domestically.

However, when amending Decree No. 125, some comments suggested reducing the import tax of all automobile components and spare parts to match the import tax on complete cars. After reviewing and assessing the incentive program implemented previously, the drafting agency has submitted and approved by the Government in the direction of continuing to maintain the implementation of the preferential program on manufacture and assembly of automobiles as mentioned above and no tax reduction on all automobile components without conditions on businesses.

The reason given is that, at present, the import tax rate for complete automobiles and accessories for car manufacture and assembly is specified in 15 preferential and special preferential tariff schedules (including the ASEAN-Hong Kong Tariff to take effect from February 20, 2020). Only the ASEAN Special Preferential Tariff (under the ATIGA Agreement) cuts the import tax rate on cars to 0% (from 2018). The remaining tariffs basically apply the tax rates equal to the MFN tax rate (the highest is 70% for passenger cars and trucks, the lowest is 47% for passenger cars and 10% for trucks) and will reduce tariffs according to the schedule, two EVFTA or CPTPP commit to abolish tax rates according to the schedule after nine to thirteen years, respectively.

For automotive components, only the ASEAN and ASEAN-China Import Tariffs stipulate the import tax rate of 0%, the remaining tariffs are based on MFN from 0% to 30% and will be basically reduced to 0% in the 11th year. Thus, for cases of import from non-ASEAN countries, the import tax on automobile components and spare parts is now substantially lower than the import tax on complete automobiles.

In case of import from ASEAN countries, the import tax on automobile components and spare parts is equal to the import tax on complete units (0%), so the principle of import tax of components is lower than that of original products that is in accordance with the Import and Export Tax Law.

Onthe preferential program of tariffs on automobile production and assembling likely to violate WTO commitments, the drafting agency affirmed that there was no need to be worried because the preferential program for import of auto partsprovide conditions for applying the tax rate of 0% to imported car components. Accordingly, if enterprises meet the standards of automobile manufacture and assembly prescribed by the Government is allowed to participate in the program and is entitled to the preferential tax rate of the program. On the other hand, the program stipulates a 0% MFN tax rate for imported car components and spare parts. This is more preferential than the MFN preferential rates and FTA special preferential rates, so it is considered more trade facilitation.

The law on import and export duties also provides for cases of tax exemption according to sectors, industries and geographical areas eligible for investment incentives, or import duty exemption for goods manufactured for export or processing for many years (sinceVietnam joined the WTO) Vietnam has repeatedly reviewed reports on obligations to implement WTO commitments but there is no case of violating commitments. Tax exemptions for automobile components and spare parts for domestic consumption or export is applied to those who meet the conditions (regardless of whether they are domestic or foreign enterprises) they are similar to cases of tax exemption specified in the Import and Export Tax Law.

The program has been implemented for more than two years and has not received any response on violations ofWTO principles, the important partners of Vietnam in the field of automobile assembly and production have been enjoying benefits from this program (currently there are three groups of seven enterprises) and two qualified companies of the program and five more companies will be able to qualify soon. The program only lasts for five years.

The development of tax policies for the automotive industry is necessary in the context of tariff barriers, contributing to social security and industrial development in the country. However, in order to take the initiative in trade relations, the Government also assigned the Ministry of Industry and Trade to assume the prime responsibility (coordinate with the Ministry of Finance and concerned ministries) to account for and implement response measures when it comes to adverse ants from trade partners occur.

New regulations on import duties on automotive components are effective from January 1st 2020.

By Hong Van/Quynhlan

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