The auto industry does not shrink from the many challenges

In the context of the import tax reduction roadmap being implemented as Vietnam participates in Free Trade Agreement commitments, competitive pressure on the Vietnamese automobile industry is increasing. As a result, in addition to tax and fee support, many innovative solutions and policies are required to boost the auto industry.

Competitive challenge

On May 24, Customs Magazine will host a seminar titled “Vietnam’s Automobile Industry Implements the Free Trade Agreement: In What Direction Is It Developing?” Dr. Le Huy Khoi, Deputy Director of the Institute of Industry and Trade Strategy and Policy Research (Ministry of Industry and Trade), stated that the automobile industry in Vietnam has undergone significant development in recent years, particularly following the COVID-19 epidemic. The year 2022 produced record business results; however, in 2023 and into 2024, the auto market is experiencing difficulties with a rapid decline.

Mr. Le Huy Khoi stated that implementing Free Trade Agreements (FTAs) will present both opportunities and challenges for the Vietnamese automobile industry. With the tax reduction roadmap, businesses will be able to easily access and import products at lower costs, reducing production costs and increasing product competitiveness. However, this puts competitive pressure on cars imported from abroad in the domestic market.

According to Mr. Duong Ba Hai, Deputy Head of the Export Tax and Import Tax Department, Department of Management and Supervision of Tax Policy (Ministry of Finance), Vietnam is an open economy that has joined 17 bilateral and multilateral agreements, including new generation FTAs like CPTTP and EVFTA. These agreements are crucial for businesses to open markets and expand their operations.

However, according to Mr. Duong Ba Hai, market openness is very large, but Vietnam’s automobile industry is mostly young, subject to a lot of competition from import enterprises and foreign enterprises, and must still fully meet the requirements and high standards of labor and environment.

In the face of numerous challenges for the young industry, the Ministry of Finance has assisted businesses in overcoming obstacles. To promote domestic automobile manufacturing and assembly enterprises, protect the domestic automobile industry while tariff barriers on imported vehicles are gradually reduced by the United States’ international commitments. In FTAs, Vietnam’s Ministry of Finance has requested that the government promulgate Decree No. 125/2017/ND-CP on November 16, 2017, which establishes the Tax Incentive Program for importing automobile components for production car assembly for five years (from 2018 to the end of 2022). This program simplifies business operations and ensures compliance with the Automobile Industry Development Strategy.

Until now, many large-scale automobile manufacturing enterprises with adequate production capacity have participated in the Tax Incentive Program, and the Vietnamese automobile industry has grown rapidly in recent years. Domestic manufacturing and assembly companies have initially established their role and position in the domestic automobile market, and they have grown faster and more sustainably.

In parallel with the tax incentive policy for domestic manufacturing and assembly enterprises, the Ministry of Finance has coordinated with ministries and branches to submit to the government a tax incentive program for the automobile support industry to be implemented over five years from 2020 to 2024 (as stipulated in Decree No. 57/2020/ND-CP). As a result, raw materials, supplies, and components that cannot be produced domestically can be imported to produce products on the List of supporting industrial products prioritized for development for the automobile manufacturing and assembly industry according to Decision No. 111/2015/ND-CP dated November 3, 2015, of the Government to supply components and spare parts for automobile manufacturing and assembly enterprises will be eligible for 0% preferential import.

“The automobile supporting industry tax incentive program has been effective through import tax refunds, contributing to reducing input material costs, helping to reduce product costs, and improving the competitiveness of businesses in the market,” Mr. Duong Ba Hai informed and said, specifically regarding import tax, the Ministry of Finance always grasps the market situation to gradually bring preferential policies to life, ensuring difficulties are removed for the development of the automobile industry and the automobile support industry.

Furthermore, special consumption tax policies, registration fees, and other tax incentive policies for automobile manufacturing projects… have had a positive impact on the economy in general and the automobile industry in particular, making an important contribution to the implementation of the strategy for developing the domestic automobile industry. Encourage automobile manufacturing and assembly companies to invest in expanding production, increasing localization rates, and actively participating in the global supply chain.

Ms. Nguyen Tuyet, Head of the Customs Subcommittee of the Vietnam Automobile Manufacturers Association (VAMA), stated that many FTAs signed by Vietnam have included commitments to automobiles. CBU and display the import tax reduction of CBU cars to 0%, typically the ASEAN Trade Association (ATIGA) 0% starting in 2018; Vietnam’s trade agreement with the UK and EU (UK/EVFTA) will be 0% from 2028, while the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) will be 0% from 2027.

