Circular No. 06-TC/TCDN of the Ministry of Finance on guiding financial management regulations for state-owned enterprises engaged in public services.

CIRCULAR

Circular No. 06-TC/TCDN dated February 24, 1997 of the Ministry of Finance on guiding the financial management regime for state-owned enterprises operating public services

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Pursuant to Decree No. 56/CP dated October 2, 1996 of the Government on state-owned enterprises operating public services, the Ministry of Finance guides the financial management regime for state-owned enterprises operating public services as follows:

I. GENERAL PROVISIONS

1. The subject of this Circular is state-owned enterprises operating public services that have been decided by competent authorities, including independent enterprises and independent accounting units which are members of State Corporations (referred to as public service enterprises). The list of public service enterprises is decided by the Minister, Head of a ministry equivalent to a ministry, Head of a government agency, Chairman of the People's Committee of provinces and centrally governed cities according to the criteria prescribed in Article 1 and Article 2 of Decree No. 56/CP dated October 2, 1996 of the Government.

2. Public service enterprises are responsible for using capital and resources provided by the State to supply public goods and services to target groups at prices, price ranges, or fees prescribed by the State.

3. In addition to their assigned public service tasks, public service enterprises have the right to utilize land, scenery, capital, and State assets after completing their public service tasks and raising capital to organize business activities suitable to the enterprise's capacity and market demand under the condition:

- They obtain written approval from the authority deciding the establishment of the enterprise.

- Not affecting the implementation of public service tasks assigned by the State or ordered by the State.

- Registering additional business lines in accordance with current regulations.

- They separately account for the additional business operations.

- They fulfill tax obligations for the additional business operations according to the law.

II. MANAGEMENT AND USE OF CAPITAL AND ASSETS AT PUBLIC SERVICE ENTERPRISES

1. Capital Investment:

1.1. Newly established public service enterprises are prioritized by the State to invest sufficient initial charter capital, not lower than the statutory capital for each industry prescribed in Decree No. 50/CP dated August 28, 1996 of the Government to build, purchase fixed assets and circulating assets appropriate to the scale and public service tasks assigned.

1.2. Public service enterprises currently operating, if truly lacking capital compared to the public service tasks assigned by the State (after mobilizing existing capital within the enterprise), will be supplemented with capital from the State as follows:

- For profit-making public service enterprises, tax income can be reduced to supplement the enterprise's capital according to the provisions of the law.

- For non-profit public service enterprises or enterprises still lacking capital after tax reduction, the State will consider supplementing capital.

1.3. The establishment authority of the enterprise is responsible for ensuring the initial charter capital at the time of enterprise establishment according to the provisions of Article 2 of the aforementioned Decree No. 50/CP and supplementing capital for the enterprise.

1.4. Capital investment procedures.

a. For construction investment: enterprises implement according to the current regulations on investment management and construction.

b. Circulating capital investment: enterprises must prepare a capital allocation file including:

+ A copy of the decision to establish the enterprise.

+ A copy of the business registration certificate.

+ The decision of the Head of the establishment authority regarding the assignment of public service tasks.

+ The production and financial plan of the enterprise in the year requesting additional capital, approved by the competent authority.

+ The financial report of the previous year (if it is an operating enterprise).

+ The record of circulating capital standards approved by the State Capital and Asset Management Agency.

1.5. The procedure for allocating capital to enterprises is carried out according to the regulations of the Ministry of Finance.

2. Capital Mobilization:

2.1. When there is a need to raise capital, form joint ventures, or mortgage the value of land use rights attached to assets under the management of the enterprise from Vietnamese banks to borrow funds for public service activities as prescribed by law, the enterprise must prepare a specific plan and submit it to the State Capital and Asset Management Agency at the enterprise for comments before submitting it to the Head of the establishment authority for approval.

2.2. In cases where public service enterprises organize business activities outside the assigned public service tasks, enterprises may borrow funds from credit organizations (commercial banks, finance companies, etc.), other enterprises, individuals (including employees of the enterprise) to serve business activities, but must comply with legal regulations and not change the form of ownership.

Specifically, for enterprises producing, repairing weapons, equipment, and specialized supplies directly serving national defense and security, the mobilization of capital for business activities must be decided by the Ministry of National Defense and the Ministry of Public Security after receiving comments from the State Capital and Asset Management Agency at the enterprise.

