According to MOF, the tax policies will be adjusted while ensuring the state budget collection and the healthy business environment that comes in line with international practice.

There will be three main changes. First, tax rates will be reduced selectively under a roadmap. Second, the number of those subject to taxation will be increased after considering international practice and Vietnam’s conditions. And third, Vietnam will soon impose kinds of taxes which it now does not have like the taxes on assets and on environmental protection.

According to MOF, there will not be big changes in taxes, except import taxes.

Until now, the import tax policy has aimed to protect at a reasonable level products that can be made domestically and have potential to develop in the future. Vietnam has been imposing low tax rates on materials that serve local production and cannot be made domestically, aiming to help reduce input material costs for local production.

However, the tax policies need to be amended as Vietnam has joined the WTO and singed bilateral and multilateral agreements (CEPT/AFTA, China-ASEAN).

As for the automobile industry, Vietnam has reduced its protection of local production by cutting import taxes and removing the preferences on luxury tax given to locally made products.

In August 2007, the import tax rate on CBU (complete built units) cars was cut to 70%, while the fixed tax rate on used imports has been cut by 20%. Vietnam now taxes individual car parts instead of sets of car parts: 20-30% on parts that can be made locally, and 0-10% on parts that cannot be made locally.

MOF plans to reduce the protection level further on local automobile production, so as to encourage local manufacturers to improve production and raise competitiveness. The import tax on car parts that cannot be made locally will see considerable decreases, while the luxury tax rate will be lowered to make car selling prices more affordable. Currently, the luxury tax accounts for 30% of the selling price of a car, and 63% of the total tax imposed on cars.

As for the steel industry, the total output of the existing mills has been $2mil tonnes/year higher than the demand. It is expected that when the market is stabilised, the government will restore the 5% tax rate on ingot steel and 10% on finished steel.

The government will only consider raising tax rates on several types of steel that can be made domestically, but the increases will not exceed 15%.

ASEAN countries have requested that petrol products be put onto the list of items subject to tax cuts. If this is done, the collection from petrol imports to the state budget will see a sharp decrease as 60% of imported petrol comes from Singapore. Therefore, MOF is planning to raise the luxury tax on petrol to offset the reductions in state budget collection.

Regarding consumer goods, it is expected that there will be two changes relating to sugar and dairy products.

Dairy processing capability is high, while the supply of milk material remains short, just meeting 10-20% of the demand. Currently, Vietnam imposes 10-20% on materials, and 30-50% on finished products.

MOF plans to lower the tax rate on material imports to 7-10% in the time to come, and on finished products to 20-30%.

Sugar has enjoyed a high level of protection from the government in the last 10 years. In addition to the high tax rate of 40%, the government has also protected local production by prohibiting sugar imports, or applying import quota schemes. The import tax rate once reached 100% on sugar imports that exceeded the allowed level.

The high protection level has led to the weak competitiveness of local sugar production. As a result, Vietnamese consumers have to buy locally made sugar at a price 20-30% higher than imports. MOF said that it would lessen its protection of this industry.

Source: VNEconomy.