Circular No. 173/1998/TT-BTC guides the collection of value-added tax (VAT) from individuals engaged in production and business activities subject to VAT calculated directly on added value.

MINISTRY OF FINANCE ********	SOCIALIST REPUBLIC OF VIETNAM Independence - Freedom - Happiness ********
NUMBER: 173/1998/TT-BTC	HA NOI, December 22, 1998

 

CIRCULAR

GUIDELINES FOR COLLECTING VALUE ADDED TAX FROM INDIVIDUALS ENGAGED IN PRODUCTION AND BUSINESS ACTIVITIES OF GOODS AND SERVICES SUBMITTING VALUE ADDED TAX BY DIRECT CALCULATION ON VALUE ADDED ISSUED BY THE MINISTRY OF FINANCE NUMBER 173/1998/TT-BTC ON DECEMBER 22, 1998

Pursuant to the Law on Value Added Tax No. 02/1997/QH9 dated May 10, 1997;
Pursuant to the Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Law on Value Added Tax;
Pursuant to Circular No. 89/1998/TT-BTC dated June 27, 1998 of the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government.
The Ministry of Finance provides additional guidelines for collecting value added tax from individuals engaged in production and business activities of goods and services submitting value added tax by direct calculation on value added as follows:

I. TAXPAYERS

The taxpayers subject to value added tax under this Circular are individuals engaged in production and business activities of goods and services taxable in Vietnam, regardless of industry, scale of operation, whether registered for business or not (commonly referred to as individual businesses), including those required to submit value added tax by direct calculation method, namely:

1. Individuals and groups of individuals engaged in business activities as stipulated in the Decree No. 66-HĐBT dated March 2, 1992 of the Council of Ministers (now the Government) on individuals and groups of individuals engaged in business.

2. Family economic households engaged in production and business activities as stipulated in the Decree No. 29-HĐBT dated March 9, 1988 of the Council of Ministers (now the Government) on family economy, including agricultural households that engage in processing agricultural products they produce themselves.

3. Itinerant traders (trading trips)

4. Individuals leasing assets such as houses, shops, warehouses, parking lots...

5. Individuals and groups of individuals practicing independent professions.

6. Individuals and groups of individuals working in economic organizations undertaking contracts and bearing responsibility for business results.

II. BASIS FOR CALCULATING TAX

1. The basis for calculating value added tax for individual businesses engaged in production and business activities submitting tax by direct calculation on value added is the value added and the tax rate.

a) Value added:

The value added of goods and services is the difference between the payment price of goods and services sold and the payment price of goods and services purchased correspondingly.

- The payment price of goods and services sold (called sales revenue) is calculated based on the quantity of goods and services sold and the actual selling price that the buyer must pay, including value added tax and additional charges, fees (if any).

- The corresponding payment price of goods and services purchased is determined by multiplying the quantity of goods and services with the payment price of goods and services purchased by the entity for production and business activities, corresponding to the quantity of goods and services sold subject to value added tax.

For certain types of business operations, the value added is determined as follows:

- For production and trading activities, it is the difference between sales revenue and the payment price of goods and services purchased for production and business activities. In cases where the business entity cannot account for the corresponding purchase price of goods and services, it is determined as follows:

The corresponding purchase price of goods is equal to the opening inventory payment price plus the purchase price during the period minus the closing inventory payment price.

- For construction and installation activities, it is the difference between the income from construction and installation projects and the costs of materials, raw materials, power, transportation, and other expenses purchased externally for construction and installation activities, including input VAT.

- For transportation activities, it is the difference between transportation and loading/unloading income and the costs of fuel, spare parts, and other expenses purchased externally for transportation activities.

- For catering activities, it is the difference between income from selling food and beverages and service income and other income minus the payment price of goods and services purchased externally for catering activities.

- For rental activities of houses, warehouses, parking lots, and other types of assets, it is the difference between rental income and the cost of materials and raw materials used for repairs, electricity and water costs (if the lessor has to pay).

- For agency sales and consignment purchases earning commission, value added tax is not payable on the earned commission but only corporate income tax is payable. Individual businesses engaged in agency sales and consignment purchases earning commission that meet the following conditions are not required to pay value added tax on the earned commission:

+ Must be registered for agency and consignment business activities.

