Circular No. 1366-TC/TCT regarding tax matters for union guesthouses

CIRCULAR

OF THE MINISTRY OF FINANCE NUMBER 01 TC/HCVX DATED JANUARY 4, 1994 REGULATING TEMPORARILY THE FINANCIAL MANAGEMENT SYSTEM FOR ADMINISTRATIVE ORGANIZATIONS, PUBLIC SERVICE UNITS, ASSOCIATIONS, AND POPULAR ORGANIZATIONS THAT CONDUCT ACTIVITIES WITH INCOME

Currently, some administrative organizations, public service units, associations, and popular organizations (hereinafter referred to as public service units) have been funded or supported by the state budget to perform their assigned functions and tasks, but they still organize production, business, and services (referred to as income-generating activities) in order to utilize existing material and technical facilities to generate additional income, support the living standards of workers and staff, and supplement operating funds. The management, accounting, distribution, and utilization of surplus income from these income-generating activities are still applied differently and inconsistently.

Decree No. 25/CP dated May 23, 1993 of the Government "Regulating Temporarily the New Salary System for Workers and Staff of Public Service Units and Armed Forces" has tasked the Ministry of Finance with reviewing and correcting unreasonable non-salary income items (Point 5, Article 14 of Decree No. 25/CP).

To regulate financial management for public service units conducting income-generating activities, the Ministry of Finance provides temporary guidelines on the financial management system for such activities of public service units as follows:

1- Combating counterfeit goods is the responsibility of all ministries, sectors, People's Committees at all levels, political and social organizations, enterprises, business households, and the entire population.

1. Public service units must reorganize staffing according to Decision No. 111/HĐBT dated April 12, 1991 and Resolution No. 109/HĐBT dated April 12, 1991 of the Council of Ministers (now the Government) to achieve streamlined organizational structures and staffing requirements, and take positive measures to address excess labor.

For organizations conducting income-generating activities that meet the conditions to be transferred to independent economic accounting or converted into various types of enterprises as stipulated in Decree No. 388/HĐBT dated November 20, 1991 of the Government and Decision No. 196/CT dated June 5, 1992 of the Prime Minister, they must promptly complete the necessary procedures to report to competent authorities for examination and decision.

2. Public service units permitted to conduct income-generating activities must have material and initial capital to register for production, business, and service activities in accordance with current state regulations.

Public service units conducting income-generating activities must register to pay taxes to the local tax authority, comply with the invoice and record-keeping system when buying and selling goods and providing services in accordance with current regulations and guidance from the tax authority, organize separate accounting work to track accounting entries for income and expenses; implement the system of quarterly and annual financial revenue and expenditure plans; comply with the management system for materials, assets, and capital, inventory, accounting, and financial revenue and expenditure settlement reports, and tax payments to the state budget in accordance with current state regulations.

3. Public service units must review and approve activity plans, cost consumption plans for products and services before organizing income-generating activities, ensure self-funding for operations, cover costs, and generate profit; they may not use state budget funds allocated to them or other funds derived from the state budget to cover losses from income-generating activities.

II - SPECIFIC PROVISIONS

1. Public service units conducting income-generating activities include the following four types:

a) Public service economic units currently receiving state budget funding to operate according to their assigned functions and tasks and organizing income-generating production and service activities.

b) Guesthouses, hotels, health resorts, reception stations, and guest welcoming stations (collectively referred to as guesthouses and hotels) of agencies and units.

c) Agencies and units collecting fees, arbitration fees, passport issuance fees, etc.

d) Agencies and units utilizing existing material resources and excess labor to organize income-generating production, business, and service activities.

2. Sources of Operating Capital

The sources of operating capital for public service units conducting income-generating activities include the following:

- Capital raised through contributions from workers and staff in the form of share capital, private loans, collective loans, state-owned enterprise loans, and non-state-owned enterprise loans in accordance with legal provisions.

- Capital from joint ventures with production, business, and service establishments in accordance with the law.

- Advance capital from customers for processing and orders under contracts signed between both parties in compliance with the Law on Economic Contracts.

- Capital extracted from the unit's fund and from the results of production, business, and service activities.

- Loans from specialized banks in accordance with the regulations of the State Bank of Vietnam.

