CIRCULAR

GUIDELINES ON IMPLEMENTING CERTAIN ASPECTS OF BUSINESS AND COMMERCIAL TAXES TO PROMOTE THE PRODUCTION OF CONSUMER GOODS AND EXPORTS.

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In compliance with Resolution VI of the Central Committee, the Ministry of Finance is proposing to the Council of Ministers to improve corporate income tax policy, abolish excess profit tax, and implement a new progressive tax rate. Due to the necessary time required for review and issuance, it is anticipated that the new tax policy will be implemented after some time.

To immediately impact the promotion of consumer goods and export production, it is essential to fully understand the spirit of Resolution VI of the Central Committee and related Government Resolutions (Resolution 279 dated August 1, 1979, Resolution 227 dated June 21, 1979) in the implementation of current business and commercial taxes. For this purpose, this Circular provides guidance on the following issues:

A- First, it is necessary to thoroughly grasp the function and effect of business and commercial taxes as a tool of the State to continuously understand the capacity and actual business operations of the people in commerce and industry, to manage these activities regularly, to assist in developing production, overcome difficulties, prevent and limit negative actions, ensure obligations to the State, and make sure that the interests of the State, collective entities, and workers are appropriately addressed.

Therefore, tax work must closely follow the areas of commercial and industrial activity on streets, villages, delve deeply into each establishment, understand the economic and financial changes at each stage of operation of each establishment, help establishments enhance production efficiency, and establish clear record-keeping and comprehensive calculations.

Only by doing so can Resolution VI be fully implemented. It should not be understood that promoting production means narrowing or lowering the functions and responsibilities of tax work. Based on the development of business and production, revenue will increase, the scope of tax management will expand, and tax work must further its role in assisting the correct development of production and business according to policy, preventing negative manifestations, and contributing to the consolidation of the state-owned and collective economic sectors.

B- Certain issues regarding the implementation of current tax policies.

1/ Corporate Income Tax.

Corporate Income Tax must be strictly enforced according to the current tax rates to ensure the State's control over all business and production activities; no question of exemption or reduction of corporate income tax should arise, procurement agencies must include corporate income tax in the procurement price. For self-produced and self-consumed activities, the actual turnover must be accurately determined to collect sufficient corporate income tax and provide a basis for correctly collecting income tax according to policy. Naturally, for small businesses that pay fixed amounts of corporate income tax and profits, the fixed method should still be applied, but it is necessary to fix them appropriately.

2/ Wholesale Tax:

For wholesalers selling raw materials to production units, management must ensure the collection of full wholesale tax. Production units must keep complete purchase receipts and maintain accurate records; tax officers must delve into the management of raw material imports and exports (sources of purchase, prices), consumption... to guide the purchase and use of raw materials according to the State's policies and regulations. In cases where production units collect raw materials themselves, they must also maintain transparent records to clearly show the sources and prices of raw materials; thus, avoiding mechanical collection of wholesale tax from producers; naturally, if there is collusion between producers and traders to evade tax, appropriate measures must be taken.

3/ Goods Tax:

Regarding the goods tax collected from self-produced and self-consumed products, Resolution 279/CP stipulates: "Collective economic units and individuals using their own waste materials or purchasing waste materials, agricultural, forestry, and fishery by-products to produce new products, if initially encountering difficulties, may be exempted or have their tax reduced for a certain period." The requirement for tax exemption or reduction is to ensure that production units retain a satisfactory profit margin during initial production difficulties. District, county, and ward tax authorities shall base their decision to exempt or reduce goods tax on the specific production and sales situation of the production unit (delving into cost and selling prices) and consulting relevant departments (management sector, handicraft cooperatives, National Price Commission...) If deemed appropriate, they may exempt or reduce the tax and specify the duration of the exemption or reduction for each unit; subsequently, they must report to the provincial or municipal finance authority. It is not advisable to grant blanket exemptions or reductions for entire industries or product categories; it is recommended that district, county, and ward People's Committees make specific decisions...

4/ Corporate Income Tax:

Income tax on the total income of business entities (including income from selling to the State, free market sales, and other dependent incomes) is levied at a progressive rate to redistribute income and regulate business profits. Therefore, revenue management must ensure accurate determination of actual income for each period and annually to implement monthly provisional collection and annual settlement based on actual figures. For business entities subject to fixed revenue and income methods for final tax payment without annual adjustment, adjustments should still be made according to changes in business conditions for each period (six months or one year) to closely match reality. It is not feasible to set a stable levy ratio (based on revenue or income) for each industry because doing so would lose the significance and effect of income tax. In the South, to support the establishment of collective bases, the policy of stabilizing the levy ratio for newly formed collective bases will be implemented for two years.

