Circular No. 101/1999/TT-BTC guides the implementation of the Value Added Tax Law for activities in the road transport industry.

CIRCULAR

Guidelines for Implementing the Law on Value Added Tax

concerning activities in the road transport industry

 _____________________________

Pursuant to the Law on Value Added Tax No. 02/1997/QH dated May 10, 1997;

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 and Decree No. 102/1998/NĐ-CP dated December 21, 1998 of the Government amending and supplementing certain articles of Decree No. 28/1998/NĐ-CP;

To ensure the implementation of the Law on Value Added Tax is appropriate for transportation services including passenger transport, freight transport, and taxi services on roads, the Ministry of Finance provides specific guidelines for value added tax on these activities as follows:

I. SCOPE OF APPLICATION OF VALUE ADDED TAX

1. Objects Subject to Value Added Tax:

Road transport services include: passenger transport, freight transport, and taxi transport within the territory of Vietnam.

Other services provided by road transport enterprises.

2. Objects Not Subject to Value Added Tax:

Public passenger transport service by bus.

Transport services of goods and passengers outside the territory of Vietnam.

3. Taxpayers:

Organizations and individuals engaged in road transport business include companies and independent accounting units, branches, factories, stations... dependent on independent accounting units; individuals and groups of individuals conducting business.

II METHODS OF CALCULATING TAX

1. Method of VAT Deduction:

VAT is determined according to the following principle:

VAT = VAT output - VAT input.

VAT output is determined based on the price excluding VAT and the rate recorded on VAT invoices for goods sold or services provided.

VAT input is determined based on the amount of VAT recorded on VAT invoices for purchased goods and services.

Due to the nature of road transport services where many units apply the deduction method to the person directly using the transport vehicle (which could be individual drivers or a part of the unit), the taxable price for VAT and VAT output, VAT input are deducted accordingly for each specific case as follows:

1.1 Transport units directly signing transport contracts with customers: VAT output is based on the taxable price and rate. The taxable price is the price excluding VAT and is based on the actual payment made according to the transport contract between the company and the customer. In cases where the price that the consignor must pay to the transport unit includes VAT, the price excluding VAT is calculated as follows:

Taxable Price = Contracted Price with Customer

1 + Rate

In cases where there is international transport service outside the territory of Vietnam and there is sufficient legal basis to separate this service, the transport unit issues two invoices to the consignor: one VAT invoice recording the freight charges for international transport (transport outside the territory of Vietnam) but since this service is not subject to VAT, the rate and VAT lines on the invoice are crossed out, and another VAT invoice recording domestic freight charges and VAT output. Conditions for issuing a VAT invoice recording international freight charges are:

There is a transport contract clearly stating the departure point as a border gate in Vietnam and the destination as a province or city abroad.

Export declaration if the transport unit has export goods or a copy of the export declaration from the consignor matching the transport contract signed with the consignor.

VAT input for deduction to determine VAT payable: expenses directly paid by the transport unit are based on VAT invoices, expenses paid by drivers are based on VAT invoices submitted by the drivers and corresponding expense limits based on turnover. These expense limits are determined by the General Director of the enterprise (or the board of directors) based on the specific characteristics of each vehicle assigned to the driver and are publicly disclosed when assigning tasks to the driver.

1.2 In cases where total turnover is allocated in passenger and freight transport, where the allocation method is total turnover based on the quota, and expenses are calculated based on the quota limit, the taxable price is generally based on the total turnover quota. If the consignor requests a VAT invoice, the transport unit issues a VAT invoice to the consignor. At the end of the month, if the total amount of invoices issued to the consignor is less than the quota, the transport unit issues an additional VAT invoice to the person receiving the quota for the remaining difference to determine the VAT output of the transport unit. If the amount on the invoice issued to the consignor exceeds the quota for the person receiving the quota, the revenue and VAT output of the transport unit are based entirely on the invoice issued to the consignor.

