Circular No. 11-TC/CNA of the Ministry of Finance guiding the profit distribution regime and reserve fund establishment for state-owned enterprises in the national industry.

 

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 11-TC/CNA DATED MARCH 10, 1985 GUIDING THE REGIME FOR DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF ENTERPRISE FUNDS IN STATE OWNED INDUSTRY

Implementing Resolution No. 156-HĐBT dated November 30, 1984 of the Council of Ministers on some issues to improve management of state-owned industry, the Ministry of Finance guides the regime for distribution of profits and establishment of enterprise funds in state-owned industry as follows:

II- SUPPORT MEASURES FOR STATE-OWNED AGRICULTURAL FARMS AND FORESTRY COMPANIES IN THE FIELD OF SCIENCE AND TECHNOLOGY

1. The standard profit rate is determined as a percentage (or an absolute amount) of the reasonable cost price of the enterprise's products to set the wholesale price of the enterprise. Therefore, in principle, the standard profit rate is applied stably for many years along with the stabilization of the enterprise's wholesale product prices.

The profit distribution regime is established in accordance with the structure and components of the standard profit rate. The implementation of the annual profit distribution regime will be based on the planned profit rate and the actual profit achieved by the enterprise.

The annual planned profit rate of the enterprise differs from the standard profit rate due to annual changes in production volume plans, product quality, product mix, average selling price, and product cost.

The annual planned profit rate of the enterprise will include the planned profit of the part produced using materials supplied by the State and the part produced using additional materials sought out by the enterprise.

Profit outside the planned target is the profit from producing goods that the enterprise seeks and exploits new sources of capacity to produce beyond those items listed in the State's planned targets assigned to the enterprise.

Actual profit within the planned target of the enterprise includes profit within the planned target and profit exceeding the planned target from production using materials supplied by the State and additional materials sought out. Actual profit from production of goods outside the planned target mainly comes from self-sought material resources.

Actual profit only includes the difference between the approved enterprise price and the actual cost price. Enterprises may not include price differences in actual profit.

2. Penalties for breach of contract, violation of banking credit regulations, and unreasonable expenses must not be accounted for in cost but must be deducted from the retained profit of the enterprise after profit distribution between the budget and the enterprise.

3. Due to different mechanisms for distributing these profit portions, enterprises must clearly account for each portion of profit to accurately assess the results of their production and business activities and ensure fair and reasonable distribution.

The profit within the planned target of the enterprise (including profit from production using materials supplied by the State and additional materials sought out) must all be planned within a unified technical financial production plan of the enterprise.

The State encourages enterprises to seek additional material resources to increase production both within and outside the planned targets by allocating a higher share of retained profit compared to production using materials supplied by the State.

To encourage enterprises to actively and proactively balance their plans, the actual profit from both production using materials supplied by the State and additional materials sought out within the plan receives a higher incentive ratio. Excesses over the plan are also encouraged, but at a lower ratio.

5. Encourage enterprises to complete and exceed major national planned targets. If not completed, deductions will be made from the retained profit of the enterprise to prevent enterprises from merely pursuing profit while failing to meet product delivery and product quality targets.

6. Enterprises are allowed to establish three funds promptly every quarter after fulfilling their tax obligations to the State budget.

7. Ensure a reasonable relationship between wages and bonuses.

8. Expand the scope of profit use, the scope of use of the development promotion fund, welfare fund, and reward fund to reduce State budget subsidies and enhance enterprise autonomy in using retained profit.

II - DISTRIBUTION OF PROFITS AND ESTABLISHMENT OF ENTERPRISE FUNDS

Starting from 1985, all products of enterprises in various industries must re-determine the enterprise wholesale price based on reasonable cost price and the prescribed standard profit rate.

However, there may be some products of enterprises that have not yet re-established the enterprise wholesale price since the beginning of 1985 and some individual products may still incur losses according to the State pricing policy. Therefore, the profit distribution regime has specific provisions for each type of enterprise to suit the situation.

