Continue to adjust many tax rates in draft preferential import tariff

VCN  – Since the middle of March 2019, the Ministry of Finance has twice sent comments for the Draft Decree amending and supplementing Decree No. 125/2017 / ND-CP on the Tariff Schedule and preferential import tax to seek opinions of organizations and individuals. However, by mid-September, newly arising petitions continue to be sent. Currently, the Ministry of Finance has explained, absorbed and consulted again before submitting to the Government the final version.

No reduction inc import tax

One item that is of interest to businesses is milk. The US Dairy Export Council offers a preferential import duty (MFN) reduction for the following products: skimmed milk powder; whole milk powder; cheese and curd; albumin milk. The reason given is that US dairy products are competitively priced, while US suppliers are the preferred supplier and current partner in developing and expanding to the international market of domestic dairy industry and domestic companies. In addition, Vietnamese milk suppliers are at high risk in ensuring sufficient supply for dairy products, while the lack of access to imported products with competitive prices under the MFN implies a potential risk for price stabilization. Lowering the MFN tax on imported products will help strengthen Vietnam’s dairy industry.

Regarding this issue, the American Trade Association in Vietnam (AmCham Vietnam) proposes to consider reducing the import tax rates for infant formulas (1901.10.20) and health nutrition products (1901.10.91, 1901.90.11, 1901.90.39, 1901.90.91). These products are currently subject to the MFN tax rate of 10% and proposed by AmCham to be reduced to 7%. At the same time, it is also recommended to reduce the MFN tax on food products intended for infants or infants lacking lactase (2106.90.81) and others (2106.90.89) from 15% to 10% and other health nutrition products (2106.90.96) from 10% to 7%.

In fact, at present, skimmed milk powder has a MFN tax rate of 5%; ATIGA (Tariff under ASEAN Trade in Goods Agreement) is 0%, AANZFTA (Tariff Schedule of ASEAN – Australia / New Zealand) is 0-5%. Import turnover of this commodity in 2018 was US$172.9 million, mainly from countries with MFN tax rates. Similarly, cheese and curd products have an MFN tax rate of 10%; ATIGA is 0%, AANZFTA is 0-4%, import turnover in 2018 is US$12.6 million, mainly from countries with AANZFTA tax rates. Albumin milk products with MFN tax rate of 5-10%; ATIGA is 0%, AANZFTA is 0-4%, import turnover in 2018 is US$16.3 million, mainly from countries with MFN tax rates.

Items for infant formulas and medical nutrition products (1901.10.20, 1901.10.91, 1901.90.11, 1901.90.39, 1901.90.91) have an MFN tax rate of 10%-15%. Import turnover in 2018 was US$277 million, of which 63% was imported from ASEAN countries (Singapore, Thailand, Malaysia, Philippines). The special preferential tax rates for the above-mentioned goods codes for each ATIGA, VKFTA (Vietnam – South Korea) Agreement, AKFTA (ASEAN – South Korea Tariff) and AANZFTA are 0%. Particularly, the item number 1901.90.39 under the AKFTA Agreement is 20% in 2019, in 2021 it is 5%.

Newborn preparations for infants and young children (2106.90.81, 2106.90.89) have an MFN tax rate of 15%, WTO commitment of 20%; 2018 import turnover of the code 2106.90.81 is about US$600,000, mainly from the Netherlands and Portugal; code 2106.90.89 is about US$2 million, imported mainly from Korea, imported from the US is only about US$214,000. Other health nutrition products, item code 2106.90.96 has a MFN tax rate of 10% (WTO commitment is 15%). Import turnover of US$161 million mainly from Singapore and the USA. ATIGA’s special preferential tax rate is 0%.

Through the aforementioned statistics, it can be seen that milk, curd, albumin are mainly imported from New Zealand, Singapore, Japan, USA, Australia and have enjoyed special preferential import tax rates under the free trade agreements signed by Vietnam (ATIGA, AANZFTA), and will continue to enjoy preferential treatment from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), Vietnam-Eurasian Economic Union (EAEUFTA). In the country, many businesses have been able to produce milk products and dairy products (Vinamilk, TH True Milk).

The Ministry of Industry and Trade has also issued a list of commodities that do not encourage imports, including milk products, and dairy products are on the list of price control and have a significant impact on consumption. In the past, the US and the European Chamber of Commerce have proposed several times to reduce tariffs on dairy products and then promoted the signing of the Vietnam-EU FTA and CPTPP. The United States is a party to the CPTPP, but has withdrawn from this agreement and is expected to negotiate a bilateral agreement with Vietnam.