For units operating under the income-to-cover-expenses method and already provided with working capital according to standards, they can retain the working capital provided for operation but must pay tax on capital according to current regulations.

State budget funds allocated to public service units may not be used as capital for production, business, and service activities. In cases where it is necessary to use assets such as buildings, cars, machinery, and equipment of public service units for production, business, and service activities, permission from the head of the unit is required, but depreciation charges must be paid to the state budget in accordance with current regulations.

3. Regarding Wages

For profitable production, business, and service activities (confirmed by the finance authority and tax authority), the wage, allowance, and subsidy system for cadres, workers, and staff directly involved in these activities shall be implemented in accordance with Decree No. 26/CP dated May 23, 1993 of the Government.

4. Planning

Annually and quarterly, HCSN units must prepare financial plans for production, business, and service activities including:

- Production, business, and service plans must reflect all income-generating activities (similar to the production, business, and service plans of state-owned enterprises).

- Cost plans: Reflect all costs for production, business, and service activities based on economic and technical standards and current financial expenditure regulations.

- Plans for distributing surplus income (profit) and setting aside funds.

- Tax payment plan includes various types of taxes, depreciation of fixed assets used for production, business, and service activities, payment of income from capital usage, and various fees and levies.

These plans must be submitted together with the quarterly and annual budget estimates of the unit to the finance authority or superior management body (if applicable) for review and consolidation and submission to the organizational body.

5. Accounting and Settlement Organization

a) Public service units conducting income-generating activities must organize accounting, open separate accounting books to track each production, business, and service activity, income, expenses, and surplus income. They must follow the accounting recording and reporting system as per Decision No. 257/TC/CĐKT dated June 1, 1990 of the Ministry of Finance; use invoices and records when buying and selling goods and providing services in accordance with Circular No. 61/TC/TCT dated July 22, 1993 of the Ministry of Finance.

b) Quarterly, each administrative unit or service organization must prepare a final account report on production, business, and service activities to be submitted to the financial authority or to the superior management body (if any) for consolidation and submission to the financial authority along with the final account statement of state budget funds; at the same time, submit the final account report on production, business, and service activities, including:

- The business results statement (model number 04/BCKT issued pursuant to Decision No. 257/TC/CĐKT dated June 1, 1990 of the Ministry of Finance), consisting of two parts:

+ Income and income distribution.

+ Implementation of obligations to the State Budget.

- An explanatory note on production, business, and service results, which includes sections explaining expense items, income items, and the use of revenue-expenditure differences (profit) if any.

6. Provisions on the fulfillment of obligations to the State budget and the distribution of revenue surplus.

All administrative agencies and service organizations with income must fulfill their obligations to the State budget in accordance with the current regulations of the State. They must comply with tax collection inspections by tax authorities, adhere to accounting systems, vouchers, invoices... as guided by the tax authorities.

To align with the operational conditions of production, business, and service activities of administrative units and service organizations, the Ministry of Finance has established the system for budget payments and the distribution of remaining income as follows:

a) For economic service organizations currently receiving state budget funding for operations according to assigned functions and tasks while also organizing service activities with income but not yet having the necessary conditions to switch to independent economic accounting, they temporarily operate under the form of revenue assignment, cost offsetting, or full revenue and expenditure matching. If revenue exceeds expenses, they must pay the excess to the State budget; if revenue is less than expenses, they will receive supplementary funding from the State budget based on approved budgets and final accounts of revenues and expenditures in accordance with the current financial expenditure regulations.

b) Regarding guesthouse and hotel activities of agencies and units:

- Hotels and guesthouses, if deemed to have the necessary conditions to switch to independent economic accounting, should promptly complete the necessary procedures and report to competent authorities for consideration and decision to convert to enterprise forms in accordance with current regulations and must pay all types of taxes as prescribed.

- In cases where hotels and guesthouses are not deemed to have the necessary conditions to switch to enterprise forms and mainly operate to serve within the industry or provide rest and recuperation for staff within the industry, they shall fulfill their obligations to the State budget as stipulated in Circular No. 1033 TC/TCT dated August 6, 1991 of the Ministry of Finance regarding the taxation of hotels and guesthouses. Specifically, for trade union guesthouses under the system of trade unions at various levels managed by industries, they shall implement tax payments according to Circular No. 1366 TC/TCT dated September 27, 1991 of the Ministry of Finance concerning turnover tax for trade union guesthouses.