VAT input for deduction to determine VAT payable: for expenses directly paid by the transport unit, they are based on VAT invoices, and expenses paid by the person receiving the quota are based on VAT invoices submitted by the person receiving the quota and the allowable expense limit (for example, fuel deductible based on VAT invoices for fuel purchases, consumption limits corresponding to the turnover quota). These allowable expense limits are determined by the General Director of the enterprise (or the board of directors) based on the specific characteristics of each vehicle assigned to the driver and are publicly disclosed when assigning tasks to the driver.

Example: Company A allocates a monthly turnover quota of 5 million VND to Driver B (all 5 million VND of this turnover quota is subject to VAT). All expenses for Driver B are directly paid by the company. By the end of the month, Driver B fully pays 5 million VND to the company. Assuming the fuel consumption limit for 100 km is 20 liters of gasoline, and the usual fare is 2,000 VND/km. To meet the turnover quota, Driver B must drive at least:

5,000,000 VND : 2,000 VND/km = 2,500 km

The minimum amount of fuel Driver B must use is:

(2,500 km : 100 km) x 20 liters = 500 liters.

The purchase price of gasoline excluding VAT is 4,000 VND/liter.

The VAT rate for gasoline is 5%.

Therefore, the amount of fuel that Company A can purchase and deduct VAT input against the turnover quota of 5 million VND must have a VAT invoice for the purchase of fuel, and the maximum amount of fuel deductible cannot exceed the amount required to purchase 500 liters of gasoline. The corresponding amount is: 500 liters x 4,000 VND/liter x 5% = 100,000 VND.

In the case where the driver finds customers for transportation witha turnover exceeding the quota in a month and requests an invoice for VAT. Assuming that besides the turnover of 5 million VND already invoiced, there is another turnover of 2 million VND also requesting an invoice for VAT, Company A will issue a VAT invoice, and the driver's turnover for this month is 7 million VND.

1.3 In the case where the person receiving the quota pays back to theunit a complete turnover quota, the person receiving the quota bears their ownexpenses such as fuel, maintenance, wages... which are specifically stated inthe quota method: turnover quota, the portion the person receiving the quotaenjoys, and the portion paid as obligations to the unit. The general principlefor calculating VAT output tax is that the company calculates VAT output taxbased on the turnover quota that the person receiving the quota pays back. Theperson receiving the quota is subject to VAT under the direct payment methodbased on the turnover quota they enjoy.

Input VAT is calculated based on the expenses directly incurred by theenterprise, without deducting input VAT for the person receiving the quota.

If the consignor requests an invoice for VAT, the driver only issuesan internal transport document to certify the quantity of goods transported. Thisdocument is transferred to the company headquarters to issue the VAT invoice.

Example: Transport Unit A assigns Driver B according to the followingquota table:

Total income for one month: 20,000,000 VND

Amount enjoyed by the driver: 18,000,000 VND

Amount the driver must pay back to the company: 2,000,000 VND

Therefore, Transport Unit A must declare and pay VAT under thededuction method, with the taxable amount for VAT output tax of the transportunit being the quota income paid back by the driver, which is 2,000,000 VND. Driver B is subject to VAT under the direct payment method, with the taxableamount for VAT under the direct payment method for Driver B being 18,000,000 VND.

1.4 For taxi transportation: The characteristic of taxi transportationis managing the fare according to the meter on the vehicle, but transport unitsusually apply a quota allowing drivers to enjoy a percentage of the actualincome from the meter, and the drivers bear their own fuel costs, wages, etc. VAToutput tax is determined based on the total fare collected according to themeter on the vehicle (not the quota paid back by the driver). At the end of themonth, based on the actual income shown on the dispatch orders provided by thedriver, the transport unit determines the actual turnover for transportation. This turnover serves as the basis for determining the VAT output tax for eachdriver. The transport unit must prepare detailed statements for each driver as abasis for determining the total VAT output tax for the month.

During transportation, the driver does not directly issue a VATinvoice to the customer but issues an internal ticket. If the customer needs aVAT invoice, the customer transfers the internal document to the companyheadquarters for the company to issue the VAT invoice. Issuing VAT invoices tocustomers can be done based on one or multiple internal tickets. In subsequentmonths, if customers request VAT invoices for internal tickets from previousmonths, the transport unit still issues VAT invoices to the customers andclearly records adjustments in the monthly statement for these VAT invoices.