+ Must have agency and consignment contracts clearly stating the earned commission, purchasing and selling goods at the prices specified by the principal.

+ Goods sold through agency and consignment purchases must be reflected on valid invoices and documents.

+ If the agency and consignment contracts end, there must be a settlement of the contract.

In cases where agency sales and consignment purchases do not meet these conditions, value added tax is calculated as for trading activities (buying outright, selling outright).

- For other business activities, it is the difference between income from business activities and the payment price of goods and services purchased externally to carry out those business activities.

Sales revenue of goods and services mentioned above includes all additional charges and fees outside the selling price that the business entity enjoys, regardless of whether the money has been collected or not.

The purchase price of goods and services mentioned above includes all taxes and fees paid included in the purchase price of goods and services or imported goods.

b) Value added tax rate:

The value-added tax rate shall be applied according to Section II Part B Circular No. 89/1998/TT-BTC dated June 27, 1998, issued by the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998, of the Government detailing the implementation of the Law on Value-Added Tax.

Households trading multiple products with different tax rates must separately account for and declare the turnover of each product to apply the specific tax rate for each product. If it is not possible to separately account for the turnover of each product, the highest tax rate applicable to any product shall be applied.

Households that do not implement accounting systems, invoices, and vouchers, the tax authority must determine the turnover to calculate taxes. If they trade multiple products, the tax rate applicable to the product with the largest proportion shall be applied.

2- Method of calculating tax:

2.1 The method of calculating tax for each specific case shall be applied as follows:

a) For households that have fully implemented the system of issuing invoices and vouchers as prescribed, the settlement price of goods and services purchased and the turnover from sales of goods and services all have valid invoices and vouchers:

Value-added tax payable = (Turnover from sales - Settlement price of goods and services purchased) x Tax rate

or Value-added tax payable = Value added x Tax rate.

Value added is determined based on the turnover from sales reflected on valid invoices and vouchers minus the settlement price of goods and services purchased reflected on valid invoices and vouchers of taxable goods and services.

Example: Business entity A produces wooden furniture and sells 150 items in a month with a total turnover of 25 million VND.

The cost of raw materials purchased to produce 150 items is 20 million VND (including main raw materials, auxiliary raw materials, electricity, water, telephone charges, etc.)

The value-added tax rate is 10%.

The value-added tax that business entity A must pay is calculated as follows:

+ Value added of sold products:

25 million VND - 20 million VND = 5 million VND

+ Value-added tax payable:

5 million VND x 10% = 0.5 million VND.

b) For households that have implemented the system of issuing invoices and vouchers when selling goods and services but do not have sufficient invoices and vouchers for goods and services purchased:

Value-added tax = Turnover from sales x Value added ratio x Tax rate.

Value added is determined based on the turnover from sales of taxable goods and services reflected on invoices and vouchers and the value added ratio.

Example: Still referring to the above business entity A, which has a turnover of 150 items at 25 million VND.

The value added ratio for the product produced by the business entity is set at 20% of the turnover from sales.

The value-added tax payable is:

+ Determining value added:

25 million VND x 20% = 5 million VND.

+ Value-added tax payable:

5 million VND x 10% = 0.5 million VND.

c) For households that do not implement accounting systems or the system of issuing invoices and vouchers when buying and selling goods and services:

Value-added tax = Estimated turnover x Value added ratio x Tax rate.

Value added is determined based on the estimated turnover and the value added ratio.

The estimated turnover is determined based on the production and business situation of each household. To ensure that the estimated turnover closely matches the actual business situation and is objective, the process of estimating turnover is carried out as follows:

+ Households base their declaration of average monthly turnover for the next period on the results of previous business operations and anticipated changes in business capacity in the subsequent period, and submit it to the tax authority.

+ The tax authority bases its investigation on the declarations submitted by households, conducts investigations or collaborates with the Advisory Council to verify the accuracy of the declarations. In cases where households make inaccurate declarations or fail to declare, the investigation findings will be used as the basis for estimation. The contents that the tax authority needs to investigate include:

. Average value of goods and services purchased and sold at the time of investigation.

. Remaining inventory value.

. Production and business area.

. Number of laborers serving production and business.

. Business location...

The investigation may be conducted individually with each household or grouped, with typical investigations conducted to infer the turnover of other households in the same industry and scale.

