Hanoi (VNS/VNA) - The Ministry of Finance has askedthe Government to amend its laws to eliminate the special consumption tax onlocally manufactured auto parts and components, a move which could reduceprices of locally assembled cars.

The request is part of a ministry document (655/BTC-CST), which supplements andrevises several articles of another document (108/2015/ND-CP), was recentlysent to the Prime Minister.

In the document, the ministry stated that the current calculation of the specialconsumption tax on cars depends on the automakers’ selling price under thecurrent law; therefore, if the tax is eliminated for locally manufacturedparts, it would be necessary to adjust relevant parts of the Law on SpecialConsumption Tax.

"To encourage enterprises to raise the localisation rate [local partsupply rate], lower product prices and improve the competitiveness of domesticautomakers against imported ones, the ministry has proposed a specialconsumption tax calculation for locally assembled cars with nine seats or fewerthat will be based on the automakers’ selling price, but with the value oflocally manufactured parts subtracted,” the ministry said in its document.

The ministry was careful to note that eliminating the special consumption taxcould violate the World Trade Organisation (WTO)’s General Agreement on Tariffsand Trade, which prohibits discriminating between imported and domesticallyproduced goods. However, the ministry said some other countries, includingIndonesia and Thailand, had already applied regulations to deduct the value oflocally manufactured parts or give tax incentives to locally assembled carsover the next three to five years as preferential provisions.

The ministry said it was still researching this issue to submit a proposal tothe Government and the National Assembly for consideration when revising theLaw on Special Consumption Tax.

Domestically built cars of automakers such as Truong Hai, Toyota, Honda andMitsubishi are subject to a special consumption tax. Cars with nine seats orfewer assembled locally are taxed at rates ranging from 35 to 150 percent.

Competition between local automakers and importers has become fierce after theimport tax of automobiles from ASEAN countries was decreased from 30 percent tozero early last year. If this proposal is approved, it could inspire domesticenterprises to increase localisation rates, lower product prices and enhancecompetitiveness.

Previously, the Ministry of Industry and Trade (MoIT) also proposed toexempting locally made auto parts from the special consumption tax to promotethe domestic industry. The ministry said the localisation target for cars withnine seats or fewer was set at 40 percent by 2005 and 60 percent by 2010;however, the rate has reached an average of just 7-10 percent so far.

The MoIT has acknowledged that the domestic auto industry still has a lowlocalisation rate.-VNS/VNA