Joint Circular No. 13 LB on the regulation of trade discounts for the pharmaceutical industry and the state financial collection system for the pharmaceutical industry.

JOINT CIRCULAR

Regarding the regulation of trade discounts for the pharmaceutical industry and the financial revenue collection system for the pharmaceutical industry.

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 Based on Decision No. 140/CP dated September 13, 1968 of the Council of Ministers on improving the financial revenue collection system and profit distribution regime for state-owned enterprises. And based on Circular No. 165-TTG dated March 21, 1978 of the Prime Minister "supplementing and unifying the profit distribution regime and the establishment of enterprise funds to be applied nationwide from 1977 onwards."

Based on the requirement to improve the financial revenue collection system for the pharmaceutical industry under the Ministry of Health, which aims to strengthen economic and financial management responsibilities within the pharmaceutical sector at both production and circulation/distribution stages to align with new circumstances.

After consultation with the State Price Commission, the Ministry of Health and the Ministry of Finance jointly issue this Circular to regulate:

- Transaction prices between units within the pharmaceutical industry.

- Trade discounts for the pharmaceutical industry.

- Financial revenue collection systems for pharmaceutical enterprises and companies.

I. Pharmaceutical transaction prices and inventory valuation prices.

1. Pharmaceutical companies at level 1 purchase goods from central and local pharmaceutical production enterprises at wholesale industrial prices. The wholesale industrial price is the retail price for consumers set by the competent state authority minus the pharmaceutical trade discount as stipulated below.

- Level 1 pharmaceutical companies purchase goods from central and local pharmaceutical production enterprises for items uniformly distributed and managed by the central government at the retail price minus the national pharmaceutical trade discount for that group of items.

- Level 2 pharmaceutical companies purchase goods from local pharmaceutical production enterprises for consumption in their respective regions at the retail price minus the level 2 pharmaceutical trade discount for that group of items.

2. Level 2 pharmaceutical companies purchase goods from level 1 pharmaceutical companies at the retail price minus the level 2 pharmaceutical trade discount for that group of items.

3. Level 1 pharmaceutical companies purchase imported pharmaceutical products from foreign trade enterprises at wholesale import prices. The wholesale import price is the domestic retail price minus the national pharmaceutical trade discount for that group of items (Circular No. 13 issued by the Ministry of Finance, Bank, and Foreign Trade on July 10, 1974 guiding the implementation of Decree No. 200/CP of the Council of Ministers dated December 31, 1973).

4. For pharmaceutical items uniformly distributed and priced by the central government, pharmaceutical trading companies value their inventory at the nationally unified retail price. For pharmaceutical items managed by local authorities, pharmaceutical companies value their inventory at the retail price set by the People's Committee of the locality.

II. TRADE DISCOUNTS.

1. Pharmaceutical trade discounts include: circulation fees (including commissions for health clinics) and fixed profit margins.

2. Pharmaceutical trade discounts are defined by item groups:

+ Western medicine and bandages

+ Traditional medicines, herbal medicines, and processed medicines.

3. Basis for calculating trade discounts. The determination of trade discount rates for the pharmaceutical industry is based on accurately identifying circulation costs. Circulation costs are expenses incurred in transporting, storing, and selling goods from the production stage to the consumption stage. Calculations of circulation fees must comply with the regulations on circulation fees in the "Provisional Regulations on Planning, Accounting, and Statistics of Cost and Circulation Fees" issued along with Decision No. 43/CP of the Council of Ministers dated September 16, 1960 and related implementing guidelines (an appendix is attached).

According to the regulations on planning, accounting, and statistics of cost and circulation fees issued by the Government for implementation, the Council of Ministers reviews and allocates circulation fee targets and tasks to reduce circulation fees for the pharmaceutical industry (Decision No. 43/CP of the Council of Ministers dated September 16, 1960). The Ministry of Health bases its allocation to companies on the approved circulation fee targets and costs; during implementation, companies must strive to reduce circulation costs; if they succeed in reducing circulation costs, they can increase profits to establish enterprise funds according to the prescribed system.

Based on the current actual situation regarding circulation costs in the pharmaceutical industry and the five-year plan direction (1976-1980), after consultation with the State Price Commission, the Ministry of Health and the Ministry of Finance temporarily set the national pharmaceutical trade discount rate at 12% of the pure retail sales volume; of which circulation fees account for 10.5%, and the fixed profit margin accounts for 1.5%.