+ Compile a list of households, estimate the turnover of each household, and publicly post it at the People's Committee office of the commune, ward, or market management board for reference.

After the public posting period, carefully study the opinions of households, the People's Committee of the commune or ward, the market management board, and the public. If further investigation and verification are needed, collaborate with the Advisory Council to conduct another investigation to reach a conclusion.

The turnover of each household, after adjustment, is submitted for approval by the head of the tax branch to serve as the basis for determining the value added and calculating the value-added tax payable.

In cases where households have declared or the tax authority has investigated and estimated turnover to calculate value-added tax, but there is evidence confirming that the declared figures or estimated turnover are lower than the actual turnover, the tax authority has the right to recalculate the value-added tax based on actual business results.

d) For households engaged in itinerant trading:

Value-added tax = Settlement price of goods purchased x Value added ratio x Tax rate.

2.2 Value added ratio:

The value added ratio is investigated and determined by the provincial or centrally-administered municipal tax authority according to the guidance of the General Department of Taxation. The value added ratio is set according to industries, trades, and types of goods traded, suitable for specific regions (cities, plains, mountainous areas).

To ensure overall balance among localities and regions, the General Department of Taxation provides a framework ratio for each industry and region. Based on the provided framework, the Provincial Tax Department specifies ratios appropriate to the characteristics of each locality. In exceptional cases exceeding the framework ratio as guided by the General Department of Taxation, the Provincial Tax Department reports and seeks approval from the General Department of Taxation.

III/ REGISTRATION AND DECLARATION OF TAX PAYMENT:

1- Registration for tax payment:

All subjects specified in Section I of this Circular must register for tax payment with the Tax Revenue Office where their business location is located regarding: business activities, goods traded, labor, capital, ... and other indicators according to the tax registration form and guidance provided by the tax authority.

- For new businesses starting operations, the deadline for registering for tax payment is no later than 10 days from the date of commencing business.

- Businesses that have already registered for tax payment, if there is a change in the scale of business operations, cessation of business, or addition of new business activities or goods, must submit supplementary registration or send a notice to the tax authority no later than 5 days before the change occurs.

To strictly manage businesses, the tax authority must implement the following regulations:

All businesses, including those with low income exempted from Value Added Tax (VAT), must be reflected in the tax ledger of the tax authority.

- For fixed businesses that have been operating stably (with continuous operation for at least three months), they must be reflected in the main ledger.

- Other businesses (including occasional businesses, transient businesses, seasonal businesses, businesses operating only in the morning or evening, businesses with low income exempted from VAT, ...) must be reflected in the subsidiary ledger.

- Businesses requesting temporary suspension of operations must still be reflected in the tax ledger.

2- Declaration of Value Added Tax (VAT) payable:

In accordance with the Law on Value Added Tax, monthly, businesses must prepare and submit the VAT declaration form number 06/GTGT issued together with Circular No. 89/1998/TT-BTC dated June 27, 1998, of the Ministry of Finance. To align with the characteristics of business operations and the management methods of the tax authority, the declaration of VAT shall be carried out as follows:

2.1 Businesses implementing accounting systems, invoice and voucher submission systems for tax declaration must declare monthly. The deadline for submitting the declaration form to the Tax Revenue Office is no later than the 10th day of the following month.

2.2 For businesses where the tax authority determines the turnover:

- Businesses whose turnover is determined by the Tax Revenue Office to calculate VAT and corporate income tax, and to stabilize the tax rate for a certain period (three months, six months, or one year), the deadline for declaring and submitting the declaration form is no later than the 10th day of the last month of the stabilization period (quarter, six months, or the entire year).

Example: Business A has its tax rate stabilized from January to June. The deadline for Business A to prepare and submit the tax calculation declaration for the tax authority to consider stabilizing for the second half of the year (July to December) is no later than June 10.

If a business whose tax rate is stabilized adds new business activities or goods during the stabilization period, the business must report back to the Tax Revenue Office so that the office can recalculate the tax payable.

Depending on the situation and characteristics of each locality, the Tax Department guides the Tax Revenue Office to base on the scale of businesses not implementing accounting systems and invoice and voucher issuance systems to apply the determination of turnover and tax rates for three months, six months, or the entire year.