A. FOR ENTERPRISES THAT HAVE RE-DETERMINED

ENTERPRISE WHOLESALE PRICES

1. Planning profit distribution

For products produced using materials supplied by the State, 50% of the planned profit rate is retained by the enterprise and 50% is submitted to the State budget, and for products produced using self-sought materials, 80% is retained by the enterprise for light industries, food processing industries (collectively referred to as CNB), and 80% for heavy industries, wood extraction, and marine fishing (collectively referred to as CNA). The remaining portion (40% and 20%) is submitted to the State budget.

The portion left for the enterprise according to the registered plan (50%, 60%, and 80%) shall be allocated to three funds at the following ratios:

- For the fund to encourage production development: 35% for industries with state-assigned materials and 40% for industries with self-sourced materials.

- The remaining amount shall be allocated to two funds for rewards and welfare benefits, with 2/3 for the reward fund and 1/3 for the welfare fund.

In cases where the enterprise produces products using both state-assigned materials and self-sourced materials, the enterprise shall determine the quantity of products from each part of the plan based on the proportionate value of the materials involved in producing the product (calculated using a uniform price - the state-guided price - to ensure consistency).

The difference in material costs due to self-sourced materials shall be allocated to the cost of products produced using self-sourced materials. Based on the cost and selling price of such products, the profit from the production using self-sourced materials shall be determined.

- For products outside the legal quota, the enterprise must promptly pay taxes and state revenues into the state budget when delivering the products. The tax rate and state revenue level are set by the Ministry of Finance, corresponding to similar products within the legal quota.

2. Implementation of profit distribution:

The plan for the total profit generated and the profit to be paid into the state budget for products within the legal quota of the enterprise mentioned in Point 1, Section A, Part II shall be approved and become the legal quota assigned by the state to the enterprise.

The enterprise has the responsibility to regularly pay the profit due to the state budget monthly (or periodically based on the production cycle of the product) based on the approved plan and actual occurrence.

The portion allocated to the three funds according to the aforementioned plan shall be divided into four quarters, and the enterprise may temporarily allocate 70% quarterly for each fund according to the approved plan after completing the payment of profit into the state budget monthly (or periodically based on the production cycle of the product) as planned and confirmed by the financial authority (the State Revenue Collection and Enterprise Financial Management Central Bureau - for central enterprises; or local finance - for local enterprises).

At year-end, upon reviewing the final accounts (including the review for officially establishing the enterprise funds), the enterprise will fully calculate the allocation to the three funds according to the prescribed regulations, after excluding price differences, profits realized within the approved plan distributed as stipulated in Section 1, Part A above (50% to the state budget, 50% retained by the enterprise - for production using state-assigned materials; and 20% to 40% to the state budget, 60% to 80% retained by the enterprise - for production using self-sourced materials). The portion retained by the enterprise shall be allocated to the three funds according to the specified ratio after deducting penalties for breach of economic contracts, overdue bank interest penalties, unreasonable expenditures not allowed in cost accounting such as negative costs, waste, improper use of products produced, etc...

Part on excess profit over plan includes both the part produced with materials supplied by the State and the part produced with materials sought out by the enterprise, distributed as follows: 60% to be submitted to the State budget, 40% retained by the enterprise, the portion retained by the enterprise shall be allocated among three funds according to the corresponding ratios mentioned above.

If the enterprise fails to meet two main annual plan targets stipulated by law throughout the year, for each percentage point not met regarding a target, 2% of the amount allocated to each fund (three funds) must be deducted.

- Value of goods production achieved, including the portion for export.

- Products delivered according to type and quality specified by the State and in accordance with signed contracts, including the portion for export.

If the enterprise violates economic management systems and policies of the State listed below, for each violation, depending on the degree of violation, from 2 to 5% of the amount allocated to each fund (three funds) will be deducted.

Submitting insufficiently and untimely to the State budget accounts such as profits, state revenues, basic depreciation, and other amounts due such as price differences, etc., according to the plan.

Violating reporting and accounting regulations.

The deductions mentioned above shall be applied to the three funds that the enterprise must submit to the State budget.