“This is a tremendous opportunity for the auto industry to diversify its offerings and provide Vietnamese consumers with a wide range of options. In fact, after committing to eliminate ASEAN import and export taxes, many domestically produced products were unable to compete with ASEAN products from Thailand and Indonesia and were replaced by imported products,” according to Ms. Tuyet.

With the implementation of EVFTA commitments, import taxes on complete cars from the EU to Vietnam will be reduced by approximately 6.4% per year for the next ten years. In 2024, the applicable import tax rate will be 38.1%. It is expected that by 2030, the import tax on complete vehicles from the EU will be zero.

This also increases the pressure on Vietnamese automobile manufacturing companies to maintain production and market share in existing segments.

The way to seize opportunities and overcome challenges

According to Mr. Le Huy Khoi, with strong commitments in the field of automotive products, components, and spare parts, particularly tariff commitments, EVFTA is expected to have a significant impact on the Vietnamese automobile industry once commitments are enforced. The auto industry has the opportunity to import quality, high-tech auto products, spare parts, and components from the EU at lower prices, thereby lowering production costs and increasing product competitiveness and the opportunity to take advantage of the long roadmap period (protection) to continue developing the domestic manufacturing and assembly industry before having to compete directly and fairly with EU competitors when the roadmap expires. Export opportunities for auto and motorcycle spare parts and components, in which Vietnam has strengths, can become joint venture investment partners or suppliers for EU investors coming to Vietnam to find opportunities to capitalize on domestic and regional markets.

However, from an export perspective, the EU market has high standards, and the geographical distance from Vietnam is quite long, so export opportunities will be difficult to realize if businesses do not have sufficient capacity to participate in the network supply network in the field of automobiles and motorcycles, as well as high competitiveness.

Furthermore, despite the relatively long 7-10 years protection period, if the Vietnamese automobile and motorcycle industry continues to stagnate and lacks initiative in improving competitiveness, it risks losing ground. The house is still extremely high. As a result, Vietnamese automobile industry enterprises must carefully study EVFTA commitments, prepare conditions to capitalize on agreement opportunities, and be prepared for a competitive future when the tax protection roadmap expires in Mandarin.

Working together to support the auto industry, the Customs agency implemented several solutions to create favorable conditions for the import-export business community, including CBU car importers and businesses. Importing components and spare parts for auto manufacturing and assembly.

Sharing at the seminar, Ms. Truong Binh An, Deputy Director of Hai Phong Customs Department, said that for businesses importing components, raw materials, and supplies to produce and assemble cars and industrial products, automobile support industries are under the Tax Incentive Program, and the Automobile Support Industry Tax Incentive Program is located in the management area. The unit’s leaders always pay attention to directing the quick handling of related procedures, such as procedures. Registration procedures to participate in the program, procedures for checking production facility conditions, customs declaration procedures, and tax refund procedures. This makes an important contribution to reducing procedure time and actively supporting the production and business activities of the above enterprises.

Mr. Duong Ba Hai stated that, in the context of Vietnam’s participation in many FTAs, besides favorable opportunities, the domestic automobile industry is also facing many different challenges (the rate of production at the water level is low, the market size is still small, the cost of manufacturing and assembling cars is high, traffic infrastructure still has many bottlenecks, etc.), including the formulation and implementation of policies to promote development. The automobile industry in general and electrified cars in particular must be carefully and thoroughly studied in the coming years to ensure adherence to party and state policy directions, as well as international practices and the fact that Vietnam is joining FTAs.

Mr. Le Huy Khoi also stated that the Vietnam Automobile Industry Development Strategy is oriented toward 2030, with a vision for 2045. Developing Vietnam’s automobile industry with the goal of preservation. Ensure goals and overall socioeconomic effectiveness; Aim to be approachable and proactive in manufacturing technology for machine parts; meet environmental requirements and standards, as well as trends in economical and green energy use; increase supply capacity for domestic consumption needs; and participate in the global automotive value chain with a high export value.

By 2045, the automobile industry will have advanced to the point where it will not only meet new standards and lead the way in the environmental protection market, but it will also fully transition to producing and supplying automobiles using electricity, green energy, and new energy sources; it will also be fully proactive in the production of engines for the majority of vehicle types, fully satisfy domestic demand, and actively participate in the global automobile industry value chain; and finally, it will expand and increase turnover and added value in exports.


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