The Ministry of Industry and Trade (MoIT) has submitted its latest draft on automobile industry development planning to 2020 with a vision towards 2030 to the Government. Its Institute for Industrial Policies and Strategies head Duong Dinh Giam brings light to fresh changes in the draft intended to spur the sector’s development. Report by the Vietnam Investment Review.
* What is new in the draft?
Former car industry development planning just sought to support manufacturers. Yet they needed a sizable market before essential supporting industry could be developed. Without these supporting industries, automotive manufacturing can only be an assembly based process.
Therefore, in addition to support manufacturers, the new draft concentrates on policies to fuel demand to expand the market, since a bigger market will help manufacturers sell more cars, and inspire investment in support industries.
Towards this goal, we met with industry leaders in order to tailor the policies to their actual needs and aspirations. It’s not bringing policies into life, but bringing life into policies.
* Are there any changes in the approach for the car industry’s development?
Most car businesses attended our consultative meetings on industry development.
On the part of policy-makers, we initially intended that to enjoy incentives, businesses must reach a localisation rate of at least 40 percent. To make this realistic we have been working out mechanisms to help firms expedite localisation aspirations.
After conversing with firms, we realised that our intentions were unrealistic. That was because various car manufacturers are at different levels of development. For instance, Toyota Vietnam has reached a 37 percent localisation rate for its Innova, whereas Honda Vietnam has a strong supporting network for motorbikes.
However, other businesses have yet to reach such high levels. Therefore, to begin a new game it is important that every one can join.
We finally came to the decision that top incentives shall be given to businesses reaching the desired 40 percent localisation rate, with lesser incentives commensurate with lower localisation levels available for other manufacturers.
* How will the new plan deal with the imminent reduction of import tax for completely-built units?
To scale up the market size, prices must be lower to fuel demand.
However, in the current context, lower pricing does not only depend on the production sector, but also on the country’s tax policies.
Under signed international commitments, import duties will fall to 50 percent by 2014 reaching zero percent by 2018.
We initially proposed retaining the 50 percent import duty until 2017 and letting it reach zero in 2018, but our proposal triggered debate.
Businesses engaged in both manufacturing and exports accepted the proposal, as they can moderate their interests between these two areas, whereas firms concentrating solely on imports did not agree. We finally reached a compromise whereby the import duty from 2014-2016 be kept stable at 50 percent before sliding to 30 percent by 2017 and zero percent by 2018.
In respect to special consumption tax, scaling down the tax rate for locally manufactured cars would impinge on equal treatment principles. Therefore, after conversing with firms we have proposed to not directly curtail the tax rate, but lowering the taxable value as this will not violate equal treatment regulations.
* What kinds of vehicles have been given special attention in the draft plan?
Truck and bus manufactures already have support policies, so this time attention was given to passenger cars, but only cars with engine capacity from 2.0L and below to ensure energy efficiency and to be suitable with market demand.
* Despite good planning, businesses still have concerns over policy stability and consensus from diverse Government agencies in policy enforcement. How do you respond to this?
We have proposed that upon ratification of the draft, only the Government will be able to implement revisions. Localities and government agencies will not be able to introduce differing policies.
I believe if the draft plan is approved this year and enacted early 2014, then the Government’s commitment to supporting the sector will be evident, giving the car-making industry the development boost it needs.-VNA
* What is new in the draft?
Former car industry development planning just sought to support manufacturers. Yet they needed a sizable market before essential supporting industry could be developed. Without these supporting industries, automotive manufacturing can only be an assembly based process.
Therefore, in addition to support manufacturers, the new draft concentrates on policies to fuel demand to expand the market, since a bigger market will help manufacturers sell more cars, and inspire investment in support industries.
Towards this goal, we met with industry leaders in order to tailor the policies to their actual needs and aspirations. It’s not bringing policies into life, but bringing life into policies.
* Are there any changes in the approach for the car industry’s development?
Most car businesses attended our consultative meetings on industry development.
On the part of policy-makers, we initially intended that to enjoy incentives, businesses must reach a localisation rate of at least 40 percent. To make this realistic we have been working out mechanisms to help firms expedite localisation aspirations.
After conversing with firms, we realised that our intentions were unrealistic. That was because various car manufacturers are at different levels of development. For instance, Toyota Vietnam has reached a 37 percent localisation rate for its Innova, whereas Honda Vietnam has a strong supporting network for motorbikes.
However, other businesses have yet to reach such high levels. Therefore, to begin a new game it is important that every one can join.
We finally came to the decision that top incentives shall be given to businesses reaching the desired 40 percent localisation rate, with lesser incentives commensurate with lower localisation levels available for other manufacturers.
* How will the new plan deal with the imminent reduction of import tax for completely-built units?
To scale up the market size, prices must be lower to fuel demand.
However, in the current context, lower pricing does not only depend on the production sector, but also on the country’s tax policies.
Under signed international commitments, import duties will fall to 50 percent by 2014 reaching zero percent by 2018.
We initially proposed retaining the 50 percent import duty until 2017 and letting it reach zero in 2018, but our proposal triggered debate.
Businesses engaged in both manufacturing and exports accepted the proposal, as they can moderate their interests between these two areas, whereas firms concentrating solely on imports did not agree. We finally reached a compromise whereby the import duty from 2014-2016 be kept stable at 50 percent before sliding to 30 percent by 2017 and zero percent by 2018.
In respect to special consumption tax, scaling down the tax rate for locally manufactured cars would impinge on equal treatment principles. Therefore, after conversing with firms we have proposed to not directly curtail the tax rate, but lowering the taxable value as this will not violate equal treatment regulations.
* What kinds of vehicles have been given special attention in the draft plan?
Truck and bus manufactures already have support policies, so this time attention was given to passenger cars, but only cars with engine capacity from 2.0L and below to ensure energy efficiency and to be suitable with market demand.
* Despite good planning, businesses still have concerns over policy stability and consensus from diverse Government agencies in policy enforcement. How do you respond to this?
We have proposed that upon ratification of the draft, only the Government will be able to implement revisions. Localities and government agencies will not be able to introduce differing policies.
I believe if the draft plan is approved this year and enacted early 2014, then the Government’s commitment to supporting the sector will be evident, giving the car-making industry the development boost it needs.-VNA