The Ministry of Health allocates the national trade discount rate above to each item group and to each level 1 and level 2 company based on their classification.

The pharmaceutical trade discount rate is determined based on the 1977 retail price of pharmaceuticals; if the state changes the retail price in the future, the discount rate will be adjusted accordingly to match the new retail price while maintaining the absolute amount previously calculated based on the trade discount rate for that item group.

During implementation, if there is a discrepancy between the trade discounts allocated to companies and the annual approved targets for circulation fees and profits, it shall be handled as follows:

- Pharmaceutical trading companies that have economic accounting shall offset trade discounts among different item groups and items. If there is excess trade discount, the company shall pay it into the state budget; if there is a shortfall, the company shall be eligible for state budget compensation (the central budget collects or compensates for level 1 companies, and the local budget collects or compensates for level 2 companies).

III. FINANCIAL REVENUE COLLECTION SYSTEM FOR THE PHARMACEUTICAL INDUSTRY.

The state financial revenue collection system for state-owned enterprises in the pharmaceutical industry includes:

- State revenue

- Revenue from price differences

- Profit contribution revenue

- Depreciation revenue

- Revenue from excess working capital recovery (if applicable)

- Other revenues as prescribed by the state (if applicable)

The corporate income tax regime shall not be applied to state-owned pharmaceutical enterprises.

a. Regarding state revenue collection.

After implementing the new pharmaceutical trade discount system, the majority of pure social revenue will be concentrated at the production stage. State-owned pharmaceutical manufacturing enterprises will remit to the state budget according to the state revenue collection regime.

The level of state revenue is determined based on the difference between the wholesale price of industry and the wholesale price of the enterprise. The establishment, review, and announcement of specific state revenue levels for each type of pharmaceutical product shall be carried out in accordance with the provisions of Circular No. 05 TC/TQD dated March 30, 1978, issued by the Ministry of Finance regarding the expansion and uniform application of the state revenue collection regime.

b. Regarding payment and compensation for price differences.

If there is a price difference arising from purchases made by pharmaceutical trading companies where the actual purchase price is lower than the directive price currently used as the warehouse entry price, (the difference equals the retail directive price minus the trade discount minus the actual purchase price), this price difference must be remitted to the state budget.

If pharmaceutical trading companies are permitted by authorized agencies to purchase at prices higher than the directive price currently used as the warehouse entry price, the central budget will compensate for items whose prices are centrally determined; local budgets will compensate for items whose prices are locally determined.

In cases where pharmaceutical trading companies generate price differences during sales due to changes in retail prices by authorized agencies, the state budget will also collect and compensate as described above.

Pharmaceutical trading companies must record price differences that need to be remitted to the state budget or compensated by the state budget, arising from purchases or sales, in account 71 "settlement with the state budget" (sub-account 71.3 "price differences").

When dealing with the state budget regarding payments or requests for compensation, pharmaceutical trading companies must prepare detailed declarations for each item specifying quantity, directive warehouse entry price, actual purchase price, and the amount of price difference to be remitted to the state budget or compensated by the state budget (according to the attached form in this circular).

c. Regarding profit remittance.

Both state-owned pharmaceutical enterprises and central and local pharmaceutical trading companies have the obligation to remit profits to the state budget.

Enterprises and companies must plan monthly profits and remit profits to the state budget twice a month.

The first time, before the 14th day, 40% of the approved planned profit must be remitted.

The second time, before the end of the month, the remaining 60% must be remitted.

Each month, after receiving the final settlement report prepared within the prescribed period under the state's settlement reporting system, enterprises and companies must recalculate the actual profit achieved in the previous month. They should compare the amount due and the amount actually paid, and immediately remit any shortfall or request the agency to refund any excess profit or deduct it from the amount due to the state budget in the next period.

d. Regarding basic depreciation payment. Both pharmaceutical manufacturing enterprises and pharmaceutical trading companies must pay basic depreciation to the state budget twice a month.

đ. Regarding surplus working capital (if any), enterprises must remit to the state budget according to the current applicable regime.

This circular takes effect nationwide from July 1, 1978.

The Joint Ministries request the People's Committees of provinces and cities to direct the Health Departments and Finance Departments to coordinate in guiding pharmaceutical manufacturing enterprises and pharmaceutical trading companies to fully implement this circular.