Circular No. 2749/TC/TCT regarding the handling of import tax for raw materials, components, and spare parts for production and assembly

LETTER

OF THE MINISTRY OF FINANCE NUMBER 2749 TC/TCT DATED MARCH 22, 2002
REGARDING THE TAXATION OF IMPORT DUTIES ON RAW MATERIALS, COMPONENTS, AND PARTS FOR MANUFACTURING AND ASSEMBLING
PARTS FOR PRODUCTION AND ASSEMBLY

Respected: Ministries, ministerial-level agencies, government agencies

- Provincial People's Committees, municipal people's committees under direct central jurisdiction

To reduce input costs, encourage investment, and protect domestic production of Vietnamese products with competitive advantages, the Ministry of Finance has issued several Decisions to amend import tax rates for certain goods listed in the Import Tariff Schedule. When setting import tax rates for goods, the Ministry of Finance not only considered competitive advantages, future development potential, business conditions, level of investment, but also ensured maximum protection for domestic production by reasonably setting import taxes on raw materials, components, and parts relative to finished products.

However, in practice, there are still some cases (accounting for a small proportion) where certain component and spare parts, or raw materials for manufacturing and assembling mechanical-electronic products have higher import tax rates than finished products. These products typically include:

1. Goods that enterprises import as raw materials, components, which have been produced domestically for a relatively long time, with quality and quantity assured, and long-term competitive potential, thus requiring high protection. Meanwhile, the finished product is newly introduced for production or used for social welfare policies that need priority, so they have been taxed at lower rates over the past period (these goods are used for healthcare, education, national defense and security).

2. Or although both are used as raw materials, they are not used to produce the same finished product with the same export tax rate, but rather different products with varying proportions of raw material costs and different export tax rates, leading to import tax rates suitable for one product being unsuitable for another.

For example, domestic wire has been produced, with the Import Tariff Schedule stipulating a 20% tax rate for protection. Some units import wire to produce electrical products, which have various tax rates ranging from 0% to 30%. Therefore, importing wire to produce electrical products with import tax rates of 20% or more is reasonable, but importing wire to produce electrical products with import tax rates below 20% is unreasonable.

3. Or according to the classification principle of the Harmonized System (HS) Tariff Schedule, although both involve importing components for assembly, if imported as a complete set, it is taxed as a whole unit, while if imported separately, it is classified by individual component types, leading to situations where if the import tax rate for a complete unit is low, businesses will prefer to import complete sets, and vice versa.

To continue addressing these inconsistencies for cases where the import tax rate for components, raw materials, and parts is higher than that for finished products, as directed by the Prime Minister's Directive No. 28/2001/CT-TTg dated November 28, 2001, regarding further creation of a favorable business environment for enterprises, following the decisions to amend import tax rates for certain groups of goods, the Ministry of Finance will review and rebuild the entire import tax rate schedule for all groups/subgroups/items in the current Import Tariff Schedule according to efficiency targets, rearrange groups/subgroups/items by economic sectors and subsectors, and establish the most appropriate tax rate for each sector/subsector based on the ASEAN Harmonized Tariff Nomenclature (AHTN). For example, sectors such as agriculture, livestock, agricultural product processing, machinery, electricity, electronics, chemicals, textiles, etc., can be divided, and effective protective tax rates can be established for each sector (effective protective tax rates are determined based on import tax rates for raw materials, components, and parts input and finished product output), with particular emphasis on ensuring maximum protection for domestic production by reasonably setting import tax rates between raw materials, components, and parts and finished products.

Rebuilding the import tax rates as mentioned above will resolve most inconsistencies in import tax rates between raw materials, components, and finished products, but according to predictions, new inconsistencies may arise (due to the need for high protection for immature products or due to the gradual reduction of import tax rates for products that have been excessively protected for too long, and increasing tax rates for new technology products to encourage investment). However, businesses falling into these situations must accept this because our goal is to support industries and products with competitive advantages, not to provide indiscriminate protection.

To handle this appropriately in accordance with the Prime Minister's Directive No. 28/2001/CT-TTg mentioned above, the Ministry of Finance requests all Ministries, agencies equivalent to ministries, government agencies, provincial People's Committees under the central government to inform relevant units and production and assembly facilities about the situation. In cases where production and assembly units find inconsistencies in the prescribed import tax rates for raw materials and spare parts imported for assembling complete products affecting their business operations, they should submit proposals in writing to the relevant Ministries, agencies equivalent to ministries, government agencies, provincial People's Committees under the central government for consolidation and recommendation of solutions according to the attached form to be sent to the Ministry of Finance (General Department of Taxation, 123 Lo Duc Street) before March 30, 2002. For detailed discussions, please contact the telephone numbers 9.719.474/9.719.475 or fax number 9.712.286 (Customs Tax Department - General Department of Taxation).

We thank your agency for its cooperation and collaboration.