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Proposing raising taxes on copper tubes and copper pipes and accessories for connection of copper tubes and copper pipes from 0% to 5%

The raw material tax must be higher than the finished product

Firstly, the General Department of Customs proposed raising the tax rate from 2% to 5% for aluminium hydroxide (code 2818.30.00) and aluminium oxide (code 2818.20.00) to ensure State revenue from mining.

According to the Export Tariff attached to Decree 125/2017/ND-CP dated November 16, 2017, aluminium hydroxide and aluminium oxide are subject to export tax of 2%.

The two above items are input materials for the production of unprocessed aluminium, aluminium non-alloys, aluminium ingot (code 7601.10.00.10) and unprocessed aluminium, aluminium alloy and aluminium ingot (code 7601.20).00.90), which are in the Heading 7601 subject to tax rate of 5% and tax frame of 5-40%.

Thus, the raw materials are subject to lower export tax rates than finished products. Under Article 10 of the Export and Import Tax Law No. 107/2016/QH13, the Ministry of Finance plans to propose the Government to raise the export tax rate for aluminium hydroxide and aluminium oxide from 2% to 5%, equal to the tax rate of unprocessed aluminium.

According to customs statistics, 2017’s export turnover of the two codes – 2818.20.00 and 2818.30.00 – was about US$368 million. In 9 months of 2018 it was US$422 million to China, Thailand, South Korea. Of which exports went mainly to China (accounting for 36%). With such turnover, the state revenue may increase by US$11 million per year if the tax rate increases by 3%.

Insignificantly affecting the revenue

The General Department of Customs said: "Copper material" is one of the basic materials used to produce electrical and electronic products such as: Voltage stabilizers, transformers, wires, electric cables, sockets, plugs, electrical measuring devices, accessories for the electricity industry, and lighting of international quality.

However, at present, copper materials for domestic production are scarce because foreign-invested enterprises, especially Chinese enterprises, are seeking to purchase raw copper materials for recycling for export to China. Thereby, some enterprises proposed to change the export tax on copper materials.

The General Department added that some items such as copper tubes and copper pipes, copper wires, copper rods and copper bars are all products that require simple processing, low cost and insignificant added value. Therefore, there is a risk that enterprises shall take advantage of this to convert copper materials into simple copper products to enjoy lower tax rates. Moreover, the "raw material drain" will not stop at copper, but it can happen to other metals such as aluminium, lead, zinc and tin.

Therefore, the General Department of Customs proposes to adjust the appropriate tax rates between copper materials and copper products and consider the adjustment to other metals in the current Export Tariff.

In comparison with the current Export Tariff, the tax rates for copper ores, copper materials and copper products are in line with the export tax framework and the principle of "gradually increasing export tax rates from finished products to raw materials".

Specifically, tax rate on copper materials such as copper ores and copper concentrates (group 26.03) is 40%; copper mattes (74.01), refined copper and copper alloys, unprocessed copper (74.03), master alloys of copper (74.05); Copper powder and flakes (74.06) is 15-20%. Meanwhile, copper in bars, rods and shapes (74.07) is only 5%. Copper wire (74.08), copper in plates, sheets and strips (74.09); copper foil (74.10); copper tubes and pipes (74.11); coupling accessories of copper tubes or pipes (74.12); Stranded wire, cables, plaited bands and the like by copper enjoy a 0% tax rate. Copper products (nails, tacks, drawing pins, tableware, kitchenware, other copper products) of groups 7415, 7418 and 7419 also enjoy 0%.

However, there is no denying that some items such as copper tubes, copper pipes, copper wires, copper bars and rods are products that require simple processing, low cost, and small value added. Therefore, there is currently a phenomenon of taking advantage of converting copper materials into simple copper products, essentially exporting raw materials but enjoying lower tax rates.

Therefore, the Ministry of Finance proposed to the Government to raise export tax on copper tubes and pipes (74.11); accessories for connection of copper tubes or pipes (74.12) from 0% to 5% to reduce the tax difference between copper materials (copper ore, refined copper and copper alloys) and copper products.

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With this adjustment, the budget revenue from import tax is expected to increase by US$24 million, equivalent to about VND557 billion. However, export turnover is mainly from non-taxable and temporary tax, it is not expected to have much impact on the state budget revenue.