2.3. The interest rate on raised capital recorded in the cost of production and services of the enterprise shall not exceed the ceiling lending rate announced by the State Bank of Vietnam at the time of raising capital and in the same industry.

2.4. When raising capital, enterprises must carefully calculate the economic efficiency, ensure the proper and effective use of raised capital, and not use short-term loans for construction investment. Enterprises must repay principal and interest according to the commitments made when raising capital.

The Director of public service enterprises is responsible to the State for the preparation of capital-raising plans, improper use of capital leading to losses.

3. Investment outside the enterprise:

3.1. When there is a need to use capital, assets, or the value of land use rights or land rental fees to invest outside the enterprise, public service enterprises must prepare a capital contribution plan or explain the joint venture project and submit it to the State Capital and Asset Management Agency at the enterprise for comments before submitting it to the Head of the establishment authority for approval.

3.2. Investment outside the enterprise shall not affect the assigned public service tasks, must comply with legal regulations, ensure the principle of effectiveness, preservation, and development of capital, and increase income. When using the value of land use rights to invest outside the enterprise, it must be implemented according to the provisions of the Land Law.

3.3. Public service enterprises shall not use State-invested capital for monetary transactions such as purchasing bonds, bills, savings...

3.4. A public utility enterprise shall not be permitted to invest in enterprises not under state ownership where the manager, operator, or principal owner is the spouse, parent, or child of the director of that public utility enterprise.

4. Transfer, lease, mortgage, pledge of assets:

4.1. The transfer, lease, mortgage, or pledge of assets under the management of a public utility enterprise must be decided by the head of the agency that established the enterprise following written agreement from the State Capital and Asset Management Agency at the enterprise.

4.2. When selling non-utilized or obsolete assets to recover capital, the enterprise must appraise and organize auctions in accordance with the law. The difference between the proceeds from the sale of the asset and its remaining book value and the costs of the sale shall be accounted for in the enterprise's business results.

4.3. For leased assets aimed at enhancing utilization efficiency and increasing enterprise income, depreciation must still be recorded according to prescribed regulations, and the assets must be tracked and recovered upon expiration of the lease term.

Assets pledged, mortgaged, or used as collateral for loans at financial institutions must be carried out strictly in accordance with the procedures and formalities stipulated by law.

Public utility enterprises may not pledge, mortgage, or lease borrowed, rented, held-in-custody, or pledged assets from other enterprises without the consent of the owners of those assets.

5. Liquidation of assets:

5.1. Machinery, equipment, and key assets essential for the operation of public utility enterprises (excluding agricultural crops and livestock assets), when liquidated, must be approved in writing by the agency that established the enterprise and the State Capital and Asset Management Agency at the enterprise.

Specifically, assets of enterprises producing, repairing weapons, military equipment, and specialized defense and security equipment, when liquidated, must be approved in writing by the Ministry of National Defense and the Ministry of Public Security; in special cases, approval must be obtained from the Prime Minister.

Liquidation of other assets shall be conducted in accordance with the provisions applicable to state-owned enterprises engaged in commercial activities.

5.2. Enterprises must establish a liquidation council. If spare parts or scrap materials recovered from liquidated assets are used for production and business operations, the enterprise must organize appraisals; if the liquidated assets are sold, auctions must be organized in accordance with the law. The difference between the proceeds from the liquidation of the asset and its remaining book value and the costs of liquidation shall be accounted for in the enterprise's business results.

6. The allocation of capital, responsibility for capital preservation, revaluation of assets, plans for handling asset losses, and management of receivables and payables shall be carried out in accordance with the provisions applicable to state-owned enterprises engaged in commercial activities.

7. Public utility enterprises have the responsibility to maintain accounting books accurately recording all assets and current capital of the enterprise in accordance with the prescribed accounting system; truthfully and promptly reflecting changes in assets and capital during the course of operations.

III. FINANCIAL RESULTS AND HANDLING OF RESULTS OF PUBLIC UTILITY ENTERPRISES

A. FINANCIAL RESULTS

1. Revenue of public utility enterprises includes revenue from public utility activities, revenue from commercial activities, and other activities.

1.1. Revenue from public utility activities includes: payments from the state for public utility products and services based on planned indicators or orders, proceeds from the sale of products and provision of services at prices, price ranges, or fees set by the state; income from subsidies and price supports provided by the state when supplying goods and services as required by the state.

a. In the case where public utility enterprises are paid by the state for public utility products and services based on planned indicators or state orders, the basis for payment is:

- Public utility tasks assigned by the head of the agency establishing the enterprise to the public utility enterprise in the annual plan.

