The tariff reduction on imported trucks recently proposed by the Ministry of Finance, which is bigger and takes place earlier than entailed by WTO commitments, has been protested by local firms.
They say it undercuts their attempts to increase the local content ratio of their products and puts their very existence at stake.
According to the proposal, from next year onward, import taxes on completely-built trucks with a carrying capacity of five tons downward should be cut to 30 percent from the current 80 percent; and on 5-10 ton and 10-20 ton trucks to 25 percent from 54-55 percent and 30 percent respectively.
Under Vietnam's WTO commitments, the taxes on trucks with a tonnage of less than five tons should be lowered to 70 percent, and those with a tonnage of 5-10 tons and 10-20 tons to 50 percent by 2018 at the latest.
The Ministry of Finance said the current tariffs on imported trucks of less than 10 tons were relatively high, while local firms mostly focused on assembling the vehicles, having to import main parts including engines and chassis.
The proposed tariffs on completely-built trucks are 10 to 15 percent higher than those imposed on imported vehicle parts. The ministry said the tax adjustment was reasonable, not affecting both local production and input costs of firms, which purchase trucks.
The ministry also said the value of imported trucks was not very large, so the tax reduction will not considerably slash the income of the state budget.
Vietnam spent US$219.4 million on importing over 9,100 trucks, mostly those of more than 20 tons, in the eight months through August.
The Ministry of Industry and Trade said local firms have been able to produce trucks of less than 10 tons that use some Vietnamese-made accessories like batteries, tires, seats, and paint. Other accessories that are not locally produced are imported with tariffs of 12 to 15 percent.
It said most local truck manufacturers have operated for only four to five years, so their production volume is still small and production costs are high. The pressure of recouping investment is also high.
Thus, the current tariff on imported completely-built trucks is reasonable, supporting domestic firms and helping reduce trade deficit, the ministry argued, opposing the proposal.
Vietnamese firms produced 77,400 automobiles, including 29,900 trucks in the first nine months of this year, according to the Ministry of Industry and Trade.
The tax reduction proposed by the Ministry of Finance will hurt the production and business of local firms. The reduction also takes place too early compared to the country's WTO commitments, it said.
Dao Phan Long, general secretary of the Vietnam Mechanic Association, said other countries often apply tax or technical barriers to protect their local markets from foreign goods. Vietnam should have taken measures to support the production of trucks and buses, which now are products with high local content ratios in the country's automobile industry.
If the tax reduction proposal is approved, it would be very difficult for locally-made trucks, which are already facing fierce competition with some low-priced Chinese products, to keep their foothold in the domestic market, he said.
"The tax reduction may kill local fledging truck manufacturers and assemblers, and their plans of increasing their localization rate will fail. It is unnecessary to apply tax cuts that are higher and earlier than WTO commitments," Long said.
Tran Ba Duong, general director of Truong Hai Auto Company, said his firm has invested thousands of billions of dong to strengthen production. The tariff reduction may push firms like his to the verge of bankruptcy, he said.
Bui Ngoc Huyen, director of Xuan Kien Company, said the proposal to shorten the roadmap for tax reduction under WTO commitments will hurt not only automobile firms, but also the country's fledging supporting industry.
His firm has poured nearly VND1 trillion ($50 million) in increasing the local content ratio of its products, which is now at 15-40 percent, depending on each vehicle, he said.