Circular No. 127/2003/TT-BTC guides the implementation of Decision No. 197/2003/QĐ-TTg dated September 23, 2003 of the Prime Minister on piloting the mechanism for production and business establishments to self-declare and self-pay taxes.

CIRCULAR

Circular 127/2003/TT-BTC guides the implementation of Decision 197/2003/QĐ-TTg on the pilot implementation of a mechanism for production and business establishments to self-declare and self-pay taxes issued by the Ministry of Finance.

Pursuant to the Law on Value Added Tax (VAT) No. 02/1997/QH9 dated May 10, 1997, and the Law Amending and Supplementing Certain Provisions of the Law on VAT No. 07/2003/QH11 dated June 17, 2003;

Pursuant to the Law on Corporate Income Tax (CIT) No. 09/2003/QH11 dated June 17, 2003;

Pursuant to Decision No. 197/2003/QĐ-TTg dated September 23, 2003 of the Prime Minister on piloting the implementation of a mechanism for production and business establishments to self-declare and self-pay taxes; The Ministry of Finance guides the pilot implementation of a mechanism for production and business establishments to self-declare and self-pay taxes as follows:

I. SCOPE OF APPLICATION

1. The subjects applying for the pilot of the self-declaration and self-payment mechanism are defined in Clause 2, Article 1 of Decision No. 197/2003/QĐ-TTg dated September 23, 2003 of the Prime Minister, which are production and business establishments (referred to collectively as business establishments) that declare and pay VAT under the tax deduction method, and implement accounting records, invoices, and vouchers according to regulations.

2. The scope of taxes subject to the pilot of the self-declaration and self-payment mechanism as stipulated in Clause 3, Article 1 of Decision No. 197/2003/QĐ-TTg dated September 23, 2003 of the Prime Minister includes VAT (excluding VAT declared and paid at the import stage) and CIT.

3. The time period and localities applying the pilot of the self-declaration and self-payment mechanism as stipulated in Clause 4, Article 1 of Decision No. 197/2003/QĐ-TTg dated September 23, 2003 of the Prime Minister are as follows:

From January 1, 2004, the pilot application of the self-declaration and self-payment mechanism will be implemented for certain business establishments registering to declare and pay taxes at the Ho Chi Minh City Tax Department and the Quang Ninh Province Tax Department.

The General Department of Taxation selects and decides the list of business establishments implementing the pilot of the self-declaration and self-payment mechanism.

II. TAX REGISTRATION, DECLARATION, AND PAYMENT

1. Tax Registration:

Business establishments implementing the pilot of the self-declaration and self-payment mechanism continue to use the tax registration number already issued by the tax authority without having to re-register with the tax authority. During the pilot period, if there are changes in the information registered with the tax authority, the business establishment must declare such changes to the directly managing tax authority according to current regulations on tax registration.

2. Declaration and payment of VAT:

a) VAT declaration:

- VAT is calculated and declared monthly. Business establishments piloting the self-declaration and self-payment mechanism must fully fulfill their obligation to declare VAT monthly according to the form prescribed by the Ministry of Finance (Form No. 01-GTGT-TKTN attached hereto) without accompanying detailed lists of goods and services purchased and sold. In cases where business establishments do not generate sales revenue or input/output VAT, they still must declare and submit the form to the tax authority.

- Business establishments must declare their tax registration number, name, address, and other relevant information as registered with the tax authority. If business establishments fail to declare fully according to the prescribed form or have not confirmed the legality of the declaration (by signing and stamping), then the business establishment shall be considered as not having submitted the declaration form to the tax authority.

- The deadline for submitting the monthly VAT declaration form to the tax authority is no later than the 25th day of the following month. Business establishments can submit the form through the post office or directly to the tax authority. The submission date is determined as the date the post office stamps the outgoing mail (for submissions via the post office) or the date the business establishment submits the form directly to the tax authority.