- Payment unit price determined by the competent authority according to the government's delegation.

- Acceptance record of quantity and quality of completed products and services handed over between the planning or ordering agency and the public utility enterprise.

The finance agency will review and process payment for the public utility enterprise after deducting fines for violations of terms specified in the order.

b. The basis for consideration of subsidies and price supports is:

- Goods and services included in the list of subsidized and supported items as prescribed by the government.

- Public utility tasks assigned by the head of the agency establishing the enterprise in the annual plan.

- Quantity and quality of products and services implemented within the scope of the assigned plan.

- Subsidy and support unit price for each product and service determined by the competent authority according to the government's delegation.

The method of disbursing subsidies and supports shall be carried out in accordance with the regulations of the Ministry of Finance.

1.2. Revenue from commercial activities and other activities shall be applied in accordance with the provisions applicable to state-owned enterprises engaged in commercial activities.

2. Expenses of public utility enterprises include expenses for public utility activities, commercial activities, and other activities:

2.1. The content of expenses for public utility activities in each production sector shall be prescribed by the relevant ministry or the Chairman of the Provincial People's Committee based on the economic and technical characteristics of the sector, after obtaining written agreement from the Ministry of Finance.

2.2. The contents of business operation costs and other activity costs are implemented according to the regulations applicable to state-owned enterprises engaged in business operations.

3. Public utility enterprises may use revenue to cover expenses, including:

- Revenue from public utility activities is used to cover expenses for public utility activities, taxes, and other revenues of the state as prescribed by law (excluding corporate income tax).

- Revenue from commercial activities is used to cover the total cost of consumed products, taxes, and other revenues of the state as prescribed by law (excluding corporate income tax).

- Revenue from other activities is used to cover expenses, taxes, and other revenues of the state as prescribed by law (excluding corporate income tax).

Public utility enterprises conducting commercial activities must operate on the principle of ensuring profitability and shall not use profits from public utility activities to offset losses from commercial activities.

B. FINANCIAL RESULT HANDLING

1. For enterprises supplying public goods and services at state-regulated prices but whose income does not significantly depend on incurred costs (after consultation with the agency deciding to establish the enterprise, the Ministry of Finance will decide the list of public welfare enterprises of this type), the surplus between revenue and expenditure shall be handled as follows:

a. Establishing reserves at the following rates and limits:

+ Development investment reserve: 25% of the surplus

+ Financial contingency reserve: 5% of the surplus, the balance of this reserve shall not exceed 25% of the registered capital.

+ Establishing two reward and welfare reserves equal to three months' actual salary if the amount paid to the State budget in the reporting year exceeds the previous year, equal to two months' actual salary if the amount paid to the State budget in the reporting year is equal to or lower than the previous year.

b. The remaining surplus shall be paid into the State budget.

If there is business operation profit and other activity profits, they shall be distributed like state-owned enterprises engaged in business operations, but the total amount allocated to each reserve from all sources shall not exceed the maximum limit of state-owned enterprises engaged in business operations.

2. For enterprises that are fully purchased by the State for public goods and services (including enterprises producing, repairing weapons, equipment, and specialized equipment for national defense and security), enterprises supplying public goods and services at state-regulated prices, the profit realized in the year (including both business operation profit and other activity profits) shall be distributed in the following order:

a. Pay corporate income tax as required by law.

b. Deduct fines for violations of budget submission discipline, administrative violations, breach of contract penalties, overdue payment penalties, and legitimate expenses not deducted when determining taxable profit.

c. Deduct losses not deducted from pre-tax profits.

d. The remaining profit after deducting items a, b, and c, the enterprise shall establish reserves at the following rates and limits:

+ Development Investment Fund: minimum extraction rate of 50%

+ Financial Reserve Fund: 10%, with the balance of this fund not exceeding 25% of the registered capital.

+ Establishing two reward and welfare reserves up to a maximum of three months' actual salary if the amount paid to the State budget in the reporting year is higher than the previous year, equal to two months' actual salary if the amount paid to the State budget in the reporting year is equal to or lower than the previous year.