To simplify management work and facilitate businesses, for businesses that can only implement invoice and voucher systems when selling goods and services but lack purchase invoices and vouchers, and businesses that do not implement accounting systems and invoice and voucher issuance systems when selling, the tax authority must determine the taxable turnover, calculate VAT and corporate income tax simultaneously, and notify both taxes in the same tax notification for the business to pay at the same time and place.

2.3 For itinerant traders, they must declare, present purchase invoices and vouchers, and pay VAT and corporate income tax according to each transaction with the Tax Revenue Office where the purchase was made before transporting the goods. If there are no purchase invoices and vouchers or if they are invalid or incomplete, the Tax Revenue Office may determine the purchase turnover based on local market prices as the basis for calculating taxes.

Failure to declare and pay taxes at the point of transporting goods will be considered tax evasion, in addition to paying the full amount of tax owed, penalties for tax evasion will also be imposed according to the Law on Tax.

3. Payment of Value Added Tax (VAT):

3.1 Place of tax payment:

All businesses subject to VAT payment must pay taxes according to the amount, date, and place of payment recorded in the tax notification. The place of payment is specified in one of the following points:

- For businesses implementing tax declaration systems and large businesses, the place of payment is at the State Treasury of the district, town, or city.

Depending on the situation and characteristics of each locality, the Tax Department stipulates that businesses with high average monthly tax payments must pay directly at the State Treasury.

- In other cases, if convenient, direct payment to the State Treasury is required. If direct payment to the State Treasury is not possible, payment can be made at the People's Committee offices of the commune or ward, Tax Revenue Office, Tax Team, or Tax Station.

The tax authority organizes tax collection at the People's Committee offices of the commune or ward. The Tax Team and Tax Station must comply with regulations on tax receipt management, tax receipt settlement, tax revenue management, and depositing tax revenues into the State Treasury. Based on the situation and characteristics of each area, the Tax Department stipulates a schedule for tax receipt settlement and tax revenue deposit into the State Treasury to ensure uniformity. The holding period for tax revenue in urban districts, towns, and provincial cities does not exceed two days. In plainland counties, it does not exceed three days, and in mountainous counties, it does not exceed six days.

- For mobile businesses, itinerant traders, and transient businesses, if close to the Tax Team or Tax Station, tax collection should be organized immediately at the Tax Team or Tax Station premises. In cases far from the collection points, tax officers can collect directly and issue receipts, but must comply with regulations on receipt settlement and tax payment.

3.2 Deadline for tax payment:

- For businesses paying taxes under the declaration system, the tax payment deadline is as stated on the tax notification, no later than the 25th day of the following month.

- For households engaged in business that have been stabilized with tax rates and deadlines for tax payment as notified by the Tax Revenue Office, but not later than the fifth day of the following month.

- For households engaged in business on a temporary basis, the deadline for tax payment is before transporting goods out of the purchasing locality.

IV. EXEMPTIONS AND REDUCTIONS IN TAXES; NON-TAX PAYMENT

1. Exemption and reduction of taxes for households requesting to cease business operations:

Individual households ceasing business operations for fifteen days or more in a month shall be eligible for a fifty percent reduction in the amount of tax payable for that month. If they cease operations for the entire month, they shall be exempt from paying tax for that month.

The authority to grant exemptions and reductions in value-added tax for households requesting to cease business operations is vested in the Director of the District Tax Revenue Office, who will issue a decision for each household. Within ten days of receiving the request to cease business operations, the Tax Revenue Office must notify the household of the exemption or reduction in tax.

The process of granting exemptions and reductions in tax for households requesting to cease business operations shall be carried out as follows:

Households ceasing business operations must submit a request to cease business operations to the tax authority at least five days prior to the cessation date. In cases where cessation is due to unforeseen circumstances such as illness, natural disasters, or other urgent matters, the request must be submitted within five days from the cessation date, accompanied by evidence explaining the reasons for the cessation. Households that cease operations without submitting a request will not be eligible for a tax reduction.

Upon receipt of the request to cease operations, the Tax Revenue Office must organize inspections and verifications. If the cessation is confirmed, a decision to exempt or reduce taxes during the cessation period will be issued. For households that must cease operations due to unforeseen circumstances, if the Tax Revenue Office has already notified the amount of tax payable, the reduced or exempted tax will be deducted from the next month's tax. When granting exemptions and reductions in tax for households ceasing operations, both value-added tax and corporate income tax will be exempted or reduced.