- Business establishments bear legal responsibility for the truthfulness and accuracy of their monthly VAT declarations. If the tax authority discovers during inspection or audit that the figures on the declaration form are not truthful or accurate, the business establishment will be subject to penalties as provided by law.

b) Adjustment of VAT declaration:

- After submitting the declaration form to the tax authority, if business establishments discover errors or mistakes in the declared figures (either self-discovered or notified by the tax authority), they must adjust their declaration with the tax authority:

+ If within the declaration period, the business establishment may prepare and submit a replacement form for the previously submitted form to the tax authority. The replacement form must clearly state that it replaces the form submitted on a specific date and year;

+ If beyond the declaration period, the business establishment adjusts the relevant lines on the declaration form of the period when the error was discovered (the business establishment submits the form along with an Explanation of Adjusted VAT Declaration Form No. 02-GTGT-TKTN attached hereto). If the tax authority has issued a notice regarding an inspection or audit decision, the business establishment cannot make adjustments.

- Business establishments piloting the mechanism do not need to conduct annual tax settlement with the tax authority, but each month, they must review invoices, vouchers, and accounting books from the previous month to promptly identify any unreported tax amounts or discrepancies between the tax paid and the tax due, and adjust or supplement the declaration form for the following month.

- If a business establishment cannot separately account for deductible VAT input for goods and services used in producing taxable and non-taxable goods and services, the deductible VAT input is calculated based on the percentage of sales revenue from taxable goods and services compared to total sales revenue.

Business establishments deduct VAT input provisionally each month. When preparing the declaration form for the twelfth month, the business establishment recalculates the deductible VAT input based on the sales revenue percentage for twelve months. If there is a discrepancy between the sales revenue reported in the monthly VAT declaration forms and the annual financial report, the business establishment may adjust the deductible VAT input within ninety days from the end of the calendar or fiscal year.

c) Payment of VAT:

Monthly, businesses submit value-added tax (VAT) to the state budget according to the amount declared. The deadline for submitting VAT shall not exceed the deadline for submitting the tax declaration form of the month being declared. For businesses that pay taxes through bank transfers or other financial institutions, the date of payment to the state budget is determined as the date when the bank or other financial institution signs on the tax payment form; for businesses that pay taxes in cash, the date of payment to the state budget is determined as the date when the treasury agency receives the tax money.

Businesses must fully fill out all items on the tax payment form in accordance with the guidelines of the tax authority and the treasury agency. Businesses must clearly indicate on the tax payment form the amount of tax and penalty due for each type of tax and each tax period. In cases where businesses have both amounts of tax and penalties due for the current period and outstanding amounts from previous periods but do not specify which period they are paying for, the tax authority will first deduct the outstanding tax and penalties before deducting the current period's tax and penalties.

d) In cases of merger, consolidation, division, separation, dissolution, bankruptcy, ownership conversion; transfer, sale, lease, or assignment of state-owned enterprises, businesses must declare the generated tax up to the time of merger, consolidation, division, separation, dissolution, bankruptcy, ownership conversion; transfer, sale, lease, or assignment of state-owned enterprises (including adjustments to previous periods' data if errors are discovered). Businesses must submit the tax declaration form and pay the remaining VAT due to the state budget within 45 days from the date of the decision on merger, consolidation, division, separation, dissolution, bankruptcy, ownership conversion; transfer, sale, lease, or assignment of state-owned enterprises. If there is excess tax paid or unutilized deductions, businesses will be refunded by the tax authority according to current regulations.

3. Declaration and Payment of Corporate Income Tax (CIT):

a) Quarterly Declaration and Provisional Payment of CIT:

- Businesses self-determine the provisional CIT to be paid quarterly using Form No. 03-TNDN-TKTN (annexed hereto). Businesses submit the Determination of Quarterly CIT Payment to the tax authority, and simultaneously pay the tax into the state budget no later than the 25th day of the first month of the quarter following the quarter in question.

