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Honda Vietnam in trouble over incorrect local content claims

HO CHI MINH CITY - Inspectors are looking into the case of Honda Vietnam making incorrect declarations of its local content ratios to see whether it is an intentional move to evade taxes or merely a mistake, the latter point being viewed by some as the likely reason. No matter the reason, punitive sanctions will be imposed, an inspector said.

The Japanese-invested motorcycle manufacturer is alleged to have wrongly declared the local content ratios of its Wave Alpha, Super Dream and Future models. According to inspection results released early last week, the actual ratios in the three models are 35.9%, 52.34% and 54.62%, respectively, compared to 50.45% in the first model and over 60% in the other two. The source told the Daily the investigation now aimed to determine the real nature of the wrong declarations, despite both Honda Vietnam and some inspectors insisting on calculation errors rather than deception.

One of the State inspectors assigned by the Government to look into the case said that Honda Vietnam’s false declarations were a mistake. He explained that Honda Vietnam had purchased components made by other companies and declared them as its own products after reconditioning the parts. Yet, he acknowledged that this went against the regulations governing the local content ratio declaration. An executive of the manufacturer also said the wrong declaration was a mistake, blaming incorrect understanding of legal documents.

Deputy general director of Honda Vietnam Bui Doan Nguyen told the Daily that the company had not evaded taxes by such declarations, as the difference did not entitle the company to a lower tax rate. “Circular 120 governing local content declaration took effect in early 2001, but we had applied the rules in retrospect for components imported in 2000. In any case, the tax rate remained at 10%, and the State Budget revenue was not affected,” Nguyen said. An official in the import and export tax department of the General Department of Taxation shared the opinion, saying back taxes would not be imposed in the case of Honda Vietnam.

However, whether Honda Vietnam’s case is a violation depends on the final conclusion of the inspectors, the official said. The report about the local content of Wave Alpha motorcycles captured the public interest because it said the local content ratio of Wave Alpha motorcycles was much lower than the ratio declared at the model’s launch early this year. The Wave Alpha has sold like hot cakes in the past months due to the prestige of the manufacturer and its competitive price, less than VND11 million.

Earlier, the Vietnam Motorcycle and Bicycle Producers Association lodged complaints that the proportion of Chinese-made components in Wave Alphas was higher than the company had declared. These complaints led to the investigation.

By Minh Quang - Financial Times Information Limited - July 22, 2002