Input VAT is based on the VAT invoice for input VAT that the companydirectly incurs, and fuel purchased by the driver is calculated according to apre-approved expense limit. This pre-approved expense limit is determined by thecompany director (or board of directors) based on the specific characteristics ofeach vehicle assigned to the driver and is publicly disclosed when assigning thequota to the driver.

Example 1: A taxi driver, according to the meter on the vehicle, hadtotal income from customers in January of 5,500,000 VND, assuming income from50 customers, corresponding to a distance of 5,000 km (including both with andwithout passengers).

Regarding issuing invoices to determine VAT output tax:

By the end of January, 25 customers requested VAT invoices, thetransport unit issued 25 VAT invoices for 25 customers based on the incomestatement of the driver (for example, 3,000,000 VND, VAT on the invoice is300,000 VND). The remaining income is 2,000,000 VND, the transport unit preparesa statement to determine the VAT output tax of 200,000 VND, thus the total VAToutput tax of the transport unit in the month is 500,000 VND. If in February, acustomer who took a taxi in January (from the 2,000,000 VND turnover of Januarythat the transport unit prepared a statement to determine the VAT output tax ofJanuary) requests a VAT invoice, the transport unit still issues a VAT invoiceand clearly records this adjustment in the February statement.

Regarding determining deductible input VAT:

The fuel consumption rate for 100 km is 7 liters. The input VAT forfuel is calculated based on the VAT invoice for purchasing fuel, but the maximumallowable deduction is:

5,000 km x 7 liters = 350 liters

km onwards

The purchase price of fuel on the invoice (excluding VAT) is 4,000 VNDper liter, and the VAT rate for fuel is 5%, therefore, the total deductible inputVAT for fuel is 350 liters x 4,000 VND/liter x 5% = 70,000 VND.

1.5 In the case where the transport unit acts as a freight agent(including all collections and payments on behalf of the consignor), the VAT-exclusive price is the total income from customers, serving as the basis for thetransport unit to directly issue invoices to customers (including allcollections) and to determine the VAT output tax of the transport unit.

The input VAT of the transport unit is based on the VAT invoice forinput VAT of the transport unit, of the driver's return, and the input VAT ofthe payment receipts, deducted according to the general principles mentionedabove.

1.6 For transport cooperatives: The transport cooperative is subjectto VAT under the deduction method, while members of the cooperative are subjectto VAT under the direct payment method. Due to the special nature of transportcooperatives, the calculation of VAT output tax and input tax, and thedeductible input VAT is regulated as follows:

a. The transport cooperative directly signs transportation contractsand then organizes cooperative members to participate in transportation. Allcosts for transportation activities directly incurred by the cooperative arebased on the total income from customers for VAT output tax.

Deductible input VAT to determine the VAT payable by the cooperativeis based on the general principles mentioned above:

Example: Cooperative A signs a cargo transportation contract withcustomer B for a total revenue excluding VAT of 10,000,000 VND. Cooperative Aorganizes its members to transport the goods. The output VAT of the cooperative istherefore 10,000,000 VND x 10% = 1,000,000 VND, and the cooperative issues aninvoice to customer B based on the taxable amount and the aforementioned outputVAT. Input VAT can be deducted based on invoices issued by the cooperative andits members directly involved in transportation (fuel, electricity, water,telephone bills, etc.). Variable costs that fluctuate according to the revenuemembers earn, such as fuel, must be based on consumption quotas, which areannounced publicly by the cooperative management board based on specificcharacteristics of each vehicle.

b. When a transportation cooperative introduces customers to itsmembers and only receives a commission from the members: The cooperative paysthe VAT based on the commission income reported by the members.

Example: Transportation cooperative A has a customer requestingtransportation services for a consignment worth 10,000,000 VND. Instead ofsigning the contract directly, cooperative A assigns the task to three memberdrivers B, C, and D who then deal directly with the customer and pay cooperativemember A a commission of 1,000,000 VND. Thus, cooperative A is subject to VATunder the deduction method, with the taxable amount on the VAT invoice being1,000,000 VND. The VAT invoice for this commission income is issued by thecooperative to the three members based on the specific commission received fromeach member. The deductible input VAT of cooperative A is based on the VATinvoices issued by the cooperative. The input VAT invoices of the three membersare not deductible when determining the VAT payable by cooperative A.