- The provisional quarterly CIT is calculated as follows:

Where:

+ Quarterly revenue for calculating taxable income is the total revenue excluding VAT of goods and services sold over three months in the quarter (based on monthly VAT declarations).

+ The ratio of taxable income to revenue (provisional ratio) is the ratio of taxable income to revenue of the previous year based on the previous year's CIT declaration. In cases where the business has been audited or inspected and the ratio of taxable income to revenue differs from the declared ratio, it shall be determined according to the audit or inspection results of the tax authority.

- In cases where the ratio of taxable income to revenue of the previous year cannot be determined (the business incurred losses or is newly established), the business bases its provisional ratio on actual production and business conditions of the quarter and projected figures for the year (after offsetting previous year losses according to the Law on Tax).

- In cases where the results of producing and trading goods and services in the first six months of the year show significant changes leading to an increase of 20% or more in the ratio of taxable income to revenue compared to the previous year, the business must adjust the provisional CIT ratio for the last two quarters of the year; if the results of producing and trading goods and services in the first six months of the year show significant changes leading to a decrease of 20% or more in the ratio of taxable income to revenue of the previous year, the business may adjust the provisional CIT ratio for the last two quarters of the year and must provide a written explanation detailing the reasons and causes to the tax authority along with supporting documentation explaining the changes in production and business operations. If the tax authority finds the adjustment unreasonable upon review, the tax authority has the right to set the provisional ratio.

Example: In 2001, the ratio of taxable income to revenue was determined at 10% in the business's CIT declaration. Therefore, the business provisionally pays CIT in the first and second quarters at a rate of 10%. After the first six months of 2002, the business's operating situation deteriorates, reducing the ratio of taxable income to revenue:

+ Case 1: Reduced to 8%. The business can adjust the provisional ratio for the third and fourth quarters to 8% (as the fluctuation in the ratio of taxable income to revenue is: (10-8)/10 = 20%)

+ Case 2: Reduced to 9%. The business cannot adjust the provisional ratio for the third and fourth quarters and continues to pay at a rate of 10% (as the fluctuation in the ratio of taxable income to revenue is: (10-9)/10 = 10%)

b) Annual Declaration and Payment of CIT:

- At the end of the calendar year or fiscal year, businesses declare annual CIT using Form No. 04-TNDN-TKTN annexed hereto.

- The deadline for submitting the tax declaration form is no later than 90 days from the end of the calendar year or fiscal year. The method of determining the submission date is similar to that for VAT.

- Based on the amount of tax payable declared on the annual CIT declaration form, businesses must pay the remaining tax due to the state budget within 90 days from the end of the calendar year or fiscal year; if there is excess tax paid, it can be deducted from the tax payable for the next provisional tax declaration period. The method of determining the tax payment date and the priority order for tax payments is similar to that for VAT.

- Businesses are responsible under the law for the truthfulness and accuracy of their declarations. If the tax authority discovers during inspection or audit that the figures on the declaration form are not truthful or accurate, the business will be subject to penalties as provided by law.

- Business establishments settle corporate income tax for the year 2003 according to the Corporate Income Tax Settlement Form issued together with Circular No. 18/2002/TT-BTC dated February 20, 2002. Starting from the end of 2004, business establishments declare corporate income tax for the year according to the declaration form (Form No. 04-TNDN-TKTN) issued together with this Circular.

c) Exemption and reduction of corporate income tax

Business establishments determine their own tax incentives that they are entitled to enjoy during the year (reduced corporate income tax rate, amount of tax exemption, reduction of corporate income tax) in accordance with the prescribed regulations. The amount of corporate income tax exempted or reduced shall be deducted when calculating the quarterly provisional corporate income tax payment.

