Circular No. 187/1998/TT-BTC guides additional value-added tax (VAT) for basic construction activities, production, and processing of agricultural and forestry products.

CIRCULAR

GUIDELINES FOR THE COLLECTION OF VALUE ADDED TAX ON PRIMARY CONSTRUCTION ACTIVITIES AND THE PRODUCTION AND PROCESSING OF AGRICULTURAL AND FOREST PRODUCTS CIRCULAR NO. 187/1998/TT-BTC ISSUED ON DECEMBER 29, 1998 BY THE MINISTRY OF FINANCE

Pursuant to the Law on Value Added Tax (VAT) adopted by the National Assembly of the Socialist Republic of Vietnam at its ninth session, eleventh meeting on May 10, 1997, and Decree No. 28/1998/NĐ-CP dated May 11, 1998 and Decree No. 102/1998/NĐ-CP dated December 21, 1998 of the Government detailing the implementation of the Law on VAT.
Pursuant to Circular No. 89/1998/TT-BTC dated June 27, 1998 and Circular No. 175/1998/TT-BTC dated December 24, 1998 of the Ministry of Finance guiding the implementation of Decree No. 28/1998/NĐ-CP and Decree No. 102/1998/NĐ-CP of the Government detailing the implementation of the Law on VAT.
The Ministry of Finance provides supplementary guidance on the implementation of VAT for primary construction activities (PCA), production, and processing of agricultural and forest products as follows:

I. PRIMARY CONSTRUCTION ACTIVITIES IN AGRICULTURE AND FORESTRY.

1. Taxable objects.

Construction activities such as land reclamation, establishment of orchards and infrastructure projects serving agricultural and forestry production undertaken by external contractors or internal construction departments that have separate accounting for business results are collectively referred to as construction units (CU).

2. Non-taxable objects.

Construction activities mentioned in point 1 above carried out by the unit itself without separate accounting for production and business results.

3. VAT rate.

a) The VAT rate is 5% for construction activities such as land reclamation, building irrigation canals, field ditches, embankments, roads, and direct services supporting agricultural and forestry production like plowing, harrowing, dredging of irrigation canals, planting, caring for, pest control, harvesting.

b) The VAT rate is 10% for other construction activities not specified in subpoint a of this point.

4. VAT deduction.

a) For construction units (CUs)

For CUs subject to VAT output tax, they are entitled to deduct VAT input tax and determine the amount of VAT payable as follows:

Value-added tax payable = Output VAT - Input VAT

VAT input tax deductible for all materials, raw materials, and fuels purchased externally by the CU for the execution of the PCA project, provided there are complete VAT invoices for deduction.

CUs declare and pay VAT annually according to progress or completion of work stages, phases, or years as settled by the principal investor (Party A).

b) For self-construction departments.

For self-construction activities not organized with separate accounting for production and business results, they are exempt from VAT as stipulated in point 2 above, and cannot deduct VAT input tax. Materials, raw materials, and fuels purchased externally for self-construction with VAT input tax are fully allocated to the cost of the construction project or component project to determine the value of fixed assets (FA) transferred for production and business operations.

c) For Party A.

When Party A receives completed construction projects or components handed over for production and business operations, the FA value is determined by the transfer value of the self-construction department; The payment price for CUs includes the total payment price including VAT for depreciation of FA and capital preservation; Simultaneously, it serves as the basis for budgeting and finalizing investment costs for PCA.

II. VAT ON AGRICULTURAL AND FORESTRY PRODUCTS.

1. Production bases producing agricultural and forestry products directly sold to the market without processing are exempt from VAT as stipulated in Point 1, Section II, Circular No. 89/1998/TT-BTC and cannot deduct VAT. Raw materials, supplies, and fuels purchased externally with VAT are allocated to the cost of agricultural and forestry products.

2. Processing of agricultural and forestry products for domestic consumption.

Units apply VAT through deduction based on the principle:

Value-added tax payable = Output VAT - Input VAT

Where:

a)

b) VAT input tax deductible is determined as follows:

+ For raw materials directly purchased from producers selling their own products, purchased according to directed prices supplied by farms, purchases exceeding quotas, products submitted to cover enterprise management costs, products submitted to establish enterprise funds, and products submitted by farm members to replace agricultural land use tax for farms operating under quota systems, and raw materials produced internally and put into processing. Units prepare a list according to Model No. 04/GTGT (List of Purchases of Agricultural, Forestry, and Aquatic Products Directly Produced) as prescribed in Circular No. 89/1998/TT-BTC.

Based on the list according to quantity and actual purchase price paid to sellers, the VAT input tax deductible at the processing stage is determined as follows:

The purchase price of raw materials put into processing according to the list is the purchase price or the direct payment price to the producer of the product by the unit organizing the purchase in various forms such as purchasing at the place of production, purchasing at collection stations, or purchasing at factories.

For products produced internally by farms, the purchase price for processing is the production cost of the product. For products submitted by farm members to replace agricultural land use tax, the purchase price is the local tax calculation price.

+ Other materials, supplies, fuels, and services purchased externally for processing and expenses during product consumption with VAT are deducted according to general regulations in Circular No. 89/1998/TT-BTC.

3- For materials purchased by enterprises to supply to farm households, employees, or sold to organizations, households, individuals in a commercial manner, they must be monitored and accounted for separately as a trading business phase, must determine the input VAT (the portion purchased externally with VAT) and calculate the output VAT when selling materials and goods to determine the amount of VAT payable at the trading phase.

III/ AGRICULTURAL AND FORESTRY PRODUCTS AS EXPORT GOODS:

Agricultural and forestry products when exported shall apply a zero (0%) VAT rate but shall not be deductible according to the ratio of 3-5% on the value of agricultural and forestry products as with processed agricultural and forestry products for domestic consumption; only deductions and refunds shall be allowed in the following cases:

- Input VAT at the processing stage for processed agricultural and forestry products.

- The actually paid VAT at the trading stage for agricultural and forestry products that the exporting unit purchases through trading units with valid VAT invoices as prescribed.

In all cases where goods are purchased for export without valid VAT invoices eligible for deduction, when the goods are exported, no refund (deduction) of tax shall be granted.

IV/ EFFECTIVE DATE:

This Circular takes effect from January 1, 1999. During the implementation period, if there are any difficulties, units and agencies are requested to promptly report to the Ministry of Finance for study and resolution.