The Ministry of Finance: Current policy have preferential treatment for supportive industry

In 2019, the import turnover of engines and gearboxes mainly came from South Korea (33.7%), China (nearly 20%), ASEAN and Japan (more than 18%). Photo: H.P

Increase risk when depending on one market

One notable content is the response to proposal on amending the Special Preferential Import Tariff of Vietnam to implement the ASEAN-Korea Trade in Goods Agreement in 2018-2022 toward reducing tax of engines and gearboxes to 0% by 2025, equivalent to the commitment level in the ASEAN Trade in Goods Agreement (ATIGA).

The Ministry of Finance said the special preferential tariff rate for lines of engines and automotive gearboxes at ATIGA was 0%, while it was not entitled to special preferential tariff rates in the ASEAN-Korea Agreement (AKFTA).

In the Vietnam - Korea Agreement (VKFTA), the preferential tariff rate was 0%; 4.2%; 13.3%; 18% respectively; in 2019 it was 20%. The current preferential tariff rates were equal to or lower than the normal preferential import tariff rates (MFN) in 2018.

If adjusting tax rates in AKFTA and VKFTA which is equal or lower than MFN 7-25% to the equivalent commitment level to ATIGA (0%), it will accelerate commitments in the two agreements. At the same time, it might cause trade diversion to countries enjoying the preferential tariffs of the agreement.

The agency further cited that in 2019, the import turnover of engines and gearboxes mainly came from South Korea (33.7%), China (nearly 20%), ASEAN and Japan (more than 18%). If enterprises wanted to enjoy low tax rates, they could choose to import from ASEAN countries or Japan.

In the context of importing engines and gearboxes from South Korea accounting for a large proportion, the Ministry of Finance said that if accelerating commitments in the AKFTA and VKFTA, it could make this proportion increase, increasing risks when it was depending on a market as well as it did not diversify supply for businesses and reduce revenue from import tax.

On the other hand, the automobile assembly and manufacturing industry is on the list of products of supportive industries prioritised for development in the Decree 111/2015/ND-CP of the Government, exempted from import duty for five years from when the project started manufacturing with domestically raw materials and components that have not been produced yet.

According to the Ministry of Finance, tax regulations have encouraged production, creating favourable conditions for investment projects of manufacturing products of the supportive industry, including automobile manufacturing and assembly industry. The Ministry of Industry and Trade has removed this regulation from the draft resolution.

Only state the principle of amending law

Also related to taxes, the Ministry of Industry and Trade adressed in the draft specific proposals, submitted to competent authorities to amend tax laws to improve and simplify tax policies and procedures to facilitate industrial enterprises as well as the supportive industry.

In fact, over time, the Politburo and the National Assembly issued a resolution to expand the tax base, minimising the integration of social policies in taxes and tax exemption and reduction policies, and to ensure tax neutrality. For implementing these guidelines, the Ministry of Finance has a plan.

Therefore, the Ministry of Finance proposed the Ministry of Industry and Trade should not specify the amendment of the Law on Value-Added Tax, the Law on Special Consumption Tax, and the Law on Personal Income Tax in this draft, they should state the general principle that were researched and submitted to authorities to amend and supplement tax laws to encourage supportive industry development.

The Ministry of Finance also wanted to abolish regulations in the the draft resolution on specific preferential credit for enterprises operating in supportive industry. It should be changed to "borrowing capital to invest in supportive industry projects complies with current regulations".

Besides that, the Ministry of Finance also did not support the prioritise solution of ODA and soft loans from sponsors, creating credit sources with preferential interest rates for enterprises in supportive industry.

Also according to the draft resolution, the Ministry of Industry and Trade wanted to supplement the regulation that the Centre of Techinical Support for Industrial Development could use the budget from irregular missions in five years. However, the Ministry of Finance proposed removing this content on the grounds of it being "inappropriate".