Ministry of Finance: It is necessary to carefully consider the reduction of preferential import tax on finished steel products

Recently, the price of steel products has increased. Source: Internet.

Facing the situation of high steel prices, recently, the Ministry of Industry and Trade suggested the Prime Minister direct a number of ministries to have support mechanisms, including requesting the Ministry of Finance to offer policies to regulate import taxes on several steel items with large fluctuations in price.

Commenting on this issue, according to the Tax Policy Department (Ministry of Finance), the recent increase in the price of finished steel products in the domestic market, as explained by the Ministry of Industry and Trade, is largely due to the Vietnamese steel industry depending greatly on input materials from outside such as iron ore, scrap steel and coking grease.

Besides that, the Covid-19 pandemic has disrupted the increase of steel production capacity in the world, including billet and finished steel. The price of input materials of the steel industry has increased dramatically over the past time, causing the production cost of finished steel products to increase sharply. These factors alongside the increased demand for steel have made the price of steel sold in the domestic market increase in recent months, especially construction steel.

According to Truong Ba Tuan, Director of the Tax Policy Department, currently, to help domestic steel manufacturing enterprises reduce product costs and increase competitiveness with imported steel, preferential import tax rates (MFN) for raw materials for steel production are being set as low as 0% (heading 72.03), 3% (heading 72.04) and 1% for billet (heading 72.06). The regulation of low import tax rates for steel production materials in recent years has helped the local steel industry to reduce input costs and expand production and business.

For the current import tax on finished steel products, construction steel products under headings 72.13 to 72.16 have the MFN tax rate of 15% for section steel, angle steel and 20% for rod steel. These items are imported mainly from the Chinese and Indian markets.

Besides that, Vietnam is currently a member of 14 free trade agreements, the special preferential import tax rates in some of these Agreements for construction steel products are relatively low such as the agreement ASEAN (ATIGA), Vietnam-Japan (VJFTA), Vietnam-Korea (VKFTA).

The import tax rate for steel products has been regulated on the basis of compliance with the principles of promulgation of the tariff and tax rates specified in the 2016 Law on Import and Export Tax, in accordance with the Law on Import Tax and Export Tax and in line with the development situation of the domestic steel industry as well as commitments on tariff reduction when joining the World Trade Organisation and joining FTAs, Tuan said.

The representative of the Tax Policy Department also informed that, to prevent or remedy serious damage to the local manufacturing industry, on the basis of reviewing and assessing the impact of goods imported into Vietnam, the operation production and business of the domestic manufacturing industry and adjustments of the domestic industry since the safeguard measure was applied, the Ministry of Industry and Trade issued Decision No. 918/QD-BCT dated March 20, 2020 on continuing to apply safeguard measures to billet and long steel products imported into Vietnam for another three years.

Imported steel billets (HS code 7207.11.00; 7207.19.00; 7207.20.29; 7207.20.99) are subject to a safeguard tax rate of 15.3% from March 22, 2020 to March 21, 2021; 13.3% from March 22, 2021 to March 21, 2022 and 11.3% from March 22, 2022 to March 21, 2023. For long steel products (with HS codes: 7213.10.10; 7213.10.90; 7213.91.20; 7214.20.31; 7214.20.41; 7227.90.00; 7228.30.10; 9811.00.00) imported into Vietnam, the corresponding safeguard tax rate for each period is 9.4%; 7.9% and 6.4%.

The Tax Policy Department said the increase in the price of construction steel was mainly due to the sharp increase in the price of input materials for steel production on the world market. The source of raw materials from outside and the impact of Covid-19 pandemic on the supply chain have caused the increased demand for domestic steel.

Therefore, to stabilise the steel market, it is necessary to use synchronous solutions in the immediate-term and long-term, including solutions to balance supply and demand, improve domestic steel production capacity. At the same time, it is possible to adjust the safeguard tax policy for steel billets and construction steel products to reduce input material costs for steel manufacturing firms and construction steel prices for sale on the domestic market.

"In the current context, the issue of reducing the preferential import tax rate for finished steel products should be considered and calculated carefully to both contribute to promoting the domestic steel industry to develop sustainably and stabilise the domestic steel market, ensuring compliance with principles specified in the 2016 Law on Import Tax and Export Tax,” Tuan emphasised.