2. Direct payment method on VAT:

a. Individuals directly engaged in transportation business pay VATunder the direct payment method.

b. In cases where drivers are assigned tasks as stipulated in point1.3 of Section II above, the driver receiving the assignment is subject to VATunder the direct payment method. The taxable amount for VAT is the assignedamount agreed upon between the driver and the transportation unit.

c. Within a transportation cooperative, if the cooperative onlyintroduces customers to its members and earns a portion of the commission paidby the members, then the members are subject to VAT under the direct paymentmethod based on their earned income. Members operating independently within thecooperative pay VAT under the direct payment method. If the customer requires aninvoice, the cooperative issues a sales invoice on behalf of the members(receipts for sales invoices are provided by the tax authority for thecooperative to issue on behalf of the members).

Input VAT on purchase invoices for goods and services of entitiessubject to VAT under the direct payment method cannot be deducted whendetermining the VAT payable.

Example: Following the example in case 1.6.b above, members B, C, andD are subject to VAT under the direct payment method. The taxable income forVAT of these three members is 10,000,000 VND. If the customer requests aninvoice, cooperative A will issue a standard sales invoice on behalf of thesethree members to the customer.

III - VAT DECLARATION AND PAYMENT

1. VAT declaration and payment for units subject to VAT under thededuction method:

1.1 For independent accounting companies, VAT declarations andpayments are made at the local tax office where the company's headquarters islocated. If the company and its subsidiaries have branches or stores operatingin the same locality as the company's headquarters, the company declares andpays VAT centrally on behalf of these branches and stores, which must submitmonthly VAT declaration forms to the company for consolidation and submissionto the state budget.

Branches and stores operating in different localities from thecompany's headquarters must declare and pay VAT locally where they operate (asdefined in this Circular, locality refers to provinces or centrally-administeredcities).

1.2 Refund of VAT: Companies and service providers subject to VATdeclaration and payment, if they incur input VAT deductions exceeding theiroutput VAT and are eligible for VAT refunds, must submit refund applications tothe tax authority for approval.

2. VAT declaration and payment for entities subject to VAT under thedirect payment method:

a. Entities subject to VAT under the direct payment method as definedin item a, point 2, Section II above, declare and pay VAT directly to the taxauthority responsible for collecting taxes.

b. Entities subject to VAT under the direct payment method as definedin item b, point 2, Section II above, must declare and pay VAT: Generally, thetransportation unit or cooperative is responsible for compiling revenue reportsfor each individual receiving assignments or cooperative members to declare andpay VAT centrally for these individuals and members. If an individual receivingan assignment or cooperative member does not accurately declare their transportrevenue, the tax authority may determine the taxable revenue based on actualconditions in the locality, taking into account the opinions of the CooperativeUnion and the Department of Transport of the respective province or city.

3. Regarding invoices and documents: Transportation units directlyissue invoices to customers according to specific circumstances: If thetransportation unit is subject to VAT under the deduction method, it issues VATinvoices, with the VAT rate and amount crossed out for services not subject toVAT. If the entity is subject to VAT under the direct payment method, it issuessales invoices. For passenger transportation units using tickets instead ofinvoices, they must register with the tax authority and follow the prescribedregulations.

IV. Implementation Organization

1. The Vietnam Highway Administration, provincial Departments ofTransportation, and provincial Tax Bureaus guide units in implementing VATdeclaration, calculation, and payment according to the provisions of thisCircular.

This Circular takes effect fifteen days from the date of signature. Other contents not specified in this Circular shall continue to be implemented in accordance with the provisions of Circular No. 89/1998/TT-BTC dated June 27, 1998, and Circular No. 175/1998/TT-BTC dated December 24, 1998, issued by the Ministry of Finance. All guiding documents for the implementation of VAT issued by units that are inconsistent with the guidance provided in this Circular shall be abolished. In case of any difficulties, units shall promptly report to the Ministry of Finance for consideration and specific resolution../.