The condition for the enterprise to fully allocate (100%) the retained profit to establish the three funds according to the aforementioned provisions is that the enterprise must complete 100% of the profit required to be submitted to the State budget based on the annual settlement review data for the enterprise.

For products produced using self-sought materials, in addition to submitting profits, the enterprise still has to submit state revenue according to the regulations of the Ministry of Finance. This state revenue level is a stable source of the State budget independent of the product cost implemented annually by the enterprise. The enterprise must calculate efficiency to decide on producing products using self-sought materials.

For profits realized from products outside the plan targets, the enterprise may use the entire amount to establish the three funds according to the prescribed ratios (from 35 to 40% for the production development incentive fund. The remainder is allocated 2/3 for the reward fund and 1/3 for the welfare fund) after completing tax and state revenue submission according to regulations for those products.

If the enterprise invests in purchasing fixed assets using bank loans, the enterprise must ensure effective use of these fixed assets and guarantee repayment of bank loans from the basic depreciation of borrowed fixed assets. In cases where the enterprise needs to use additional profit to repay bank loans, the enterprise must have a reviewed plan and deduct it from the realized profit before distribution between the State budget and the enterprise according to the prescribed ratios.

B. FOR ENTERPRISES THAT HAVE NOT BEEN REDEFINED

ENTERPRISE WHOLESALE PRICE OF PRODUCTS

For enterprises that have not yet determined the wholesale price of products, they need to actively and promptly calculate the reasonable cost of products, planned profit rate according to the prescribed system, and submit to the competent authority for approval of the enterprise's wholesale price of products.

In cases where the new wholesale price of products has not been approved in time, the enterprise may temporarily apply the following profit distribution method:

The enterprise can enjoy a basic allocation into two reward and welfare funds calculated up to a maximum of 10% to 15% of the basic wage fund realized in the year, including both the part of production with materials supplied by the State and the part of production with self-sought materials, with 2/3 for the reward fund and 1/3 for the welfare fund (10% for industries belonging to Block B and 15% for industries belonging to Block A).

The basic allocation into the production development incentive fund of the enterprise shall be calculated at 1% of the average original value of fixed assets in use during the year and working capital within the standard.

If the enterprise fails to meet three main annual plan targets stipulated by law throughout the year, for each percentage point not met regarding a target, 2% of the amount allocated mentioned above for each fund (three funds) must be deducted.

- Value of goods production achieved, including the portion for export.

- Products delivered according to type and quality specified by the State and in accordance with signed contracts, including the portion for export.

- Realized profit *after deducting penalties for violating economic contracts, overdue bank loan penalties, unreasonable and non-compliant expenses not accounted for in the cost such as negative costs, waste, improper use of products produced, etc.

If the enterprise violates economic management systems and financial policies of the State listed below, for each violation, depending on the degree of violation, from 2 to 5% of the amount allocated to each fund (three funds) will be deducted.

Submitting insufficiently and untimely various amounts due to the State budget such as profits, state revenues, basic depreciation, and other amounts due such as price differences, etc.

- Violating reporting and accounting regulations.

If the enterprise exceeds the plan target on realized profit (including profit from production with self-sought materials), for each percentage point exceeding the plan, the enterprise can additionally allocate 2% of the basic allocation to each of the three funds; however, the total additional allocation to the three funds cannot exceed 40% of the total excess profit. If the enterprise seeks additional materials to produce more products, for each percentage point of realized profit from production with self-sought materials in the total realized profit of the enterprise, the enterprise can additionally allocate 2% of the basic allocation to each of the three funds, but the total additional allocation to the three funds cannot exceed 60% of the total profit from the plan production with self-sought materials.

Realized profit from products outside the plan targets, the enterprise may use the entire amount to establish the three funds according to the prescribed ratios.

Enterprises of this type may also temporarily allocate 70% of the allocation into the three funds according to the plan, after completing monthly (or periodic as prescribed) profit submission to the State budget according to the plan and with confirmation from the local finance authority.

The condition for an enterprise to be able to allocate (100%) of its retained profits to establish three funds as provided above is that the enterprise must complete (100%) the amount of profit it is required to pay into the state budget according to the regulations, based on the annual settlement review data for the enterprise.