At the end of the calendar year or fiscal year, business establishments recalculate the amount of corporate income tax incentives, exemptions, and reductions and provide clear explanations of the basis for determination, which must be submitted to the tax authority along with the annual corporate income tax declaration form.

d) Declaration of adjustment of annual corporate income tax:

- After submitting the declaration form to the tax authority, if business establishments discover errors or mistakes in the declared figures (either self-discovered or notified by the tax authority), they must adjust their declaration with the tax authority:

+ If within the deadline for submitting the declaration form as prescribed, the business establishment may submit the adjusted declaration form to replace the previously submitted declaration form to the tax authority. The replacement declaration form must clearly state the date and year of the declaration form it replaces.

+ If beyond the deadline for submitting the declaration form as prescribed, the business establishment submits a supplementary declaration form detailing the adjusted items, including the period of adjustment, the content and code of the adjusted item, the previously declared figures, the proposed adjustment figures, the reasons for the adjustment, and the additional (or reduced) corporate income tax due to the adjustment. The supplementary declaration form must be signed and stamped. In cases where the tax authority issues a notice regarding inspection or audit decisions, the business establishment is not allowed to make adjustments to the declaration.

e) In cases of merger, consolidation, division, separation, dissolution, bankruptcy, conversion of business form, or change in ownership form, business establishments must declare corporate income tax up to the point of merger, consolidation, division, separation, dissolution, or bankruptcy. Business establishments must submit the declaration form and pay any outstanding corporate income tax to the state budget no later than 45 days from the date of the decision on conversion of business form, change in ownership form, merger, consolidation, division, separation, dissolution, or bankruptcy. In cases where there is excess tax paid, the business establishment will be refunded by the tax authority in accordance with current regulations.

III. DUTIES, RIGHTS AND RESPONSIBILITIES
OF THE TAX AUTHORITY

In addition to the duties, rights, and responsibilities stipulated in tax laws and related legal documents, the tax authority managing business establishments implementing the pilot self-declaration and self-payment mechanism has the responsibility to:

1. Promote, disseminate, guide, and answer questions from business establishments regarding tax policies, declaration procedures, and tax payments to ensure that business establishments understand and comply with tax laws and the self-declaration and self-payment mechanisms.

2. Monitor the fulfillment of tax reporting and payment obligations by business entities:

- After the deadlines for declaration as prescribed, the tax authority sends reminders to business establishments that have not submitted their tax declarations and imposes administrative penalties in accordance with current regulations. If, after sending reminders and imposing penalties, the business establishment still fails to submit the tax declaration, the tax authority will estimate the provisional tax payment according to the provisions of tax laws.

- After the deadlines for tax payment as prescribed, the tax authority sends reminders to business establishments that have not paid or have not fully paid taxes and calculates late payment penalties for the outstanding tax debt to the state budget according to the regulations.

3. Conduct inspections and audits of the tax declaration and payment activities of business establishments.

4. Apply coercive measures to collect overdue taxes and penalties.

For production and business establishments that fail to pay taxes or penalties as notified or decided by the tax authority, the following measures will be applied:

- Request banks, other credit organizations, and treasuries to deduct funds from the business establishment's deposits at banks, credit organizations, or treasuries to pay taxes and penalties.

- Seize goods or assets to ensure the collection of sufficient tax and penalty amounts.

- Attach assets in accordance with the law to ensure the collection of sufficient tax and penalty amounts.

5. Ensure confidentiality of information provided about pilot production and business establishments in accordance with the regulations.

IV. IMPLEMENTATION:

1. This Circular takes effect fifteen days after its publication in the Official Gazette. The implementation of the pilot self-declaration and self-payment mechanism for business establishments as prescribed in this Circular will commence from January 1, 2004.

2. Apart from the contents stipulated in this Circular, the bases for taxation, methods of calculation, tax rates, exemptions and reductions, refunds, handling of violations, rewards, and other provisions shall be implemented in accordance with the Value Added Tax Law and the Corporate Income Tax Law.

3. The General Department of Taxation is responsible for organizing the implementation of the pilot tax management under the self-declaration and self-payment mechanism.

4. During the implementation process, if difficulties arise, units, agencies, and business establishments are requested to promptly report them to the Ministry of Finance for further guidance and supplementation.