Policy Support for Domestic Automobile Manufacturing and Assembly Enterprises

The Vietnamese Government has recently disseminated a decree that extends the deadline for the payment of special consumption tax on domestically manufactured and assembled automobiles. This measure is expected to bolster the recovery efforts of domestic automobile enterprises.

The extension of the deadline for special consumption tax payments on domestically manufactured and assembled automobiles is expected to bolster recovery efforts in the domestic automobile sector

Declining sales

The Department of Industry (Ministry of Industry and Trade) reported significant challenges in the production and business operations of domestically manufactured and assembled automobile enterprises, posing a threat to the country's economic and social development objectives. Against the backdrop of economic downturn, the automotive manufacturing and assembly sector has witnessed dwindling sales and production adjustments. Moreover, inflationary pressures, fluctuating exchange rates and soaring gold prices have dampened consumer confidence, prompting a tightening in expenditure on high-value items, notably automobiles.

Reflecting the prevailing conditions in the automotive market during late 2023 and early 2024, total sales plummeted notably in the first five months of 2024. According to data from the Vietnam Automobile Manufacturers Association (VAMA) and non-VAMA member enterprises, the market absorbed approximately 121,189 vehicles of various types (including passenger cars and commercial vehicles), marking a 42% decline compared to the corresponding period in 2022 and an 8% decrease from the same period in 2023. Confronted with a sharp downturn, automobile manufacturing and assembly firms have initiated numerous incentive and support initiatives aimed at stimulating consumer car purchases. However, relying solely on individual enterprise resources and stimulus measures is deemed insufficient to foster sustained and stable growth in the automotive market.

In light of these challenges, Ministry of Finance emphasized the imperative of continued support for domestic automobile manufacturing and assembly enterprises to revitalize and enhance their production and business capacities.

Supporting domestic automobile manufacturing and assembly enterprises is necessary

To support the resurgence of domestic automobile manufacturing and assembly enterprises, the Government has enacted Decree 65/2024/ND-CP, extending the deadline for the payment of special consumption tax on domestically manufactured and assembled automobiles.

Under the provisions of the decree, the deadline for paying special consumption tax on domestically produced or assembled automobiles from the tax calculation periods of May to September 2024 is extended until November 20, 2024. This extension aims to prevent financial burdens from accumulating towards the year's end for businesses and to safeguard the fulfillment of the State budget revenue targets, particularly in cases of financial adversity.

During this extended period, no late payment penalties will be levied on the deferred special consumption tax amounts. Ministry of Finance estimated that the total amount of special consumption tax for domestically produced and assembled cars, extended across four tax periods, is approximately VND8,560 billion, with each subsequent month contributing about VND2,140 billion.

Addressing concerns about international commitments, Ministry of Finance asserted that this measure does not constitute a preferential tax treatment or violate subsidy regulations, thereby minimizing apprehensions from automobile importing enterprises. While this extension does not alter tax rates, it does enhance conditions favorably for domestic manufacturing and assembly enterprises compared to foreign counterparts, prompting considerations within the frameworks of WTO principles and free trade agreements (FTAs).

Furthermore, the Ministry of Industry and Trade supported the removal of obstacles hindering enterprises in general and domestic automobile manufacturing and assembly enterprises specifically. Should this policy extend into 2024, Vietnam will proactively pursue appropriate diplomatic measures to preserve its standing and relations with international trade partners.

By Duc Binh, Vietnam Business Forum