August 19, 2018 00:40

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Further tariff reduction under the ATIGA will not greatly affect the state budget

14:33 | 04/12/2017

VCN – The Ministry of Finance has finalized the draft Decree on issuing Vietnam’s Special Preferential Tariff to implement ASEAN Trade in Goods Agreements (ATIGA) in the period 2018-2020. Although some tariff lines have been cut in accordance with the commitments, according to the Ministry of Finance, this cut has not greatly affected the state budget 

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Customs officers at Cau Treo International Border Gate inspected import and export goods. Photo: Hong Nu

Turnover up nearly 20%

In order to implement the preferential tariff schedule under the ATIGA, in September 2016, the Government issued Decree No. 129/2016 / ND-CP stipulating the Tariff according to the schedule as committed at the ATIGA in the period 2016 - 2018. The implementation of this Decree has contributed to supporting the Customs statistics on import and export, ensuring uniformity, creating a transparent business environment on tax rates, facilitating enterprises and the Customs.

In particular, the implementation of tax incentives for the ATIGA countries has contributed drawing a bright import and export picture between Vietnam and ASEAN countries. At present, ASEAN has become the fourth largest export market for Vietnam after the United States, the European Union, and China with an export turnover of US $ 17.6 billion in 2016. Vietnam’s import turnover from ASEAN also maintained its growth. Investment activities among the countries have also been developed through commercial activities.

Comparing the data of the first 10 months of 2017 with the same period in 2016 can prove that the implementation of the ATIGA has brought many great impacts, such as import turnover up by 19.17% (equivalent to nearly 3 US $ billion) with an absolute value of nearly US$ 22.8 billion VND from ASEAN, accounting for 13.25% of total world’s import turnover. In which, the greatest increase focused on items such as cars with less than 9 seats, components, vegetable oil, petroleum products, computers and electronic products. Besides, the import turnover from ASEAN region decreased significantly in some items: tobacco raw material, diesel, raw materials for textiles and footwear etc. In terms of import data under the Certificate of Origin of the Agreement (C / O form D), import turnover of form D accounted for about 48% of total import turnover with many items reaching high rates, even reaching 100%

The average tax rate down year by year

To continue to implement intra-ASEAN commitment and to ensure consistency in the implementation of the ASEAN Harmonized Tariff Nomenclature (AHTN) 2017 among Tariffs, the introduction of a new Tariff to carry out the ATIGA is absolutely necessary.

According to the Ministry of Finance, the host agency of the development of this Tariff, because the Tariff is developed on the basis of strict adherence to the commitments in the Agreement, the tax rates basically remain from the agreed schedule. However, due to the impact of tariff entry and the principle of compliance with the guidelines on transfer of the Implementation Committees, some tariff lines are lower than Decree 129. At the same time, the codification and description of goods under AHTN 2017 require to further detail some tariff lines at the level of over 8 digits in order to ensure Vietnam's initial commitments under the Agreements.

The Tariff attached to the draft decree includes all items that Vietnam has committed to cut in the ATIGA. Accordingly, 9,107 lines remain the code, description, and countries that are not entitled to the current Tariff for not being affected by the transfer from AHTN 2012 to AHTN 2017. The specific tax rate for each item is in accordance with commitments in the tariff reduction schedule.

Most importantly, according to the ATIGA Tariff Reduction Schedule, the average tax rate expected to be cut year by year for the period 2018 – 2022 on the total current Tariff is 7% (from 1 January 2018 to 31 December 2018; 7% (from 1 January 2019 to 31 December 2019); 6% (from 1 January 2020 to 31 December 2020); 5% (from 1 January 2021 to 31 December 2021) and 4% (from 1 January 2022 to 31 December 2022). Petroleum will abide by its own tariff reduction schedule based on the results negotiated and adopted by ASEAN in 2010. According to the commitments, Vietnam will have to eliminate the import duty on petroleum products in ASEAN with the longest schedule in 2024.

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According to the Ministry of Finance, in terms of stability, basically, most of the item codes in the Tariff are not changed compared to the current Tariff. Thus, the issue of the Decree does not affect the implementation of commitments under the ATIGA, while ensuring the stability of special preferential Tariff. In terms of state budget revenue, it is assumed that if Vietnam's import growth rate under the ATIGA is the average import growth rate in the period 2014-2016 (equivalent to 6% per year); the using rate of using C / O form D is about 36% (the data in 2016), the total revenue from import duty of Vietnam from items subject to this adjustment will increase or decrease insignificantly. The impact on increase or decrease in budget revenues for each tariff reduction phase was assessed at the negotiation of the tariff reduction schedule when FTAs were signed and was also assessed comprehensively in the annual state budget estimates.

So far, the draft decree has received 69 of 97 comments, of which, 59 comments are approved, the others propose that the Decree should stipulate the same tax rate for items which are similar in the composition but different in use purpose (for example, chairs and swivel chairs). The Ministry of Finance said that these items were classified according to the goods classification nomenclature and are entitled to different MFN preferential tax rates (0% and 25%) and commitments on tariffs at FTAs. If the tax rate is adjusted to a low rate, it will unilaterally accelerate the commitments; if the tax rate is adjusted to a high rate, it will break the commitments. The Tariff is attached to the Decree to ensure the compliance with Vietnam's tariff commitments in FTAs.

Others suggested implementing a private policy for spare parts of machinery and equipment that have not been produced in the country and second-hand goods. The Ministry of Finance explained that the decree is issued to implement Vietnam’s commitments signed under the FTAs. The Ministry of Finance will study the opinions in the future in relation to the development of the MFN preferential import Tariff and FTA negotiation.

It is expected that after promulgation, the decree will take effect from 1 January 2018.

By Hong Van/ Huyen Trang