Circular No. 01/1999/TT-BXD guiding the preparation of construction project budgets according to the Value Added Tax Law and Corporate Income Tax Law.

CIRCULAR

Guidelines for preparing project estimates for construction works

under the Value Added Tax Law and the Corporate Income Tax Law

 

Pursuant to Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax; Decree No. 30/1998/NĐ-CP dated May 13, 1998 detailing the implementation of the Law on Corporate Income Tax;

Pursuant to Decree No. 28/CP dated March 28, 1997 of the Government on reforming salary and income management in state-owned enterprises;

Pursuant to Directive No. 41/1998/CT-TTg dated December 17, 1998 of the Prime Minister on continuing the organization and implementation of new tax laws.

Pursuant to Circular No. 89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP.

To strictly manage investment capital for basic construction, to make the work of setting up and managing prices consistent with the new management mechanism; After reaching consensus with the Ministry of Finance, the Ministry of Construction hereby guides the preparation of project estimates for basic construction works according to the Law on Value Added Tax and the Law on Corporate Income Tax as follows:

I- REGARDING THE ESTIMATED VALUE OF CONSTRUCTION AND INSTALLATION WORKS.

The estimated value of construction and installation works after tax includes the estimated value before tax and the output VAT amount. In this regard:

1- Estimated value before tax.

The estimated value before tax is the basis for calculating VAT, including direct costs, common costs, and pre-tax taxable income. These costs are determined based on consumption rates of materials, labor, machinery usage... and regional price levels at each period issued by competent authorities.

1.1-Direct Costs:

Including material costs, labor costs, and machinery usage costs determined based on the approved design volume and corresponding basic construction unit prices (unit prices of provinces/cities or individual projects).

1.1.1-Material Costs:

Including main materials, auxiliary materials, and circulating materials calculated based on basic construction unit prices (unit prices of provinces/cities or individual projects). The prices of various materials and supplies included in material costs within the basic construction unit prices do not include the input VAT amount that the construction business must pay when purchasing materials and supplies for construction works.

When there is a change in material prices, the difference is determined based on the announced price level without VAT from the competent authority and the price already included in the basic construction unit price, then directly added to the material costs in the estimate.

1.1.2-Labor Costs

Labor costs in the construction and installation estimate include basic wages, allowances with wage characteristics, and other costs according to regulations for construction workers that can be directly allocated to workers for a standard working day. According to this principle, labor costs in the basic construction unit price are determined as follows:

For the unit prices of central provinces/cities, labor costs are calculated based on a minimum wage of 144,000 VND/day, wage grades according to Wage Scale A6 attached to Decree No. 05/CP dated January 26, 1994 of the Government, mobility allowance at the lowest rate of 20% of the minimum wage, production instability allowance at an average rate of 10%, some additional wages (holidays, Tet, leave...) at 12%, and some costs that can be directly allocated to workers at 4% of the basic wage. For projects that enjoy additional wage allowances, wage supplements, and other policies not included in the aforementioned basic construction unit price or have higher mobility allowances than 20% or higher production instability allowances than 10%, these items will be supplemented into labor costs according to the guidance in the consolidated estimate value of construction and installation works as Appendix 1 attached._theFor the basic construction unit price of projects: Directly include basic wages, allowances with wage characteristics, and benefits for construction workers that the project enjoys according to the above calculation method.

1.1.3-Machinery Usage Costs:

Calculated based on the machinery rental price list issued by the Ministry of Construction (Decision No. 1260/1998/QĐ-BXD dated November 28, 1998). Among these, labor costs for machine operators, maintenance, and repair are included as specified in point 1.1.2 above.

Some costs included in the machinery rental price list (such as fuel, electricity...) do not include input VAT.

1.2-General Costs:

Calculated as a percentage (%) of labor costs in the construction and installation estimate. The general cost ratio is defined for each type of project in Appendix 2.

Some cost items included in general costs do not include input VAT.

1.3-Pretax Taxable Income:

In the construction and installation project estimate, the pretax taxable income ratio is a percentage (%) of direct costs and general costs as defined for each type of project in Appendix 2.

Pretax taxable income is used to pay corporate income tax and other expenses that must be paid or deducted. The remaining portion is set aside for funds according to the Financial Management Regulations and Business Accounting System for State-Owned Enterprises issued together with Decree No. 59/CP dated October 3, 1996 of the Government.

2- Output VAT:

Output VAT is used to repay the input VAT that the construction business has prepaid when purchasing various types of materials, fuels, energy... but not yet included in the material costs, machinery usage costs, and general costs in the pre-tax construction and installation estimate, and the VAT that the construction business must pay.

The output VAT rate is calculated according to the regulations for construction and installation work.

The process of determining the estimated value of construction and installation works according to the principles mentioned above is defined in Appendix 1 attached to this Circular.

- REGARDING OTHER COSTS IN THE TOTAL PROJECT ESTIMATE FOR CONSTRUCTION WORKS.

II1- Regarding construction survey costs:

1- Regarding construction survey costs:

The construction survey cost estimate shall be established according to the Construction Survey Cost Estimate Norms issued together with Decision No. 177/BXD-VKT dated July 17, 1995, and the Circular on Establishing and Managing Construction Survey Cost Estimates No. 22/BXD-VKT dated July 17, 1995, of the Ministry of Construction. When Value Added Tax (VAT) is applied, this cost estimate shall be determined as follows:

1.1-The pre-tax construction survey cost estimate equals the construction survey cost estimate calculated according to the aforementioned regulations multiplied by the adjustment factor K = 0.95.

