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Anxiety 'half-hearted incentives' Vietnamese auto industry

Car assembly companies are concerned because imported cars enjoy a 0% tax rate, but assembled cars do not have the same incentives.

At the end of November, VinFast proved that it had to compensate for losses by providing a detailed price list. Accordingly, each Lux A has a loss of VND 267 million, VND 153 million with Lux SA and 61 million with Fadil. This loss has not included "three no" - no depreciation, no financial costs and no interest. For the company to be profitable, the price of the car must increase by 300-400 million.

At the Supporting Industry Forum 2019, representatives of Thaco and Truong Hai expressed their concern that the price of cars in Vietnam is higher than other countries, because the import prices of components are still quite high. Both big companies want the Government to support domestic production and assembly vehicles in the context of imported cars enjoying 0% tax rate from 2018.

A senior executive of Hyundai Thanh Cong (now renamed TC Motor) once shared when Decree 125 was issued at the end of 2017, saying that if it only stopped at one policy, it was "half-hearted incentive". He believes that "there will be new policies soon." But since then, after two years, Vietnam's auto industry has not had any special policies.

Appearing at the ground-breaking ceremony and inauguration of the automobile factory, Prime Minister Nguyen Xuan Phuc emphasized that it is necessary to build an automobile industry with the orientation of manufacturing, assembling, not importing. "Tripod" in this strategy, is VinFast, Truong Hai and Thanh Cong. But now, all three legs tripod, along with "outsiders" Toyota - the joint venture firm occupies the largest market share in Vietnam - are all complaining because of lack of policies.

The policy has not satisfied the manufacturer

Decree 125/2017 stipulates that the import and export tariff for goods shows that domestic manufacturers and assemblers may enjoy a 0% import duty on components, but must ensure production as prescribed. . With that constraint, only the big guys achieve. Firms with smaller market shares, if they want to produce, are also unlikely to enjoy the incentives. This further discouraged firms, with most ventures shifting from assembly to import.

While assembled cars are unlikely to enjoy a 0% preferential duty rate on imported components, vehicles imported from ASEAN have certainly enjoyed a 0% tax.

Decree 116 was issued in parallel with Decree 125 to restrict imported cars, but since early 2019, most of the firms have successfully "overcome the barriers" and the cars land in a rush. The argument of the assembling firms is that the current incentive is only half of the goal, enough to help the assembled car from being outdone compared to imported cars, which are still unsurpassed. The ratio of the match, is still 1-0 in favor of imported cars.

VinFast said its factory is located in Dinh Vu - Cat Hai Economic Zone (Hai Phong), so it will enjoy some incentives. The company is exempted from corporate income tax for 4 years from the taxable income, and reduced 50% of tax payable for the next 9 years. But currently the company has no interest, so it has not been given tax incentives. Particularly for value-added tax (VAT), goods and services traded between foreign countries and non-tariff areas and between non-tariff areas together in Dinh Vu - Cat Hai economic zone are not subject to tax. VAT. In addition, the project is also entitled to a number of incentives for import and export taxes, land rents and water surface rents.

Not only VinFast, Truong Hai also enjoy similar policies from Quang Nam province when investing in Chu Lai open economic zone. Toyota's factory in Vinh Phuc or TC Motor in Ninh Binh also receive local incentives because of the clear benefits that both sides bring to each other.

But these are general incentives, for all businesses and are actively adjusted by each Industrial Park and economic zone in each locality, regardless of products produced. Car manufacturers are still waiting for special incentives for the automobile manufacturing and assembly industry.

The reasons that incentives are not thorough

The government has not been able to "spread" rampant policies because it needs to balance between industry development policies and other socio-economic goals. In the Supporting Industry Forum 2019, leaders of the Ministry of Industry and Trade said that because the market is small, it is not eligible to develop like other countries in the region as well as in the world. For years, authorities and businesses have not found a common voice, leading to the story "chicken, egg".

Companies need to sell a lot of cars to attract investors to the supporting industry network. But the Government must consider not allowing the number of cars to increase so quickly to avoid disruption in transport and socio-economic infrastructure. Former Minister of Trade Truong Dinh Tuyen admitted many years ago "not knowing what we want in this industry". He said that if you want to develop the automobile industry, you must focus on infrastructure 20 years ago.

Mr. Pham Van Tai, General Director of Thaco shared that he must achieve high output to hope for the development of the industry. He said that a manufacturer is not only for the domestic market, but also for export. Even Thailand, Indonesia, the market with large purchasing power in the region, but the four-wheel industry these countries export with a very large proportion, not only for domestic.

The localization rate of cars in Vietnam is only 7-10% on average, while Thailand is 80%. The number of domestically produced cars in Vietnam is only 72% of sales, while in Thailand the number of vehicles produced is double that of domestic sales. The "redundant" section, for export.

Another reason given by the authorities is the regulation of the source of components of the firms. Joint venture firms often use sourcing networks from their own countries. For example, a Japanese car company to Vietnam will bring with some Japanese component companies (OEMs), the rest will be imported from these OEMs to build factories in other countries as well. Joint-venture firms are not keen on expanding their domestic supply network, though the goal is to increase localization. The number of suppliers in Vietnam is quite low, only nearly 280 companies. In Thailand, this number is more than 2,000, according to Marklines.

This problem can be solved with Vietnamese automobile manufacturers, which are not yet tied to any supply system. Thaco or TC Motor still depend more or less on Mazda, Kia or Hyundai, because the factory in Vietnam is in the form of "assembly" rather than "manufacturing". The dominant power of an assembly plant is not large enough compared to the manufacturing plant. But VinFast can change, because built from scratch.

Vingroup's car company, after building the factory, has started to develop its supply network. The company has drawn names such as ZF, Lear, Lear, Faurecia, Antolin, Aapico, LG Chem, VinFast - An Phat, Nexmo and Namyang to build factories in VinFast complex in Hai Phong. Its goal is to reach 60% localization rate.

What firms need to attract more investors into the supporting industry is to remove the knot named policy. In order for the supplier company to set up the factory, they need to be committed to the output from the automaker, which means the car company must produce many vehicles to need more components. Want to produce more, the company must have a market, domestic and export. The prerequisite for creating an advantage in the market is price reduction. To reduce prices, increase production and get support from taxes and fees from the Government.

New proposals

The most wanted incentive for companies is to "exempt SCT from the domestic production value", something that Thailand, Indonesia and Malaysia have done for a long time. This proposal, which was launched by the Ministry of Industry and Trade in mid-2017, has not yet been realized, because of concerns about non-compliance with international commitments in fair treatment.

Another proposal is to remove the conditions of output in Decree 125. That is, every import of components (which cannot be produced in the country) will be subject to 0% tax, regardless of the need to produce. get as many cars in the allotted time. The Ministry of Finance concurred with this view and said it would submit to the government for appropriate amendments.

If the new incentives come true, no longer "half-hearted", the VinFast, Thaco, Thanh Cong will have the opportunity to achieve the great goals set, which is sometimes "unbelievable" in the current conditions. .

For customers, "they are not obligated to buy assembled cars to support the domestic automobile industry," said an auto industry strategist. What they need is that after the process of mixing parts, accessories and policies, will create a locally assembled car that is cheaper than imported cars, of course, it still has to ensure quality. At that time, without calling, Vietnamese people took Vietnamese cars by themselves.

Đức Huy


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