For guesthouses and hotels (including trade union guesthouses) to be considered for tax exemption on internal service revenue, they must meet the following conditions:

+ Service fees collected must be set at internal prices to ensure only covering costs and management expenses of the hotel or guesthouse.

+ Separate accounting must be maintained, and separate records must be kept for internal service revenue.

+ All legitimate and valid vouchers must be retained to prove sufficient internal service revenue (contracts, payment receipts, temporary residence registration...).

c) For administrative units and service organizations collecting various fees and charges: The Ministry of Finance will jointly issue specific guidelines for each type of collection with these units in accordance with Decision No. 276/CT dated July 28, 1992 of the Council of Ministers. In the meantime, for those types of fees and charges that have not been specifically defined by the Ministry of Finance or the Joint Ministries, they shall follow the guidelines issued by the Ministry of Finance in Circular No. 48 TC/TCT dated September 28, 1992 on the unified management of various fees and charges.

d) For administrative units and service organizations utilizing existing facilities and surplus labor to organize production, business, and service activities with income, including: producing or collaborating to produce internal-use products or selling externally such as pharmaceuticals, serum, vaccines... by health service organizations like hospitals, rehabilitation centers, epidemic prevention institutes; producing prosthetics, artificial eyes, orthopedic equipment by service organizations under the social welfare sector; organizing production linked with teaching and learning in education and training, research and application of science and technology, or linked with the professional activities of scientific research and technical implementation agencies, mass organizations, people's associations, processing contracts and orders with enterprises, administrative and service organizations, non-state economic organizations.

Business and services: catering, conference hall rental, video tape sales, film projection, video, audio equipment rental, advertising on radio, newspapers, magazines, out-of-hours medical services, film production services (including television films) and other technical services.

For the above production, business, and service activities that are not directly related to the specialized functions and tasks of the unit, after paying all types of taxes as prescribed by current laws, if there is a revenue surplus greater than expenses, it shall be distributed as follows:

- Allocate 35% to supplement the operating funds of the administrative and service organization through recording revenue and expenditure through the State budget at each corresponding level.

- 65% to allocate to reward and welfare funds. The distribution ratio for the two funds shall be decided by the head of the administrative and service organization and the Chairman of the Trade Union of the organization. The maximum amount allocated for bonuses is equivalent to three months' basic salary.

For production, business, and service activities tied to specialized functions and tasks, in principle, they still need to fully pay all types of taxes as prescribed by current regulations. However, due to the inability to account for common expenses such as depreciation of assets, salaries, rent, electricity and water bills... Simplifying the calculation of tax payments, it is now stipulated to pay a fixed percentage of revenue as follows:

+ For the manufacturing sector, the unit must pay 5% of its revenue to the State budget.

+ For the service sector, the unit must pay 10% of its revenue to the State budget.

+ For the commercial sector, the unit must pay 15% of its revenue to the State budget.

- The remainder can be used as a reward fund for those who have achieved results, but the maximum amount cannot exceed three months' basic salary for rank or position. The remaining amount after allocating rewards (if any) can be supplemented to the unit's funds.

7. Other provisions:

a) Administrative and service organizations must reflect any other income (if any) such as fee income, tuition fees, hospital fees, aid, donations, gifts... in quarterly and annual final accounts in accordance with the current regulations of the Ministry of Finance.

b) Financial authorities at all levels shall be responsible for coordinating with the managing agencies to supervise and regularly inspect the compliance with financial regulations of the units under the management of state-owned economic organizations, especially their business and service activities, to ensure that these activities are conducted in an orderly manner, in accordance with their intended purposes, and are truly effective.

III- IMPLEMENTATION PROVISIONS

This Circular takes effect from the date of signature, and all previous provisions contrary to this Circular are hereby abolished.

During the implementation of this Circular, if there are any difficulties or obstacles, they should be promptly reported to the Ministry of Finance for study and appropriate supplementation or amendment to make it more suitable.