1.2-The post-tax construction survey cost estimate equals the pre-tax construction survey cost estimate mentioned in Point 1.1 plus the amount of output VAT as prescribed. 

2 ||| Regarding design costs

The design cost estimate shall be calculated based on the Construction Project Design Price List issued together with Decision No. 179/BXD-VKT dated July 17, 1995, of the Ministry of Construction. When Value Added Tax (VAT) is applied, this cost estimate for the work shall be determined as follows:

2.1-The pre-tax design cost estimate equals the design cost estimate calculated according to the aforementioned regulations multiplied by the adjustment factor K = 0.96.

2.2-The post-tax design cost estimate equals the pre-tax design cost estimate mentioned in Point 2.1 plus the amount of output VAT as prescribed.

For urban planning works when applying Value Added Tax (VAT), the cost estimate shall be determined similarly to the construction project design cost estimate mentioned above, but based on the Urban Planning Price List issued together with Decision No. 502/BXD-VKT dated September 18, 1996, of the Ministry of Construction.

3 ||| Regarding review and consulting costs for investment and construction.

Review and consulting costs for investment and construction shall be calculated according to Decision No. 501/BXD-VKT dated September 18, 1996, of the Ministry of Construction. When Value Added Tax (VAT) is applied, the cost for this work shall be determined as follows:

3.1-The pre-tax cost equals the cost calculated according to the percentage rate specified above multiplied by the pre-tax value of construction and installation (or the pre-tax value of construction and installation and equipment or the pre-tax value of equipment).

3.2-The post-tax cost equals the pre-tax cost mentioned in Point 3.1 plus the amount of output VAT as prescribed.

III. IMPLEMENTATION.

The method of establishing basic construction project estimates as guided above shall be uniformly applied throughout the country from January 1, 1999. Previous regulations contrary to those stipulated in this Circular are no longer effective. Sectoral and local documents guiding the establishment of project estimates for sectoral and local projects shall not contradict the provisions of this Circular.

For construction projects that carry over from the previous year to 1999, the Project Investor and the contractor unit must prepare a record according to the model form of the Ministry of Finance, determining the value of the construction volume completed up to December 31, 1998, and the remaining construction volume to be executed from January 1, 1999, to apply Value Added Tax (VAT) and Corporate Income Tax according to the following principles:

The construction volume and sub-project volume completed up to December 31, 1998, shall not be subject to Value Added Tax (VAT).

The construction volume and sub-project volume executed from January 1, 1999, shall be calculated according to the guidance provided in this Circular.

To establish a new set of basic construction unit prices applicable from January 1, 1999, the People's Committees of Provinces and Cities are instructed to direct the Joint Departments of Construction-Finance-Material Prices to determine the prices of various materials and building materials according to the principle of maintaining the price level formed at the end of 1998, which already includes Value Added Tax (VAT).

During the implementation process, if there are any issues or inconsistencies, it is recommended that sectors and localities report them to the Ministry of Construction for research and resolution.

 

ANNEX 1

SUMMARY TABLE OF ESTIMATED CONSTRUCTION INSTALLATION VALUE

BASIC CONSTRUCTION PROJECT

 

 

Where:

Article 24^{9. Travel distance is the distance traveled without using mechanical means (cars, motorcycles, motorboats) to reach locations for implementing technical forest management measures and patrolling to protect forests.}:Volume of construction work j

D^jvl,D^jnc, D^jm:Material, labor, and machinery costs within the basic construction project unit price of work j

F₁:Additional allowances (if any) calculated based on the minimum wage not included or insufficient in the basic construction project unit price

F2:Additional allowances (if any) calculated based on the wage grade not included or insufficient in the basic construction project unit price.

In the course of implementation, if there are difficulties or obstacles, please reflect them to the Ministry of Health for consideration and resolution./._1n:Factor representing the relationship between labor costs in the unit price and the minimum wage of group n

Group I                        : h_1.1    = 2,342

Group II                       : h_1.2    = 2,493

Group III                      : h_1.3    = 2,638

Group IV                     : h_1.4     = 2,796

h_2n:Factor representing the relationship between labor costs in the unit price and the wage grade of group n.

Group I                        : h_2.1    = 1,378

Group II                       : h_2.2    = 1,370

Group III                      : h_2.3    = 1,363

Group IV                     : h_2.4     = 1,357

"5. The pre-tax weighted average cost of capital i (%) is determined according to the formula below:         :General cost norm (%).

TL      :Taxable income before tax (%).

G_xl       : Post-tax Construction Installation Estimate Value.

CL_vl    VAT: Total output VAT (including VAT paid when purchasing various materials, fuels, energy...

d.1. Amount of taxable income in Vietnam:_VAT:Value Added Tax (VAT) rate prescribed for construction and installation work.

             Installation

VAT:Total output VAT (including VAT input paid when purchasing various materials, fuels, energy... and the portion of VAT that construction enterprises must pay).

Note:        

The total cost level in item 21 is calculated based on the construction machinery usage costs and shall only apply to projects or project components that utilize complete construction technology chains implemented by machinery, which are separately budgeted for construction installation./.