Under Decision 84/2008/QD-BTC, steel ingot will enjoy a reduced export tax duty of 5 percent as of October 7. According to the MoF, the move is aimed at removing difficulties for domestic steel producers.

This is the second steel ingot tax cut in the past few weeks. On September 22, the steel ingot export tax was halved from 20 percent to 10 percent.

The latest move comes after the Vietnam Steel Association (VSA), has proposed the Government reduce the tax to only 2 percent and then exempt the tax.

According to the VSA, domestic steel producers, especially steel ingot producers, lack capital and are facing bankruptcy due to the low demand in the domestic market and the high tax rate, which prevent them from developing an export market.

A number of steel producers have been forced to cease production, said VSA Chairman, Pham Chi Cuong.

Cuong said producers still have nearly 1 million tonnes of steel worth roughly US$1 billion in stock.

The MoF, from early June to mid August, lifted the export duty on steel ingot two times, with the first from 5 to 10 percent and the second from 10 to 20 percent, in a move to prevent domestic producers from exporting steel ingot to make a bigger profit, as domestic steel prices were low compared to world prices. The ministry was afraid that exports could cause a shortage of material in the domestic market.

According to the General Department of Customs, steel producers in the first seven months of the year exported nearly 1.3 million tonnes of steel ingot and steel products, an about face over previous years when steel had to be imported.

However, the situation has changed in past months as the prices of steel ingot and steel products in the world market are roughly US$200 per tonne lower than in the domestic market.

Steel producers, therefore, are on the brink of bankruptcy.

To deal with the shortcoming, Cuong recommended the Government apply more flexible policies on managing steel exports.

He said on October 7 that besides cutting the tax to two percent and exempting it, the Government should lift the import tax on steel products from the current 8 percent to 20 percent to ease domestic production.

Besides the establishment of a fund to buy steel ingot stocks, the VSA also suggested the Government provide steel producers and construction investors incentive credit policies to boost domestic steel consumption.