Therefore, the Ministry of Finance proposed not to consider reducing taxes on commodities of groups 0402, 0406, 3502, 1901, and 2106 to promote FTA negotiations with the US. The Ministry of Finance proposes to keep the MFN import tax rates for dairy products and milk products in the categories 0402, 0406, and 3502 in order to support the domestic dairy industry to develop stably.

Tax breaks for diesel engines

Another product that has received much attention is cars. The Vietnam Automobile Manufacturers Association (VAMA) proposes to adjust the MFN tax rates for automotive engine products of codes 8408.20.22 and 8408.20.21 from 25% to 20% to ensure fairness for motor vehicle items (petrol and oil).

For oil engines with a cylinder capacity not exceeding 2,000cc under code 8408.20.21 and cylinder capacity of over 2,000cc but not exceeding 3,500cc code 8408.20.22, MFN tax rate is 25% and WTO commitment is 25 %, ATIGA is 0%, ACFTA is 20% (from 2019). Import turnover in 2018 was US$3.92 million, mainly from China and Japan. However, gasoline engines of heading 84.07 currently have a MFN tax rate of 20% (equal to the WTO ceiling commitment). Therefore, the Ministry of Finance proposes to reduce the import tax on goods with codes 8408.20.21, 8408.20.22 from 25% to 20% in order to agree with the tax rate for petrol engine products to unify the tax rate for goods that have the same nature, structure, utility and technical features (due to the 25% increase in petrol engine). In case of such tax reduction, the state budget revenue is expected to decrease by about VND49.4 billion.

Also related to cars, VAMA recommends clarifying the description in group 9845 (car gear box 9845.71.00 to 9845.80.00) to avoid misunderstandings for customs authorities as well as enterprises when applying because car gearboxes cannot be produced in Vietnam yet. Group 9845 prescribes tax rates for imported auto parts and components to implement Decision 229/QD-TTg of February 4, 2016, on mechanisms and policies for the implementation of the Strategy and Planning on development of the automobile industry.

According to the Ministry of Finance, these are domestically produced components and spare parts based on Circular No. 14/2015 / TT-BKHDT dated November 17, 2015 of the Ministry of Planning and Investment. Accordingly, the tax rate of 15% -25% is higher than the corresponding tax rates for these goods items in 97 Chapters of the Import Tariff. However, according to Circular No. 01/2018/ BKHDT (replacing Circular No. 14/2015 / TT-BKHDT), there are no names of gearboxes HS14, HS19, GT10, GT2, HDC (corresponding to the codes goods 9845.71.00 to 9845.75.00). Therefore, the Ministry of Finance proposed to remove the tax lines from 9845.71.00 to 9845.75.00. For reducer, screw, gear (code 9845.80.00), which are still listed in Circular 01/2018 / TT-BKHDT, remain in heading 9845.

Some other goods that can be produced domestically belong to key mechanical engineering, electricity – electronics and garments (Chapter 61, 62, 63, 84, 85, 87 Annex II – Preferential import tariff schedule) proposed by the Ministry of Industry and Trade to apply import tax rates according to the ceiling of the international commitments to which Vietnam is a member, since these are manufacturing sectors with great market potential. There is ample room for development to take advantage of the free trade agreements that Vietnam has signed.

Through review, the Ministry of Finance found that the tax rates for garment products of Chapter 61, 62, 63 were set by the ceiling of WTO commitments. For goods in the fields of mechanics, electricity – electronics in Chapter 84, 85, 87, the principle of promulgating the tax rates prescribed in the Law on Export Tax and Import Tax No. 107/2016 / QH13 is applied.

Specifically: “Encouraging the import of raw materials and materials, giving priority to domestic types that do not meet demand; focus on developing high-tech field, source technology, energy saving and environmental protection. In line with the State’s socio-economic development orientation and commitments on export tax and tax imported in international treaties to which the Socialist Republic of Vietnam is a member. Uniformly applying tax rates to goods of the same nature, structure, utility and similar technical features; import tax rates are reduced gradually from finished products to raw materials; Export tax rates increase gradually from finished products to raw materials.”

In the view of the Ministry of Finance, the special preferential import tax stipulated in the Government’s Decrees to implement bilateral and multilateral agreements is implemented in accordance with the roadmap of committing tax rates, not speeding up compared to with a commitment to support domestic production and boost exports.

By Hong Van/ Huu Tuc