After deducting items a, b, c, and d, if there is a surplus remaining after allocating to the development investment reserve and financial contingency reserve from the two reward and welfare reserves, the remaining surplus shall be transferred entirely to the development investment reserve; if there is insufficient source to allocate two reward and welfare reserves equal to two months' actual salary, the public welfare enterprise shall be provided with the shortfall by the State.

3. For enterprises supplying public goods and services at state-regulated prices but which are not sufficient to cover reasonable expenses (including expenses incurred due to disaster prevention, national defense, and security tasks), after using 50% of the profit from business operations and other activities to offset, if there is still a loss, the State shall support as follows:

- Subsidize the remaining loss.

- Allocate two reward and welfare funds equal to two months' actual salary of the enterprise.

The remaining profit from business operations and other activities shall be used to: allocate 80% to the development investment reserve, and 20% to the financial contingency reserve.

4. Procedures, timing for establishing reserves, and purposes of using reserves by enterprises shall be carried out as for state-owned enterprises engaged in business operations.

Within the total amount allocated to the two reward and welfare reserves, the enterprise director has the right to decide the allocation ratio to each reserve after consulting with the trade union of the enterprise.

Public welfare enterprises shall not establish unemployment assistance reserves. In special cases where it is necessary to reduce the scale of public welfare activities, the agency deciding to establish the enterprise and the finance authority at the same level shall consider providing assistance to laid-off workers according to the prescribed regulations.

5. For public welfare enterprises located in remote areas, border regions, islands, or strategically difficult areas, the State shall consider supporting the following funds:

- Kindergarten and education expenses in areas without schools under the educational system.

- Health service expenses for places that must maintain hospitals or clinics due to special conditions.

IV. FINANCIAL PLAN

1. Annually, based on the provisions and guidelines of the finance authority, public welfare enterprises must prepare production plans for public goods and service supply according to government policy or orders, budget estimates (including subsidy and price support plans) and report to the agency deciding to establish the enterprise and the finance authority at the same level. The agency deciding to establish the enterprise is responsible for approving, compiling reports to the competent authority and relevant finance authorities.

2. Within the approved annual budget estimate, the head of the agency deciding to establish the enterprise assigns production plans, service supply orders, or budget allocations to public welfare enterprises and sends them to the finance authority at the same level for coordination. The budget only guarantees support within the approved budget estimate.

V. ACCOUNTING AUDIT, FINANCIAL REPORTING AND FINANCIAL DISCLOSURE

1. Preparation of financial statements:

- Quarterly and annually, public welfare enterprises are responsible for preparing financial statements in accordance with current regulations. The enterprise director is responsible before the State and law for the accuracy and truthfulness of the financial statements.

- Quarterly and annual financial statements are sent to the agency deciding to establish the enterprise, tax authority, state asset management agency at the enterprise, and statistical agency.

2. Accounting Audit and Financial Reporting:

- Quarterly and annually, public welfare enterprises must conduct self-audit and financial statement reporting.

- The agency deciding to establish the enterprise and the state asset management agency at the enterprise are responsible for organizing the review and approval of the annual financial statements of public welfare enterprises.

- The finance authority is responsible for inspecting compliance with financial systems, accounting practices, budget collection discipline, and the accuracy and truthfulness of financial statements.

- Violations of accounting systems, financial income and expenditure systems, revenue discipline, and the establishment and use of enterprise funds shall be subject to administrative and economic penalties as prescribed by law.

3. Public disclosure of annual financial statements:

- Based on the annual financial statements approved by the competent authority, public welfare enterprises shall publicly disclose certain financial indicators at the meeting of workers and staff of the enterprise.

- The content of the disclosed indicators shall follow the model attached to this Circular.

VI. IMPLEMENTATION PROVISIONS

1. In addition to the specific provisions for public welfare enterprises in this Circular, public welfare enterprises also implement other legal provisions applicable to state-owned enterprises.

2. For some public welfare activities with special characteristics, the agency deciding to establish the enterprise shall base on the financial management system in this Circular to study and stipulate accordingly after obtaining written agreement from the Ministry of Finance.

3. This Circular takes effect from the date of signing. All previous regulations on financial management for enterprises directly performing national defense and security tasks or producing and supplying public goods and services according to government policy that conflict with this Circular are abolished.

4. In the course of implementation, any difficulties are requested to be promptly reported by enterprises to the Ministry of Finance for study and appropriate amendment and supplementation.