Households that are granted exemptions or reductions in tax due to cessation of business operations must report to the tax authority if they resume business operations earlier or wish to extend their cessation period. Failure to report resumption of business operations will be considered as tax evasion and subject to violation penalties according to regulations.

2. Non-payment of tax:

According to Point 26, Article 4 of Decree No. 28/1998/NĐ-CP dated May 11, 1998 of the Government detailing the implementation of the Value Added Tax Law, goods and services provided by individuals engaged in business with average monthly income lower than the minimum wage set by the State for civil servants shall not be subject to value-added tax.

Based on the above provision and in accordance with Decree No. 06/CP dated January 21, 1997 of the Government regarding the resolution of salaries and allowances for 1997 for civil servants, administrative officials, public service employees, retirees, those who have lost their ability to work, military personnel, village and ward cadres, and certain social policy beneficiaries, households with average monthly income below 144,000 dong shall not be subject to value-added tax and shall also be exempt from corporate income tax.

The Director of the Tax Revenue Office decides whether households with low income are exempt from value-added tax and corporate income tax.

The criteria for examination and procedures for determining whether households with low income are exempt from tax are as follows:

- Households providing goods and services with low income must submit a request for exemption from value-added tax and corporate income tax to the Tax Revenue Office where they are registered for tax payment.

- Upon receipt of the request for exemption from value-added tax, the Tax Revenue Office will organize inspections or cooperate with the Tax Advisory Council to verify the actual income earned during the business operation. If the household qualifies for exemption from value-added tax and corporate income tax, the Director of the Tax Revenue Office will issue a notification for the household to be informed.

During the period when households are notified of exemption from value-added tax, if there are changes in business conditions and business income increases, exceeding the threshold for exemption from tax as stipulated, they must report to the tax authority to adjust the notification. If, upon inspection, it is found that business income exceeds the threshold for exemption from value-added tax, the tax authority may suspend the exemption from value-added tax and the household must pay value-added tax from the month the excess was discovered.

V. COMPLAINTS AND RESOLUTION OF COMPLAINTS

1- Households engaged in business have the right to complain about the improper enforcement of the Value Added Tax Law, Government Decrees detailing its implementation, and Circulars guiding value-added tax issued by the Ministry of Finance by tax officers or tax authorities.

Complaints must be sent to the Tax Revenue Office issuing the tax notification, collection order, or decision on handling. While awaiting resolution, households must continue to pay taxes and fines according to the notified deadlines and amounts.

2- Upon receipt of a complaint from a household engaged in business, the Tax Revenue Office must respond within fifteen days from the date of receipt, informing the household. If additional investigation or verification is required, this must also be communicated to the household, but the maximum time limit is thirty days.

3- After the Tax Revenue Office responds, if the household finds the response unsatisfactory or if the response is not received within thirty days, the household has the right to appeal to the Provincial or Central City Tax Bureau for resolution. If the Provincial or Central City Tax Bureau's response is still unsatisfactory, the household may appeal to the General Department of Taxation or the Ministry of Finance.

The decision of the Ministry of Finance resolving complaints about taxes is the final decision.

4- The resolution of complaints about taxes by individual households under the direct management of the Tax Revenue Office shall be carried out. The Provincial Tax Bureau directs and supervises the Tax Revenue Offices to resolve complaints promptly and conclusively in accordance with the Tax Law and the specified time limits. It is strictly prohibited to shift responsibility for resolving complaints to higher-level authorities.

VI. IMPLEMENTATION ORGANIZATION:

1- This Circular takes effect from January 1, 1999.

2- This Circular only provides additional guidance on calculating and collecting taxes from households engaged in production and business activities subject to value-added tax under the direct method. Other provisions not specified in this Circular shall be implemented in accordance with Circular No. 89/1998/TT-BTC dated June 27, 1998, and other documents issued by the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP dated May 11, 1998, which details the implementation of the Law on Value-Added Tax.

3- The General Department of Taxation is responsible for organizing the implementation of this Circular. In case of difficulties or obstacles during its implementation, organizations and individuals are requested to promptly report them to the Ministry of Finance for study and resolution.

Pham Van Trong (Signed)