III- ADDITIONAL PROVISIONS ON THE USE OF THE THREE FUNDS

In addition to the current provisions regarding the content of using the reward fund, welfare fund, and production development encouragement fund, the following additional contents of use are added:

- Allocate 1% of the enterprise's welfare fund and reward fund to establish the Minister's Fund. If the direct superior of the enterprise is a joint-stock enterprise association or a general company that is not a centralized economic accounting unit, then that 1% is allocated to establish the General Director's Fund of the joint-stock enterprise association or the General Director's Fund of the company. In the case where the joint-stock enterprise association or the general company is a centralized economic accounting unit, they must allocate 1% of their welfare fund and reward fund to establish the Minister's Fund (There will be a separate circular guiding the establishment and use of the Minister's Fund).

- Allocate from 1 to 3% of the production development encouragement fund of enterprises to establish a centralized financial reserve fund at higher-level management agencies such as general companies, joint-stock enterprise associations, Ministries, or Departments in charge. The specific rate (from 1-3%) is determined by those higher-level management agencies based on the specific needs of each industry. At the Ministry or Department level, a centralized financial reserve fund can be established for independent economic accounting units directly subordinate that have established the three funds (A separate circular will guide the establishment and use of this fund).

Enterprises may use the production development encouragement fund to supplement the need for increasing working capital, basic construction investment for deepening, developing new products, expanding main production and auxiliary production... according to the enterprise's annual plan.

- There is no maximum limit for the reward fund, but when the total amount allocated to that fund exceeds 30% of the average basic wage fund of the enterprise's workers and staff throughout the year, the excess amount calculated from over 30% of the basic wage fund shall be distributed as follows:

From over 30 to 50% of the actual basic wage fund of the enterprise, 40% must be paid to the state budget, and 20% must be paid up to the higher-level management agency to establish a financial reserve fund, with the remaining 40% to be supplemented into the enterprise's funds, into which fund and how much is decided by the enterprise director.

From over 50% of the actual basic wage fund, the enterprise must pay 60% to the state budget, and 10% must be paid up to the higher-level management agency to establish a financial reserve fund, with the remaining 30% to be supplemented into the enterprise's funds and decided by the enterprise director.

IV - EFFECTIVE PROVISIONS

1. Based on the production product plan, right from the end of the previous year or the beginning of the planning year, the competent Ministry (and the competent Department for local enterprises) must approve the financial plan for subordinate units, including the profit distribution plan, such as the amount of profit to be paid into the state budget, the amount to establish the three funds, etc. Those figures must not be lower than the total planned revenue and expenditure of the state budget assigned to the competent sector, if they are lower, they must be deducted from the financial reserve funds or the Minister's Fund (General Director's Fund) of the higher-level management agency. The specific deduction rate is stipulated by the Ministry of Finance in the circulars guiding the use of the Minister's Fund and the financial reserve fund. The state budget profit payment plan assigned to the competent sector must also be calculated from the base and balanced with the product consumption plan of the unit.

2. Subordinate units must register the plan to establish the three funds with the local banking authority, allocating quarterly as registered for quarterly wages, and be allocated quarterly as stipulated in Point 1, Section A, Part II of this Circular.

3. When approving the final annual settlement for subordinate units, the higher-level management agency, together with the same-level finance agency, approves the official figure on the retained profit of the enterprise to establish the three funds and other requirements as stipulated in Point 2, Section A, Part II of this Circular, and determines the amount of profit to be paid into the state budget. If the enterprise uses more retained profit than approved, it must be deducted from the allocation of the next year, and vice versa, if less, it can be supplemented.

4. This Circular takes effect from January 1, 1985, and applies to all central and local state-owned industrial enterprises under all economic sectors. Previous provisions contrary to this Circular are abolished.

The establishment of the three enterprise funds for the year 1984 still follows Decision No. 146-HĐBT dated August 25, 1982, of the Council of Ministers and Circular No. 21-TC/CNA dated September 1, 1982, of the Ministry of Finance.