Regarding the settlement of 1979 income tax for business entities subject to monthly provisional collection and annual final settlement, to fully implement the spirit of Resolution VI of the Central Committee Meeting, the Ministry provides guidance as follows:

a- The issue of applying tax rates:

For production industries of consumer goods and exports encouraged by provincial and municipal People's Committees, for income realized from January 1, 1979 to December 31, 1979, the portion of income exceeding 1,600 dong will not be separately taxed under the progressive rate for regular income tax and the progressive rate for excess income, but instead will be combined and taxed at a single progressive rate as follows:

For industries that need to be restricted (such as the production of paper money, playing cards, etc.), Circular No. 02 dated January 12, 1979 of the Ministry shall continue to apply.

b- The issue of calculating costs for raw materials included in sales to determine taxable income:

It is necessary to distinguish between:

- Costs for raw materials related to activities involving business transactions with the State (processing on commission, purchasing semi-finished products from the State).

+ Regarding consumption levels: it is essential to combine regular management with accounting checks and comparisons with consumption standards specified in processing and procurement contracts to determine actual consumption levels. If actual consumption is lower than the standard, the actual level is recognized and reported to the processing and procurement agency for additional quality control or review if necessary. If the recorded consumption exceeds the standard, after thorough verification and exclusion of factors such as false accounting, theft of State materials, and agreement with the processing and procurement agency, the tax authority will determine a reasonable actual consumption level for cost calculation.

+ Regarding prices: for raw materials purchased from State agencies, the price stated on invoices will be used. For purchases from the free market, the tax authority should actively assist businesses with proper records and valid documentation; in cases where valid documentation is lacking, the tax authority will base calculations on observed free market prices, consult with the processing and procurement agency, and determine a reasonable actual price.

- Costs for raw materials in self-production and self-consumption activities:

+ It is crucial to require businesses to maintain valid documentation for clear record-keeping, providing the tax authority with a basis for inspection and handling. In cases where documentation and records are incomplete, the tax authority should conduct thorough regular management, seek opinions from relevant agencies (industry management agencies, handicraft cooperatives, price control agencies, etc.), refer to cooperative society production prices for similar products, and market prices to determine reasonable consumption levels and prices. Attention should be given to raw materials obtained through self-collection, which may vary in quality and price.

For cooperatives involved in both State business relations and self-production and self-consumption, strict inspections are required to prevent misuse of State materials for self-production and timely detection and handling.

c- The issue of external labor hiring and deducting wages for external labor:

To ensure the nature of cooperatives, their charter stipulates that they can only hire external labor up to 10% of the number of members. Previously, tax guidelines provided that if the number of hired workers exceeded 10%, the excess wage deduction would not be recognized. Now, the Ministry directs that tax authorities must promptly report to the handicraft cooperative associations any cases of excessive hiring, allowing the association to address the issue. For cases where hiring exceeds regulations due to urgent State plan requirements, unstable production, insufficient new member recruitment, or the nature of certain jobs requiring family labor, after consultation with the handicraft cooperative association, the tax authority may allow actual deductions for external labor wages.

In areas where local authorities have policies requiring some cooperatives to accept individuals who must work compulsorily or for reformation, the amounts paid to these workers (as remuneration or wages according to prescribed rates) can be deducted as expenses when calculating taxable income.

d- The issue of deducting exempted allowances when calculating taxable income:

The determination of exempted allowances is calculated using two methods as follows:

For production-focused cooperatives that pay members' wages on a daily or monthly basis based on accurate attendance records guided and inspected by the tax authority, the number of exempt quotas shall be calculated according to the following formula:

For cooperatives that pay wages based on output (and therefore do not implement timekeeping), the tax authority will assist the cooperative in determining the labor productivity level each member must achieve within a month (expressed in terms of the quantity of products produced, or the value of products produced, or wage calculated based on output, depending on the cooperative). The number of exempt quotas shall be calculated according to the following formula:

According to the two formulas above, generally, the average number of exempt quotas per month does not exceed the number of members listed. In exceptional cases where there are multiple jobs and increased labor intensity causing the number of exempt quotas to exceed the number of members, to encourage the cooperative, the number of exempt quotas found through the formula shall still be counted.

e- The issue of averaging members to find the income for calculating the average member income:

From now on, the determination of the number of members used to calculate the average member income will not be based on the number of exempt quotas previously calculated, but rather on the actual number of formal members participating in production in the list, which includes both direct and indirect workers, but excludes members who do not participate in production, such as those whose names are only formal entries and actually engage in business outside the cooperative.

This Circular applies nationwide. However, for the South region, regarding tax rates, income tax tables, and methods for calculating small household taxes, they will continue to be applied according to the provisions in Decision No. 327-CP dated December 30, 1978 of the Council of Ministers.